02) Economic Indicators: Beige Book

by · October 16, 2010

What It Is

The Beige Book, officially titled “Summary of Commentary on Current Economic Conditions” (written by Federal Reserve District), consists of 12 regional reports from each of the member Federal district banks (District Feds) and a national summary drawn from the individual reports. The report was first made public back in 1983.

Basic Information

The Beige Book is different from other reports in that it has a more conversational approach rather than being a compilation of data. However, it does not hold more influence than other data values or indicators. It is published before each of the eight Federal Open Market Committee (FOMC) meetings every year.  The book provides a wide perspective of the economy, with discussions of labor markets, retail, e-commerce activity, wage and price pressures, and manufacturing output. It also tries to give a forecast on trends and anticipate changes over the upcoming months.

How the Report Is Valuable

Reading the Beige Book can be like reading a book written in a foreign language. It is full of “Fed speak” intended to say something without ever saying anything definite at all. This is to prevent the Fed from disclosing something about their monetary policy decisions before the next FOMC meeting.

Fed watchers and investors will look for valuable clues in the Beige Book to acquire insights. For example, here could be telltale signs in the book suggesting a fear about inflation or the report may recommend that the economy needs a financial boost.

 

The District Feds will obtain an economic pulse by interviewing bank presidents, business leaders, members of other Fed boards and hundreds of the informal networks in their respective areas before the report is written. It tries to piece together qualitative measurements by geographic region instead of by industry or sector. This can be very valuable for investors who conduct businesses in specific regions of the US to gain more information about how those areas are performing.

On a few occasions, the Beige Book will be released at times when the market is experiencing panic or confusion due to shocking events happening in the US. These events can be as catastrophic as the September 11 terrorist attacks of 2001, or a stock market crash.

Things to Watch Out For

Because the Beige Book does not directly present any new statistical data, it won’t likely have short term effects on the market. Individual District Feds also can omit reports they don’t want to present, and instead focus on one industry while the rest talk about another topic. For this, it is hard to draw conclusions about a specific industry.

On the bright side, it does provide an original perspective about economic activity that is different from the raw data presented by other indicators, and it shows how the Fed sees its monetary policy decisions and responsibilities.

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