Monthly Economic Letter - Summary - What keeps food prices high-and rising - The interest-rate moral: timing is all - Steelmakers joust in a crowded marketplace

Oct 13, 2026

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Monthly Economic Letter analyzes current economic weakness and the conditions behind it, framing recession dynamics as a chain reaction from retail sales to orders, production cuts, layoffs, and rising unemployment claims. It quantifies declines in retail sales, housing starts, and industrial production, and compares severity with earlier recessions. The letter then explains food price pressures as linked to middlemen’s roles, marketing functions, and growing demand for highly processed products, and discusses interest-rate swings and mortgage lending easing. It also examines the steel market’s supply-demand imbalance and competitive constraints.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages17

Reading Time43 min

AccessFree to download

Summary

What keeps food prices high-and rising

The interest-rate moral: timing is all

Steelmakers joust in a crowded marketplace

It looks like a steep-sided V... If the Fed gets the policy mix right,theeconomy could rebound before the currentrecession gets as bad as the last one.Meanwhile,as in past slumps,changes areunder way that will nurture the upswing. "And fools,who came to scoff,remain'd to pray."Those who doubted the recession would ever comenow fear it will never end.But this downturn,likethose that came before it,is sowing the seeds of itsown recovery. It's unusual for the"recession”label to beaffixed before even one full quarter of decliningreal output.But the economy has taken an unmis-takable turn for the worse.The real volume ofretai sales sagged 2.9%in February and by acumulative total of 8.6%over the three monthsending in April.Housing starts also began slippingin January,and by April were off 34%from theNovember-December pace.By April,the declinehad spread to supplier industries,as indicated bythe near-2%decline in industrial production andthe extraordinary rise in factory personnel layoffs.This weakness in employment continued into Mayas new claims for unemployment compensationclimbed to a weekly record in mid-month. Thus,even at this early date,it appears as if this downturn will be neither shallow nor moderate.The fall in real gross national product looks to beat least 2%in the second quarter alone,or morethan 8%at an annual rate.That's deeper than thedeclines that took place throughout the entirecourse of the recessions of 1969-70,1960-61 or1948-49.And it puts this downturn within easystriking distance of the two recessions of the1950s.With housing starts down to a 1-million-unit seasonally adjusted annual rate,close to thelow they hit at the trough quarter of the lastrecession,and total auto sales close to a similarlow,the major remaining question is whether thisrecession will equal or exceed the severity of thelast one,when real output fel 5.7%. The process of decline looks very much like achain reaction.A significant sales slump at theretail level led to an abrupt falloff in incomingorders to suppliers,who reacted by curtailing pro-duction,laying off workers and slashing orders totheir own suppliers.As suppliers,in turn,havetrimmed production schedules,the ranks of theunemployed are swelling. True,there are indications that sales are reachingthe bottom of the slide in some key areas.Thepace of domestic auto sales stabilized after reach-ing a low seasonally adjusted rate of 5-5%millionunits in mid-April.And some chain stores report MonthlyEconomicLetter # Summary It looks like a steep-sided V... 1 Some experts who insisted the economy would neverslide into recession are fearful now that it will neveremerge.But business-cycle history clearly suggests thatrecessions have a built-in restorative quality.Every down-turn has set the stage for a subsequent recovery.And ifthe Fed gets the policy mix right,this recession shouldnot be as deep as that of 1973-75. # What keeps food prices high-and rising 4 Middlemen's profits are being cited as the villains in thecurrent rise in supermarket prices.But the spread betweenfarm costs and retail prices pays for vital service andmarketing functions.And the main cause of higher foodprices is the ever-increasing demand for more highly pro·cessed products. The interest-rate moral:timing is all7Wild swings in interest rates are nothing new,as a look atthe past will attest.What made this last episode uniquewas the role played by increased public awareness ofmonetary policy and the keen attention focused on highand volatile inflation.This has quickened the market'sreaction-because the costs of inaction are extremely high. # Steelmakers joust in a crowded marketplace9 The imbalance of demand and supply in world steel hasposed severe problems,and high-capacity producers havehad to resort to marketing agreements that limited com-petition.Now a sudden drop in U.S.domestic demandfor steel has coincided with an open dispute betweensome European and U.S.steel interests.Beyond th

FAQs

What does the letter say caused the downturn to worsen so quickly?

It describes a chain reaction: a sales slump at the retail level reduces incoming orders to suppliers, which then curtails production, lays off workers, and cuts orders further down the supply chain.

How does the letter explain why food prices stay high and keep rising?

It argues that higher supermarket prices reflect the gap between farm costs and retail prices funding service and marketing functions, while the main driver is growing demand for more highly processed products.

What role does the interest-rate environment play according to the letter?

It highlights major swings in interest rates as a key factor, noting that heightened public awareness and attention to volatile inflation accelerated market reactions and inhibited business activity, though rates later fell and became less restrictive.

Oct 13, 2026

Upload by Jiven