Fed’s ‘Beige Book’ Reflects Growing Pessimism on Main Street

No easy times lie ahead for small and midsize businesses (SMBs) on Main Street.

We’re in the midst of the fourth quarter. If thus far, recent earnings reports are any indication — especially from the banks — the consumer remains resilient, and there’s enough firepower left on credit cards (in terms of untapped credit) for spending to keep on being buoyant.

But then again, recent data from the Federal Reserve indicate that things may not be as rosy as some might hope.

In the Beige Book, which is released eight times each year by the central bank, and which surveys sentiment across each of the Fed’s 12 districts, there is some slowing of activity — on balance, slowing growth, yes, but a few pockets of weakness depending on where they look.

The Fed noted, in a high-level summary of the findings, that “national economic activity expanded modestly … however, conditions varied across industries and Districts. Four Districts noted flat activity and two cited declines, with slowing or weak demand attributed to higher interest rates, inflation, and supply disruptions.”

Importantly, the report shows that retail spending was “relatively flat,” which is tied to lower discretionary spending…” Outlooks grew more pessimistic amidst growing concerns about weakening demand.”

Among the firms surveyed, which span verticals from stores to auto dealers to manufacturers, employment continued to rise. But some districts reported a cooling in labor demand “as businesses were hesitant to add to payrolls amid increased concerns of an economic downturn,” the Fed noted.

The Fed’s report underscores some of the same hesitations and challenges that are confronting the smaller companies surveyed by PYMNTS. These are the companies — the dry cleaners, the restaurants, the service firms — that help keep employment rosters full and pay the wages that, in turn, translate into the income that powers discretionary spending.

As we noted in the study “Main Street Health Q3 2022: SMBs Battle Inflation,” PYMNTS surveyed more than 500 U.S. businesses across those same industries. The jousting with higher input costs, with higher prices up and down supply chains is translating into higher prices paid at the (online and offline) register. Just 54% of Main Street SMBs we surveyed said they expect revenues to increase in 2022 — that’s below the 56% who saw that same level of optimism at the beginning of the year. The most recent finding implies that 46% of companies expect sales to, at best, remain the same — or may even actually decline.

Those expectations hardly translate into the levels of assurance that are needed to keep hiring — or even to keep boosting wages. The read across is that business owners are girding to do more with less if they have to and won’t have much financial leeway to beef up staff or make capital investments. That doesn’t bode well for holiday cheer — or consumers’ opening their wallets with the enthusiasm that has marked previous years.