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What Does the Fed’s Beige Book Say About the Economy?

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US Federal Reserve

What Does the Fed’s Beige Book Say About the Economy?

July 16 2015, 06.55am GMT

STOCK.com

The Beige Book, or to give its formal title, The Summary of Commentary on Current Economic Conditions, is a report which is published by the Federal Reserve eight times per year.

The report consists of anecdotal information on the current economic conditions in its district by each of the twelve Federal Reserve Banks, gathered from Bank and branch directors and interviews with economists and other experts. The report is published before each of the eight Federal Open Market Committee (FOMC) meetings. The name Beige Book comes from the beige color of the book’s cover.

The summary of the Beige Book report released on Wednesday highlights that it is not a commentary on the views of Federal Reserve officials, but rather a compilation of the comments received from business and other contacts outside of the Fed itself.

The report says that all twelve Federal Reserve Districts indicated that economic activity expanded from mid-May through June. Activity in New York, Philadelphia and Kansas City grew at a modest pace while Richmond, Atlanta, Chicago, St.  Louis, Minneapolis, Dallas and San Francisco saw moderate growth. All the other districts reported stable conditions coupled with optimism for future growth.

Reports across the districts indicate that employment levels increased or were steady in most sectors although there were some reports of layoffs in manufacturing and energy industries. Most districts reported modest wage pressure with the exception of jobs that required specialized skills or were in high demand.

An indication of an expansion in the economy can be derived from the report that consumer spending increased across all districts, although to varying degrees. Increased consumer spending should inevitably lead to economic growth to provide for growing consumer needs.

The report highlighted certain areas for concern such as the dollar (USD) strength and the decline in drilling for gas and oil as a result of the depressed energy prices. Dollar strength and lower commodity prices often go hand in hand as a result of the inverse relationship the USD has with commodity prices.

The report very much confirmed much of what Federal Reserve Chair Janet Yellen told House Financial Services committee members in Washington on Wednesday.

Ms. Yellen said she expects the United States economy to strengthen further during the second half of 2015 which should keep the Fed on track to increase interest rates, in her words “at some point this year.” Interest rates have been at almost zero since the Great Recession in an effort to keep the cost of loans at a minimum in efforts to regrow the U.S. economy.

The consensus among Fed watchers is for a rate hike as early as the September FOMC meeting.

Gus Faucher, senior economist at PNC Financial Services said, “Her remarks are consistent with a rate hike in either September or December.”

 

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