We have seen a historic rebound in economic growth since the US economy emerged from lockdowns, but the pace of the economic rebound has tapered in recent weeks as the effects of fiscal stimulus fade. The recently released Federal Reserve (Fed) Beige Book appears to show that economic activity has become more segmented, with changes in activity varying greatly by sector—consistent with what we’ve seen from manufacturing and services data.

In the Beige Book, the Fed presents qualitative observations made by community bankers and business owners—or “Main Street”—about economic (housing, labor market, manufacturing, nonresidential construction, prices, tourism, wages) and banking conditions (lending conditions, loan demand, loan quality). At LPL Research, we maintain an indicator called the Beige Book Barometer (BBB) to gauge Main Street’s sentiment by looking at how frequently key words and phrases appear in the text.

In this month’s Beige Book, “strong” words posted their first decline since the recovery began. However, “weak” words and mentions of uncertainty declined relative to September’s Beige Book. The modest improvement in aggregate sentiment has pushed the BBB past the pre-COVID-19 level, when the concerns of the virus’ outbreak in other areas of the world were first noted.

Source:  LPL Research 10.22.20

View enlarged chart.

“With the effects of fiscal stimulus subsiding, we’re seeing the rebound in growth and sentiment slow from their blistering pace seen during the summer,” noted LPL Chief Market Strategist Ryan Detrick. “While the rate of growth seems to be slowing heading into the fourth quarter, we don’t think the recovery is at risk of stalling.”

Several reporting districts also pointed toward the impact of election uncertainty on business decisions, but ultimately these concerns should prove transitory. Surprisingly, most districts reported tight labor market conditions, unusual when the unemployment rate is elevated, as worker health concerns and childcare needs prompted many firms to offer schedule flexibility to compensate.

While the BBB is a qualitative update on growth, we will get the true numbers for the third quarter next week with the gross domestic product release slated for Thursday, October 29.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

For Public Use – Tracking 1-05070347