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Beige Book: An Overview on Reading it

Release Date: two weeks before Federal Open Market Committee meetings
(For Beige Book reports)

The Beige Book is different from other market reports in that the preponderance of the data in it is subjective. This release consists of twelve reports from Federal Reserve officials from each of the twelve Federal Reserve districts: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.

The release begins with a Summary of these twelve reports recounting various components of the economy, among them prices, labor markets, credit, sales, and commodity prices.

Within each Fed district Fed officials break down their reporting into sectors. For instance in the Fed’s ninth district, the Minneapolis district, Fed officials separate their report into sectors, in this most recent report these included: Consumer Spending and Tourism, Construction and Real Estate, Services, Manufacturing, Energy and Mining, Agriculture, and Employment, Wages, and Prices. Here is an example of part of the Minneapolis Fed’s report on “Services” in June, 2015:

Activity at professional business services firms increased since the previous report. For instance, a developer of training software noted a recent increase in sales, a recruiting firm noted that recent growth was faster than the pace of the past few years, and an architectural firm noted that recent bidding activity was stable. Rural hospitals and specialty clinics reported expansions in service offerings from a year ago. A hospital administrator in Minnesota noted that demand for services increased due to broader insurance coverage.

These are the sorts of observations that populate the June 3, 2015 report, which incidentally is 52 pages long.

The Beige Book actually derives much of its strength from this kind of subjectivity. This report very often records supply and demand forces that do not appear in more quantitative releases because, for example, banks were not making loans but their officers had heard anecdotally that there were many in the district who were interested in taking out loans.

Also, many investors and analysts have noted that the kind of data that was collected and the methods used to parse this data in the Summary are useful in that they show what the Fed finds important and how it processes the information in the report.

Dates of Publication

Federal Open Market Committee meetings occur eight times per year. The Beige Book report comes out two weeks before each meeting and covers the approximately six weeks between the previous FOMC meeting and a week before the release of the Beige Book. For this reason, the Beige Book is often considered old news. This is a valid argument, for by the time of the FOMC meeting Fed officers are undoubtedly entertaining considerably more recent data.

When the Beige Book hits the mainstream financial media, it usually appears as a summary of the Summary of the Beige Book Report. For instance, on June 3, 2015, the Wall Street Journal reported that the Beige Book noted slight to moderate growth in all twelve districts, except Dallas, which slowed “slightly.” This is in stark contrast to the final GDP revision for Q1, which indicated an annualized contraction of 0.7%. Construction, loan demand, and the labor market were all improved, slightly but unmistakably. Most of the financial media cover the Beige Book report in a similar manner. These barometers are all important, of course, even though much of this information had previously appeared in other reports. For the Beige Books serves well as corroborating evidence for other more timely reports. However, it is probably the insights we get into the Fed’s methodology and a great host of tiny details that makes the Beige Book most valuable to investors.

It should be mentioned that among many in the investing world there is a tacit stigma against the Beige Book report. Media columnists and anchor people pay scant attention to this report. In part this stems from the fact that this is old news by the time the FOMC meeting arrives. Also, some seem to dislike the degree of subjectivity they encounter when they read these accounts, and apparently long for something more rigorous. Then there is a school of thought that cites the history of the Beige Book as a report that was and is the object of the Fed’s contempt, and presumably should be the object of ours. Although there is some truth to all of these perspectives, the Beige Book delivers knowledge and perspectives that are difficult or impossible to obtain elsewhere.

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