A Layman's Guide To The Beige Book

Macroeconomic events and releases move markets in varying degrees, with some possessing the potential to move markets in a big way, are termed as first-tier economic data.

Meanwhile, there are others that are relatively inane and don't cause big swings in the market. Less market-moving ability doesn't mean the data aren't important. Some of these present a treasure trove of information that helps us to draw conclusions about the economy.

One such report is the Beige Book, which is released by the Federal Reserve periodically. The report is usually released two weeks ahead of the FOMC meeting. Given that there are eight FOMC meetings scheduled for a year, the Beige Book is also released eight times in a year. It is usually released on at 2 p.m. ET on Wednesdays.

The book is called so because of the color of the cover of the book.

What Does The Beige Book Contain?

The Beige Book contains anecdotal evidence on current economic conditions in the 12 Federal Reserve districts. Each Federal Reserve district gathers information on economic conditions through reports from bank and branch directors, and phone and in-person interviews with and online questionnaires completed by businesses, community contacts, economists, market experts and other sources.

The compilation is being done by a designated Federal Reserve on a rotating basis.

Historical Perspective

The Beige Book was first introduced in 1970, although it was known as Red Book then, and it wasn't available for public viewing. Apart from the Red Book, two more books, namely the Green Book and the Blue Book were also available to the FOMC, when they sit across the table to deliberate on monetary policy.

The former consisted in-depth analysis of the current economic and financial prognosis, while the latter provided perspective on policy alternatives. Subsequently, both these books were combined in 2010 and the combined book came to be known as the Teal Book.

With lawmakers requesting increasing transparency on the conduct of monetary policy, the Fed opted to publicly release it ahead of the FOMC meeting, after removing details about specific companies or individuals. The color of the book was changed from red to beige and the first Beige Book was released in June 1983 in preparation of the mid-July FOMC meeting.

Why The 2-Week Lag

The information contained in the Beige Book isn't supposed to take the spotlight when the FOMC decision is released. This, according to a Times article, is the reason why the Beige Book is released ahead of the Fed meeting, just so that the information presented in the report was already digested by the market.

How The Beige Book Is Structured

• The report starts by giving details of what the Beige Book is, how information is gathered and how the gathered information is used.
• A brief national summary of overall economic activity, employment and wages, and prices is outlined.
• Brief highlights for each of the 12 Federal Reserve districts are then presented.
• Subsequently, different segments of the economy (namely employment and wages, prices, retail and tourism, manufacturing and relates services, services, consumer spending, banking and finance, staffing services, commercial real estate, residential real estate, agriculture, industrial production, transportation, etc) are discussed elaborately, overall, along with a summary of economic activity.
• The same discussion is done for each of the twelve districts subsequently.

Related Links:

Fed Facts: What Is The Federal Reserve's Balance Sheet, And Why Does It Need To Shrink?

The Federal Funds Rate And How It Impacts You

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Image Credit: By Dan Smith - Own work, CC BY-SA 2.5, via Wikimedia Commons