Pessimism has rapidly infiltrated Main Street’s outlook, according to the latest Federal Reserve (Fed) Beige Book. LPL Research maintains a straightforward but informative indicator called the Beige Book Barometer (BBB), which helps us gauge Main Street’s sentiment by looking at how frequently key words and phrases appear in the Beige Book.

As shown in the LPL Chart of the Day, sentiment in the March 6 Beige Book, a qualitative assessment of the domestic economy and each of the 12 Fed districts, fell to its lowest point since October 2011 (the peak of the European debt crisis).

“Main Street and Wall Street are digesting several near-term headwinds,” said LPL Research Chief Investment Strategist John Lynch. “Based on recent signals, we wouldn’t be surprised to see softer-than-expected growth at the beginning of this year, followed by a solid rebound in economic activity once trade risk is removed.”

On the surface, the Beige Book’s negative tone is striking compared to recent versions, but context around key words is especially important in this edition. Strong words fell by 20, while weak words climbed by 21, resulting in the biggest drop for our BBB since March 2016.

A broad-based decline in sentiment is of some concern. However, about half of the 34 references to weakness were concerns about trade-related subjects: global demand, agriculture, manufacturing, and port activity. Trade-related repercussions are clearly bleeding into Main Street’s operations, but we expect these impacts to subside once the United States and China reach an agreement. We’ve seen positive momentum on the trade front recently and resolution may come soon.

Main Street is also increasingly uncertain about the economic outlook. Total strong and weak words have hovered around the lowest level since 2005, while mentions of uncertainty have climbed to the highest levels in data going back to 2015.

Overall, we see Main Street struggling with uncertainty more than definitive signs of sustained weakness, which leads us to think this dip in sentiment is temporary.

For more analysis on the latest Beige Book, check out this week’s Weekly Economic Commentary.

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