The Beige Book
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Transcript of The Beige Book
Introduction
Launched 1983
Release schedule 8 times a year, 2 Wednesdays before each FOMC meeting
Source Board of Governors of the Federal Reserve System
• Report on current economic conditions in each of the 12 Federal Reserve districts covering the entire U.S.
• Regional Banks in the Federal Reserve System gather anecdotal information
• The Beige Book summarizes this data into a relatively short document, giving a picture of economic trends and challenges faced by different parts of the nation
Federal Open Market Committee
Interest rate hike
• Increases the yield offered by U.S. assets
• Strengthened economy
• Attracts foreign investment
Interest rate cut
• Reduces the yield offered by US assets
• The economy has weakened
Rates Left Unchanged
• Depend upon whether the Fed is pausing after a prolonged tightening or easing cycle
• The FOMC meets eight times per year to decide on monetary policy
• Set the monetary stance by fixing the overnight borrowing rate (Short Term lending rates)
• The FOMC attempts to affect price levels in order to keep inflation within the target range
Structure of the Beige Book
Regional representation
National (Summary)
12 Districts:• Boston• New York• Philadelphia• Cleveland• Richmond• Atlanta• Chicago• St. Louis• Minneapolis• Kansas City• Dallas • San Francisco
Sector representation
• Retail• Tourism• Non Financial Services• Manufacturing• Real Estate and Construction• Banking • Financial Services• Agriculture • Natural Resources
Compiling the Beige Book
• Each Federal Reserve Bank uses its own information-gathering methods to compile its Beige Book report • The sectors reported on differ across regional banks
• Emphasizes on the sectors that are economically important in each district and recent major economic developments
Method:• Calling local businesses• Conducting regular surveys• Reading local newspapers• Having members of their Board of Directors report on current and expected future economic conditions
Interpretation
Consumer spending and Tourism
• Consumer spending is the largest part of aggregate demand or effective demand at the macroeconomic level• Durable: Auto sales; Non durable goods: Retail sales• Tourism activity: business and leisure• Reasons for the change in consumer spending
Nonfinancial Services• Port activity• Health care services• Transportation services: rail road shipments (industrial activity) • Domestic volumes of freight and parcels
Interpreting the Beige Book…
Manufacturing• Manufacturing activity
– Auto production– Consumer goods– Steel production– Textiles
• Reasons for the change in manufacturing activity
Real Estate and Construction
• Residential real estate • Non residential real estate– Home construction - Demand for office space
– Home prices - Commercial rental prices– Home re-modelling activity - Industrial construction– Rental prices
Interpreting the Beige Book…
Banking and Financial Services• Loan demand• Commercial and industrial loans• Delinquencies rates: unable to pay loans• Credit worthiness
Agriculture and Natural Resources
• Crop and livestock: production sales and prices• Draught conditions• Energy sector• Production of oil, natural gas, coal etc: oil drilling activity, natural gas exploration, coal production
Interpreting the Beige Book…
Employment, Wages and Prices
• Labour market conditions• Wage rates• Unemployment figures• Input prices pressures
- Ability to pass on the price rise
Interpreting the Beige Book…
Interpreting the Beige Book
Jan – 11 Mar -11Apr –
11 Jun - 11 Jul – 11 Aug- 11
Consumer Spending and Tourism Increased Increased Steady Steady Increased Steady
Non Financial Services Steady Increased Increased Increased Increased Increased
Manufacturing Increased Increased Increased Increased Increased Steady
Real Estate and Construction
Weak/ Declined Steady Steady
Weak/ Declined Steady
Weak/ Declined
Banking and Financial Services
Steady/ Mixed Steady Steady Steady Steady
Weak/ Declined
Employment, Wages and Prices Increased
Mixed/ Steady Increased Increased
Weak/ Declined Steady
Agriculture and Natural Resources
Weak/ Declined
Weak/ Declined Steady
Weak/ Declined
Weak/ Declined
Weak/ Declined
District Analysis
Consumer Spending and Tourism:• Auto sales• Consumer confidence• Tourism Activity
Other Business Activity• Labor Market• Hiring• Input costs• Manufacturing activity
Financial Developments• Demand in consumer, commercial and industrial loans• Residential mortgages
Construction and Real Estate • Residential rates• Commercial RE• Industrial vacancy rates
Beige Book August 2011District New York
Quantifying the Beige Book
• Beige Book provides anecdotal information
• Balke and Petersen (2002) – Beige Book Index (Quantitative )
• Converted the description of economic growth on a scale from-2 to 2
• Beige Book Index: compilation of the scores– Easier to comprehend– Facilitates comparative analysis
Change/ Impact ScoreDecline -2 to 0
Slight Increase 0 to .5Modest Growth .5 to 1Strong Growth 1 to 2
….Beige Book Index
Source: Federal Reserve Bank of Atlanta – Economic review
Beige Book Index: 2006 v/s 2008 (recession)
-1
-0.5
0
0.5
1
1.5
2
20062008
-1
-0.5
0
0.5
1
1.5
2
20062008
-1
-0.5
0
0.5
1
1.5
2
20062008
Consumer Spending and Tourism Real Estate and Construction
Manufacturing
Significance
Significance of the Beige Book…
Rising Trend
• Manufacturers can increase production and hiring
• Banks can expect increased demand for credit
• Builders can prepare for a rise in home construction
• Government can anticipate improved tax revenues based on the increase in consumer spending
Declining Trend
• Manufacturers may pare down inventories to reduce overhead and/or delay investing in new projects and facilities
• Banks can anticipate a decrease in lending activity, mortgage applications and credit card use
• The government issue a tax rebate or take other fiscal or monetary action to stimulate the economy
Impact of the Beige Book..
• Timing: leading into FOMC meetings• Signals the likely direction of monetary policy• Impact short term interest rates• Well correlated with other economic indicators• Reflect regional information not yet available via other sources
Conclusion: • Not likely to affect markets on its release• Provides an original point of view about economic activity • Provides investors insight into how the Fed approaches its monetary policy
Shortcomings of the Beige Book..
• Difficult to identify and quantify
• 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 • Expectations about such reports are difficult to ascertain
Beige Book v/s Consumer Confidence Index
Particular Beige Book CCIFrequency 8 times an year MonthlySource Board of Governors of the
Federal Reserve SystemConference Board
Data Qualitative - Anecdotal information
Quantitative – Index
Information gathering
Surveys of executives, economist and market participants
Household survey of 5000 consumers' opinions
Significance Analysis of Economic trends in the various districts of the U.S.
Measures the consumer confidence
Impact Relatively low - Rarely affects markets on release
Relatively high - Tends to move markets on release
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Thank You
By:Adhiraj SinghChandni Goel
Gayatri SahdevKartikey Bhargava
Shine Chabbra