Beige Book Shows Rising COVID-19 Cases Affecting Regional Growth

Weekly Market Update
Steven A. Lone

COVID-19 cases have been on the rise in the US, particularly in the Midwest. This latest wave of the virus and related restrictions have begun to hamstring economic growth at a time when momentum was already fading as we entered the fourth quarter, based on the December iteration of the Federal Reserve (Fed)’s Beige Book.

In the Beige Book, the Fed presents qualitative observations made by community bankers and business owners—or “Main Street”—about economic (housing, labor market, manufacturing, nonresidential construction, prices, tourism, wages) and banking conditions (lending conditions, loan demand, loan quality). At LPL Research, we maintain an indicator called the Beige Book Barometer (BBB) to gauge Main Street’s sentiment by looking at how frequently key words and phrases appear in the text.

There were no new revelations in the industry segments, as housing and manufacturing activity remain robust while the retail, leisure, and hospitality sectors remain under pressure. As shown in the LPL Chart of the Day, the Beige Book Barometer rose for the fourth straight iteration since April, as economic momentum continued despite rising COVID-19 cases:

Beige book continues to expand from its April low

View enlarged chart.

However, about a quarter of the Fed’s survey respondents cited little to no growth in their district. In particular, recent COVID-19 hotspots in the Midwest noted that economic activity began to slow in early November as cases surged—affirming our view in Weekly Market Commentary COVID-19 May Threaten the Recovery.

“While the economy has come a long way, we’re not out of the woods yet, and rising COVID-19 cases present a risk for an economic soft-patch as we head into 2021.” Added LPL Chief Market Strategist Ryan Detrick.

The Beige Book also revealed that momentum in the labor market has stalled—raising fear unemployment could rise through the winter—and some companies are finding it difficult to hire as childcare and other health concerns are creating labor-supply issues. The good news for workers has been that companies are seeing increased pressure to raise wages for low-skilled employees—a segment of the labor market that has been particularly affected by the outbreak of COVID-19.

A curious development was the rather widespread citation of supply disruptions and rising transportation costs, which have largely been passed on to consumers. When the management of COVID-19 improves, lifting consumer confidence and spending, this could set the stage for greater inflationary pressure.


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