So this is why the Fed thinks the May slump is just temporary

06/09/2011 3:15 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

It is cold comfort but it is comfort nonetheless. The latest release of Federal Reserve’s Beige Book, a collection of conversations between the 12 regional Federal Reserve bank and businesses in their regions, argues that the slowdown in the U.S. economy last month may have been due mostly to temporary factors.

 

In region after region, the Beige Book reports companies siting disruptions to their business because of shortages of parts or end products because of disruptions to the global supply chain caused by the March earthquake and tsunami in Japan.

 

On Tuesday, June 7, Federal Reserve chairman Ben Bernanke, said that the economic recovery, while slow, appears to remain on track. The dip on job creation to just 54,000 in May was, he said, temporary.

At the time many economists and Wall Street analysts wondered what Bernanke knew to prompt that confidence. And with the release of the Beige Book, I think we know part of the answer.

The Cleveland Fed, for example reported a sharp drop in car production because of supply disruptions. The Fed banks in Atlanta, St. Louis, and Richmond echoed that report. Boston and Dallas reported parts shortages for technology companies.

The regional Fed reports didn’t show evidence of an economy headed back into a recession. Loan demand was steady to stronger in most Fed regions, for example.

Nothing in the Beige Book showed an economy ready to step up its speed of growth, however. Labor remained in abundant supply—bad news for workers looking for jobs. And companies reported having difficulty passing on higher commodity prices to their customers.

In short slow growth but not no growth. I said this was cold comfort.

 

 

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