A milestone in the U.S.-China trade dispute has boosted corporate sentiment, according to the Federal Reserve’s (Fed) latest Beige Book.

In the Beige Book, the Fed presents qualitative observations made by community bankers and business owners—or “Main Street”—about economic (housing, labor market, manufacturing, nonresidential construction, prices, tourism, wages) and banking conditions (lending conditions, loan demand, loan quality). At LPL Research, we maintain an indicator called the Beige Book Barometer (BBB) to gauge Main Street’s sentiment by looking at how frequently key words and phrases appear in the text.

As shown in the LPL Chart of the Day, the BBB rose to 43 based on the January 15 edition of the Fed’s Beige Book (compiled in the weeks before January 6). The barometer rose 27 points from November’s edition, the biggest jump in sentiment since April 2016. Strong words increased by 10, while weak words dropped by 17.

Overall, the Beige Book noted that the U.S. economy expanded at a “modest” pace over the past two months, with signs of a solid holiday shopping season and modest inflation. There were also hints of improving economic outlooks among respondents. Mentions of uncertainty fell to 21, while mentions of optimism rose to a 13-month high. References to trade issues dropped to 61, the lowest level since April 2019.

Companies’ optimism could be due to ebbing trade tensions, especially after the United States announced it would sign a phase-one trade deal with China January 15. The United States and China reportedly came to an initial agreement in October 2019, but U.S. officials waited until December to announce the signing date.

“We’re hopeful that Main Street’s sentiment will continue to recover as global conditions stabilize,” said LPL Financial Chief Investment Strategist John Lynch. “Businesses’ hesitation to invest has hindered the economy’s potential, so we’d like to see capital expenditures growth resume to power the later stages of this economic expansion.”

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