Fed Beige Book reveals that three-quarters of U.S. economy is stagnating or declining

Economic growth is either flat or declining in nine of the Fed’s 12 districts
By Sam Bourgi
•
06 September 2024
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fed, usa central bank

The latest Beige Book summary of economic conditions across the Federal Reserve’s 12 districts has painted a grim picture of the U.S. economy.

According to the latest Beige Book publication released on Sept. 4, the number of districts reporting flat or declining economic activity has increased to nine—up from five during the previous reporting period.

“We are up to three-quarters of the economy either stagnating or contracting,” said economist David Rosenberg, who cast doubt about the government’s claim that the economy isn’t in a recession.

Although the report said employment levels were mostly flat, companies were “more selective with their hires and less likely to expand their workforces, citing concerns about demand and an uncertain economic outlook.”

According to the report, employers in New York said “hiring has shifted to be primarily for replacement, rather than growth.”

Meanwhile, businesses in Atlanta and Chicago reported concerns about consumer spending and the possibility of future layoffs.

America’s labor market isn’t as healthy as economists once believed. In August, the Bureau of Labor Statistics said it overestimated job creation by a whopping 818,000 positions over 12 months.

At the same time, the national unemployment rate has shot up to 4.3%, a nearly three-year high and a 0.6 percentage point increase from the start of 2024.

A deteriorating labor market has put the central bank on high alert about a possible downturn. While policymakers are avoiding using the term recession, they’re already hedging against that possibility by moving up their timeline for rate cuts.

Fed to accelerate rate cut timeline

Just a few months ago, Fed officials were expecting to keep interest rates unchanged until at least December, but that changed after the dismal July nonfarm payrolls report.

Now, policymakers are unanimous that rates are coming down this month. According to San Francisco Fed President Mary Daly, it “would be hard to imagine” anything derailing the Fed’s plan to cut rates on Sept. 18.

Although GDP grew at a healthy 3% pace in the second quarter, the headline number masks deteriorating conditions in many parts of the economy.

As David Rosenberg explained in August, the economy is growing because consumers are depleting their savings, government deficits are widening, and unsold business inventories are accumulating.

For these and other reasons, economists at JPMorgan have placed the odds of a recession in the next 12 months at 45%—no small figure for an economy that’s supposedly in good shape.

“Important elements of our growth forecast are being challenged,” the JPMorgan economists wrote, referring to weakening labor market conditions, a decline in business sentiment, and a deteriorating manufacturing sector.

This forecast even assumes that the Fed will cut interest rates by one full point by the end of 2024. This implies at least one 0.5% reduction over the next three Fed meetings.

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