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February Update

STEADY AND SHAKY SAYS FED

A branch executive for the Federal Reserve Bank called the economy both steady and shaky.

Nick Sly with the Federal Reserve Bank Kansas City Branch gave that snapshot assessment at a briefing to the U.S. Department of Commerce District Export Council. REAP attended as a DEC member.

Steady? Sly described the economy’s steady footing in terms of confidence and resiliency of consumers, GDP, productivity, low unemployment, post COVID job creation and inflation.

Shaky? While price growth is within norms (except for eggs) it’s now being intensely watched. Business optimism exists but perhaps at a tipping point. Sly reported on suddenly lower capital construction expenditure forecasts. Consumer confidence? January 2025 retail sales were lower, but does this mean anything? Price elasticity is evident, and airline fares are getting lower. Payments to and from small businesses are starting to slow. Again, a harbinger or not?

In real estate construction, all eyes are focused on lumber costs. At what point, if ever, will builders raise the price of new houses to offset even just the potential for tariffs?

Sly questioned if domestic companies have pivoted to mitigate real or perceived disruptions or will change fundamental strategy? One pivot: a Q3 2024 sudden rise in the inventory of manufactured components, pre-ordered in anticipation of tariff change. No holiday bonuses, one manager in Pennsylvania said. He needed the pre-order cash.

The pivoting of trade-based business is even more complex. There’s a new macro-economic, political and security environment to navigate. Supply chains are pivoting to Vietnam from China.

Grain and cattle prices, Sly said, have remained lower than expected. Farm credit is not an issue. But the larger food economy (In Chinese “da shiwu guan” or “big food concept”) must now intensely monitor changes in price here and abroad. Price elasticity is less common, and consumer resiliency is at stake.

Sly spoke of the Fed’s urgent surveys underway. To avoid emotion, they drill down with questions for answers that fit analysis. They listen for specific words or phrases in order to gauge tone. The bank even keeps a lexicon, a dictionary for common clarity in internal and external communications. It is a smart tool that intersects economics, psychology and communications.

Sly warned there is not one narrative right now, but steady and shaky reminds REAP of an earthquake. Tariffs started something, will the economy feel anything? Mild tremors? Or worse? And for how long?

REAP is eager to hear from Nick Sly again in the months ahead.