Almost immediately after the Fed raised rates, the global economy and markets tried to prove they made a mistake. Starting in early January, the Chinese market sold-off off, dragging the US market down in sympathy. The BEA originally reported 4Q15 GDP at .7% (it has since been revised slightly higher to 1%). The Services ISM dropped over two points while the manufacturing ISM continues in negative territory. Regional manufacturing indexes are showing weakness. 

Add the Beige Book to the list. While the latest release generally shows a positive economic environment, some cracks are emerging. Let’s start with the reports basic overview:

Reports from the twelve Federal Reserve Districts continued to indicate that economic activity expanded in most Districts since the previous Beige Book report. Economic growth increased moderately in Richmond and San Francisco and at a modest pace in Cleveland, Atlanta, Chicago, and Minneapolis. Philadelphia reported a slight increase in economic activity, and St. Louis described conditions as mixed. Most contacts in Boston cited higher sales or revenues than a year-ago but mixed results since the previous month. New York and Dallas described economic activity as flat, and Kansas City noted a modest decline in activity. Across the nation, business contacts were generally optimistic about future economic growth.

Most districts again over-used the adjective “moderate” to describe growth. However, St. Louis’ growth was “mixed” while New York and Dallas described economic activity as “flat.”  Philadelphia’s output rose “slightly.” All of these districts imply the 4Q weakness could be spilling over to 1Q16. 

Several facts are causing the weakness: 

Consumer spending increased in the majority of Districts, although Kansas City and Dallas noted some weakness. Auto sales were mixed, but remained at elevated levels in most Districts. Tourism activity strengthened in most reporting Districts.