The Federal Reserve has released its latest Beige Book on June 5, 2019. While the overall trend is for businesses to continue to see modest growth ahead, investors might want to consider that the report, prepared at the Federal Reserve Bank of Minneapolis, was based on information collected on or before May 24, 2019. That means that some of the current tariff and trade war information was not yet known when the data were compiled.

Investors get some keen data from the Federal Reserve over time, but it is technically not government issued data. Each Beige Book is a summary of comments which are received from business and industry contacts who are outside of the Federal Reserve System. It is also not meant to be a commentary on the views of Federal Reserve officials.

At the time, businesses had rightfully shrugged off much of the news around tariffs. The 12 regional districts making up the Federal Reserve pointed to modest growth during April and May with a slight improvement over the prior period from the April 17 Beige Book.

All in all, American manufacturers were not really impacting the business as trade tensions were rising with China. Still, many businesses did express concerns about tariffs in the future.

The Beige Book is rarely a major market mover, but these comments are used for part of the “data dependent” analysis used by Federal Reserve officials ahead of their FOMC meeting. The next meeting is slated for June 18 and June 19, and there will have been more economic data to absorb by that time for a “data dependent Fed” to decide how to govern monetary policy ahead.

It’s also important to keep in mind that Fed Chairman Jerome Powell just on Tuesday signaled that the Fed is monitoring new trade tensions, with a hint (but not an assurance) that the Fed would cut rates if the economic growth prospects and employment strength were to be threatened.

Along the lines of a slight improvement from the prior reporting period, the Beige Book statement on overall economic activity said:

Economic activity expanded at a modest pace overall from April through mid-May, a slight improvement over the previous period. Almost all Districts reported some growth, and a few saw moderate gains in activity. Manufacturing reports were generally positive, but some Districts noted signs of slowing activity and a more uncertain outlook among contacts. Residential construction and real estate both showed overall growth, but both sectors saw wide variation in sentiment across Districts. Reports on consumer spending were generally positive but tempered. Tourism activity was stronger, especially in the Southeast, but vehicle sales were lower, according to reporting Districts. Loan demand was mixed but indicated growth. Agricultural conditions remained weak overall, but a few Districts reported some improvements. The outlook for the coming months was solidly positive but modest, with little variation among reporting Districts.

While much of the trade and tariff impacts were discounted, the Beige Book referred 37 times to “tariff” and to “trade” 21 times specifically pertaining to international trade policy and tariffs.

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