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