Did You Read April’s Beige Book?
On April 15, the Federal Reserve released its latest Beige Book. This is the third of the eight yearly Beige Books, which are released prior to scheduled Federal Open Market Committee (FOMC) meetings. The book is just under thirty pages long and provides a “summary of commentary of current economic conditions” for the period from February 25 to April 6, 2020. The report does not quantify any of the Fed’s data but instead uses qualitative and anecdotal information from various members of each district's community, such as bank directors, businesses, and economists, as well as “market experts, and other sources,” according to the report.
The FAQ on the Fed’s website answers further questions and explains that this information “supplements the data and analysis used by Federal Reserve economists and staff to assess economic conditions.” See below for two highlights from the national summary that begins the report:
Economic activity declined, and the labor market deteriorated due to COVID-19. Non-labor costs remained stable. Retail sales for non-discretionary products grew as sales of non-essential items fell. Tourism and hospitality contacts reported significant declines in activity. Housing activity softened, and commercial real estate decelerated. Manufacturing declined, but new orders held steady. Banking activity was mixed.
Economic activity declined, but the intensity of decline varied by industry. Consumer spending decreased sharply; business spending, construction and real estate activity, and manufacturing production decreased moderately. Retail and hospitality payrolls plunged. Wages edged up and prices were little changed. Financial conditions deteriorated substantially, as did prospects for agricultural income.
It is interesting to consider these two summaries within the context of the twelve districts, for which there are similar individual summaries and high-level anecdotes, even though the Fed's likely aim was to provide more depth to the analysis.
These excerpts exemplify the tone of the report and are exactly as described in the prefatory remark, both qualitative and anecdotal. How interviews and sentiments help central bankers determine the optimal money supply and interest rate needed, remains unclear. If it is any consolation, at least the Fed's FAQ tries to explain this repetitive nature, noting that in 2017 there was a redesign:
To a degree, the redesign also standardizes the content in the reports from each Federal Reserve district while preserving the ability of each to highlight its regional economy's unique features.
The value of this data is questionable not because the collection method is unknown to the public or because it is qualitative and anecdotal, but because this information is used in conjunction with the Tealbooks A and B (formerly the Bluebook and Greenbook) to help central bankers centrally plan the economy. The Tealbooks contains a lot of the valuable quantitative data that the Fed relies upon. According to the Fed’s description, the books are officially titled the “Report to the FOMC on Economic Conditions and Monetary Policy” and “contain in-depth analysis of current economic and financial conditions and projections, along with background and context on monetary policy alternatives.”
If anyone would like to see what’s included in the Tealbook they will likely have to wait a while, considering that the latest release on the Fed’s website is from 2014 and may include redacted information. At that blazing rate, we probably won't know what the Fed considered for this latest Beige Book until sometime around 2026!