Beige Book Takes on the BLS

Beige Book clashes with government data, signaling weakness in three-quarters of the economy

Highlights

• Beige Book clashes with government data, signaling weakness in three-quarters of the economy

• More companies flag a soft consumer and continued frugality

• Trump’s policies will be far less inflationary than currently perceived

• It’s not unusual to see bond yields rise initially after the first rate cut… but the ultimate trend is lower

Key Takeaways

Euro Area PMI Data Shows Continued Weakness in Manufacturing and Services

• The data calendar was confined to the “flash” PMI numbers out of the euro area for October and they lined up pretty soft. For manufacturing, the headline was 45.9 versus the 45.1 consensus estimate and the final 45.0 print for September. Still contracting. For services, the diffusion index came in at 51.2 which modestly undercut the consensus forecast of 51.5 and was slightly below the 51.4 tally in September. These are very soft numbers.

U.K. PMI Data Falls Short, Signaling Economic Softness

• For the first time in quite a while, the U.K. disappointed on both its manufacturing PMI (50.3 from 51.5 in September and well below the consensus estimate 51.5) and services PMI (slowed to 51.8 from 52.4; the consensus here also was 52.4). Lackluster to say the least.

Fed Beige Book Reports Flat Economic Activity Despite Strong GDP Growth Claims

• The Fed’s Beige Book posits that “economic activity was little changed in nearly all Districts” and the Commerce Department says real GDP growth is running at a +3% annual rate. Come again? Flat must be the new up. As with the prior Beige Book on September 4th, three-quarters of the economy in this report was either contracting or stagnating these past six weeks — the exact same situation we saw in early September with that prior report.

Discrepancy Between Official Data and Earnings Reports

• It is strange that the government database could report a hot retail sector landscape at the same time that real-world data out of bellwethers like Starbucks reveal intensifying strains — resulting in a deep -7% YoY contraction in same-store sales and the company remarking that what it is seeing is a “pronounced traffic decline.” I’m not prone to conspiracy theories, but the BLS and the Commerce Department databases seem to be out of step with what I am seeing out there with my own two eyes.