Yesterday the Federal Reserve released the most recent Beige Book. For the uninitiated: “The Beige Book is intended to characterize the change in economic conditions since the last report. Outreach for the Beige Book is one of many ways the Federal Reserve System engages with businesses and other organizations about economic developments in their communities.” Put differently, each regional Federal Reserve bank collects information on the economic activity in its district. As a refresher, the regional banks and their districts are reproduced below from the Beige Book.

What did we learn from yesterday’s report? The key summary is: “On balance, economic activity slowed since the previous report, with four Districts reporting modest growth, two indicating conditions were flat to slightly down, and six noting slight declines in activity.”

The tenor of this summary is a far cry from the rapid 5.2 percent revised (annualized) growth rate for gross domestic product (GDP) that the Bureau of Economic Analysis also reported yesterday. This is one of the virtues of the Beige Book. It provides contemporaneous information on the state of the economy, in contrast to the economic history of July through September that constitutes the GDP report.

The slower pace of growth in demand is reflected in the labor markets. According to the Beige Book, “most Districts reported flat to modest increases in overall employment. The majority of Districts reported that more applicants were available, and several noted that retention improved as well. Reductions in headcounts through layoffs or attrition were reported, and some employers felt comfortable letting go low performers.” 

It seems quite clear at this point that the Fed has substantially reduced demand growth. Its continued tightening of financial conditions through shrinking its portfolio will do so further. The only thing that remains unclear is whether the economy will manage to muddle through 2024 with sluggish 0.5 to 1.5 percent growth, or actually experience a modest recession.