Beige Book

By Ryan Barnes

Release Date:	Two Wednesdays before every Federal Open Market Committee (FOMC) meeting, 8 times per year
Release Time:	2:15pm Eastern Standard Time
Coverage:	Anecdotal and discussion-based summaries of regional economic activity
Released By:	Federal Reserve Board; National summary authored by rotating Fed district
Latest Release:	http://www.federalreserve.gov/FOMC/BeigeBook/2007/

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.

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.

On rare occasions, the Beige Book will be released at a time when information is badly needed in the markets; shock events like the September 11, 2001, terrorist attacks or a stock market crash can effectively wipe the data slate clean, and investors will count on the Fed to help describe the relative state of affairs during these tumultuous times.

Strengths:

• Contains forward-looking comments - the Fed districts aim to draw relative conclusions in the Beige Book, not just regurgitate facts already presented
• Gives investors a "man on the street" perspective of economic health by taking first-hand accounts from business owners, economist, and the like
• Aims to put pieces from different reports together into an explanatory whole, giving qualitative measurements instead of quantitative figures
• It's the only indicator that gives reports by geographic region, rather than just by industry group or sector.
• Most regions will report on the state of the service industries, an area not well covered in other indicator reports, although it is a large component of real gross domestic product.

Weaknesses:

• Rarely is any new statistical data presented, only anecdotal reports
• Filled with measured "Fed-speak"
• Specific industry conclusions are hard to draw from the report.
• Each Fed district can use its discretion on what to include in its report; one region may discuss manufacturing activity while others don't report on the topic.
• Private forecasts compiled by economists and analysts tend to closely match what is reported in the Beige Book, so estimates rarely change following the release.

The Closing Line
The Beige Book is not likely to send shock waves through the market on its release, but it provides an original point of view about economic activity and is a marked departure from the dry raw data releases of the other indicators. It also gives investors insight into how the Fed approaches its monetary policy decisions and responsibilities.

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