Fed Beige Book says government shutdown affected economy

The US Federal Reserve report noted that the government shutdown had an effect on the economy.

Fed building after Fed Beige Book report Source: Bloomberg

The US Federal Reserve’s Beige Book survey about the economy shows that there is a mixed sentiment about the economy after the recent government shutdown. The US central bank contacted officials in the 12 districts for anecdotes about their local economies.

What did the Fed Beige Book say the government shutdown?

The Fed’s report noted that the month-long government work stoppage had an impact on the economy in December 2018 and January 2019.

‘About half of the districts noted that the government shutdown had led to slower economic activity in some sectors,’ said the Fed.

The diminished economic activity affected industries like retail, staffing, and hospitality. The Richmond, Virginia Fed, which includes Washington, DC, noted that the shutdown negatively affected tourism in the area.

The Virginia district said that there was a ‘sharp decline in tourism was reported by several firms in and around the District of Columbia.’

The Fed Beige Book also noted that 10 of the 12 Fed districts only saw ‘slight-to-moderate’ economic growth during the shutdown. Philadelphia and St. Louis reported ‘flat’ growth.

What did the Fed Beige Book say about the US economy?

Despite the government shutdown, the Fed Beige Book noted the growth in the economy after the gridlock.

‘Economic activity continued to expand in late January and February,’ said the Fed.

The Philadelphia Fed noted how businesses were responding to a strong job market.

‘Firms are responding by raising wages, increasing job flexibility, training new hires who have fewer skills than desired, and making greater use of trial periods of temp agency placements,’ said the Philadelphia Fed.

The Cleveland Fed reported about how price increases affected different businesses.

‘Construction companies passed on strong input cost increases. By contrast, manufacturers’ prices remained more stable. Transportation companies raised prices, but retailers did not raise prices to cover transportation cost increases,’ noted the Cleveland Fed.

Will the Fed Beige Book affect future rate hikes?

The Fed Beige Book could mean a halt in rate hikes in later meetings of the US central bank officials.The Fed left rates unchanged after its last meeting, and the mixed economic report could mean more patience from Fed chair, Jerome Powell. The Fed Beige Book shows that while the US economy is strong, a major event like a long government shutdown can have a great impact.

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