As the economy shows signs of modest improvement, indications of downward shifting in U.S. production from the residual effects of the trade war are starting to surface, according to the May 2019 Federal Reserve’s Beige Book Report. The Beige Book Report compiles from information gathered by the twelve Federal Reserve Districts through direct interviews with businesses in differing business sectors. The report is published eight times per year.
The latest report indicates a slight improvement over the previous period, but with moderate gains in activity. While some sectors reported modest growth, others noted a slowdown due to tariffs on raw materials resulting in direct price increases to U.S. consumers. Many contributing businesses reported an uncertain outlook for future growth and production. Key report findings include:
- Residential construction and real estate show signs of growth, but both sectors show wide variation in sentiment across Districts.
- Consumer spending is positive, but weakening
- Tourism is stronger (seasonal), but vehicle sales are lower than in the last reporting period.
- Loan demand indicates growth, but positive reporting is mixed.
- Agricultural market conditions remain weak with a few Districts reporting slight improvement.
There are slight improvements in the U.S. economy, but the threat of a world-wide recession fueled by trade wars remains a concern among top financial analysts.
If trade wars are temporary, similar to the risk of a trade war with Mexico in June 2019, the damage can easily be averted. However, as trade wars implode globally and are long-lasting escalations, the potential of far-reaching economic effects domestically and abroad is real.
The Fed’s semi-annual Monetary Report to Congress released last month in July 2019 reported: “Data for the second quarter suggest a moderation in GDP growth-despite a pickup in consumption-as the contributions from net exports and inventories reverse and the impetus from business investment wanes further.”
The U.S. economy is dependent on exports and balanced imports and ties to global issues, not just domestic issues. If you have concerns about your portfolio or the sector holdings within it, now may be a good time to review, rebalance, and plan for a possible secondary recession.