2007
Summary of Commentary on
Current Economic Conditions
by Federal Reserve District


Commonly known as the Beige Book, this report is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. An overall summary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis.

Background
Made public in 1983, the Summary of Commentary on Current Economic Conditions by Federal Reserve District, or Beige Book, as it is known, has a different style and tone than many other indicators. Rather than being filled with raw data, the Beige Book takes a more conversational approach. The book has 13 sections in total; 12 regional reports from each of the member Fed district banks, preceded by one national summary drawn from the individual reports that follow it. This is the first chance investors have to see how the Fed draws logical and intuitive conclusions from the raw data presented in other indicator releases.

The Beige Book is published eight times per year, just before each of the Federal Open Market Committee (FOMC) meetings. While it is used by committee members during the meeting itself, it does not carry more clout than other data values and indicators. There is a lot of real-time data that the Fed has at its disposal and, unfortunately, notes from the FOMC meetings themselves are currently not public information.

The Beige Book aims to give to give a broad overview of the economy, bringing many variables and indicators into the mix. Discussion will be about things such as labor markets, wage and price pressures, retail and ecommerce activity and manufacturing output. Investors can see comments that are forward-looking; the Beige Book will contain comments that look to predict trends and anticipate changes over the next few months or quarters.

What it Means for Investors
The Beige Book by itself is not likely to have a big effect on the markets in the short term, mainly because no new data series is presented here.

Investors and Fed watchers look to the Beige Book to gain insight into the next FOMC meeting. Is there language that shows fear about inflation? Do the reports suggest that the economy needs a financial boost to continue growing? This is the critical information that will be analyzed in the Beige Book.

To read the Beige Book effectively, one must become accustomed to "Fed speak", a special verbiage of measured remarks intentionally designed to say a little without ever saying a lot. The last thing the Fed wants to do with its words is corner itself into a pre-supposed policy decision prior to the next FOMC meeting. Investors won't ever see a definitive statement about the Fed going one way or the other with monetary policy, but there may be valuable clues in the Beige Book - at least for the trained eye. (For related reading, see Formulating Monetary Policy.)

The Fed directors and their staffs will use their very long proverbial arms to obtain an economic pulse that can't be found in any other indicator's report. They will interview business leaders, bank presidents, members of other Fed boards and hundreds of other informal networks before writing the reports that will be compiled in the Beige Book.

Investors who hold investments that conduct business in specific regions of the country may find valuable information about how those areas are performing as a whole. For instance, a stockholder in a regional bank operating in the Southeastern U.S. would want to know what the Atlanta Fed Bank says about the health of that region.

Occasionally, the Beige Book will give evidence that may contradict what a previous indicator has presented; the Employment Report may suggest that there is slack in the labor market, while Beige Book reports may give anecdotal evidence that wage pressures are forming, or that certain specific labor markets are tight. (For more on this topic, read Surveying The Employment Report.)


FRB: Beige Book

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Paige A. Rausch
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