Buy the dip no longer sounds sufficient to calm fears, nor will forward guidance. Jerome Powell will...
No Recession Yet, Says the Beige Book
06/09/2011 4:20 pm EST
It’s cold comfort—but it is comfort nonetheless.
The latest release of the Beige Book, a collection of conversations between the 12 regional Federal Reserve banks and businesses in their regions, argues that last month’s slowdown in the US economy may have been caused mostly by temporary factors.
In region after region, the Beige Book reports companies citing disruptions to their business because of shortages of parts or end products, virtually all related to disruptions to the global supply chain caused by the March earthquake and tsunami in Japan.
On Tuesday, June 7, Fed Chairman Ben Bernanke said that the economic recovery, while slow, appears to remain on track. The dip in job creation to just 54,000 in May was temporary, he said.
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.
On the other hand, nothing in the Beige Book showed an economy ready to step up its speed of growth. 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, which is better than no growth. I said this was cold comfort.
Full disclosure: I don’t own shares of any of the companies mentioned in this column in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.
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