Why You Should Follow the Beige Book

The U.S. economy is in a precarious position.  The chatter among pundits, reporters, experts and so-called experts ranges from “green shoots”, referring to signs of recovery, to “double dip”, referring to another downturn.  On a daily basis a new statistic, report or analysis is published leaning one way or the other.   But keeping track of so much information that often contradicts itself isn’t practical.  It wouldn’t leave any time to prepare your business for the anticipated direction of the economy. 

What if there was an official report that provided an in-depth and comprehensive analysis of the economy that was published regularly by a reputable source? There is: it’s commonly referred to as the Beige Book. Tune out all of the chatter, forget jargon about shoots and dips and just set aside two hours eight times per year to study the Beige Book.

What is the Beige Book?

The Beige Book is published by the Federal Reserve eight times per year (in January, March, April, June, July, September, October and December).  It is published two weeks before the Federal Open Market Committee (“FOMC”) of the Federal Reserve meets to determine the direction of interest rates and the money supply.  The Beige Book is one of the resources the members of the FOMC use to make their decisions.

The actual title is “Summary of Commentary on Current Economic Conditions by Federal Reserve District.”  The nickname comes from the color of the cover when it is printed.  The report has been published regularly since 1970 -- back then it was only for policymakers and was known as the red book -- and has been available to the public since 1983.  There are other books like the green book and the blue book which contain other information and are only available internally to policymakers at the Fed. 

What makes the Beige Book interesting is that its conclusions are drawn from the judgments and opinions of hundreds of experts in diverse fields from across the country.  Instead of presenting a series of statistics, it tells us what knowledgeable and influential people are thinking and provides rich information about what is really happening on “Main Street.”  The contents are compiled from interviews and surveys of business executives, financial experts, economists and others.

Several studies have shown that the Beige Book has “significant predictive content” for the current quarter and next quarter GDP growth.  This means it is a good source for determining where the economy stands at present and where it is headed in the near term.

Key Components of the Beige Book

The Federal Reserve is a large and complex and organization.  Part of that organization consists of 12 regional banks each located in a major city across the country.  Each bank is responsible for a “district”.  The Beige Book provides information organized by district. The districts are:

• District 1: Boston
• District 2: New York
• District 3: Philadelphia
• District 4: Cleveland
• District 5: Richmond
• District 6: Atlanta
• District 7: Chicago
• District 8: St. Louis
• District 9: Minneapolis
• District 10: Kansas City
• District 11: Dallas
• District 12: San Francisco
  

For each district, the Beige Book provides an analysis on key sectors of the economy such as:

• Manufacturing activity
• Consumer spending
• Real estate and construction
• Banking and finance
• Agriculture and natural resources
• Labor markets, wages and prices
  

Each district prepares its own report so the areas covered are not always consistent and they can change over time.

So What Does the Most Recent Beige Book Tell Us?

Current and historical Beige Books are available on the Federal Reserve’s Beige Book website.  The most recent report was published on July 28^th.  The current report indicates that overall economic activity has increased slightly, with 10 districts reporting a modest increase and two reporting a decrease in economic activity.  Improvements were noted in both manufacturing and services.  Retail sales also improved, with spending focused on necessities.  Residential real estate did not perform well and commercial real estate and construction both remained weak.

The next Beige Book report is due out on September 8^th.  The reports are very easy to read and not very long.  Make a plan to read the next report and use it a good indicator of where the economy is headed for the rest of the year.  Take a look at your particular district’s report and use the information for business planning purposes.