Highlights
The Fed's Beige Book for the period of around late February through early April reflects a slight improvement in tone since the prior report, but slight remains the operative word. Eight districts report slight to modest growth (Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, and Kansas City), two show conditions about unchanged (St. Louis and San Francisco), and two reflect some slowing (Boston and New York). While narrow expansion is present, so is uncertainty which is restraining activity. The Beige Book said, The conflict in the Middle East was cited as a major source of uncertainty that complicated decision-making around hiring, pricing, and capital investment, with many firms adopting a wait-and-see posture. Also, Business outlooks varied amid widespread uncertainty about future conditions. Across the Fed's 12 districts, conditions are uneven and with signs of strain on consumers, while spending among higher-income consumers was resilient.
The implications for the April 28-29 FOMC meeting are that policymakers will also take a wait-and-see" approach in regard to monetary policy and the dual mandate. Conditions in the labor market do not appear to be deteriorating in the low hire, no fire situation that has dominated in recent months. If the surge in oil prices is going to spark inflationary pressures, it is still limited in scope.
About the labor market, the Beige Book said, On balance, employment was steady to up slightly during this reporting period, though one District noted a slight decline. Most Districts described labor demand as stable, with low turnover, minimal layoffs, and hiring mostly for replacement. Outside of health care and the skilled trades, wage competition remained muted.
Price increases were modest to moderate across districts. The Beige Book said, Generally, input cost increases outpaced selling price growth, compressing margins. Energy and fuel costs rose sharply in all Districts, attributed to the Middle East conflict, leading to higher freight and shipping costs and higher prices for plastics, fertilizers, and other petroleum-based products. Input cost pressures beyond energy-related increases were also widespread. However, this was not the only source of upward price pressures. The Beige Book also noted reports of higher prices for metals due to tariffs, technology costs for hardware and software, and insurance and health care costs.
Definition
This book is produced roughly two weeks before the monetary policy meetings of the Federal Open Market Committee. On each occasion, a different Fed district bank compiles anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts.
Description
This report on economic conditions is used at FOMC meetings, where the Fed sets interest rate policy. These meetings occur roughly every six weeks and are the single most influential event for the markets. Market participants speculate for weeks in advance about the possibility of an interest rate change that could be announced upon the end of these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.
If the Beige Book portrays an overheating economy or inflationary pressures, the Fed may be more inclined to raise interest rates in order to moderate the economic pace. Conversely, if the Beige Book portrays economic difficulties or recessionary conditions, the Fed may see the need to lower interest rates in order to stimulate activity. Since the past recession, traders worry about the impact of the Beige Book on the timing of tapering quantitative easing.
Since the Beige Book is released two weeks before each FOMC meeting, investors can see for themselves at least one of the many indicators which Fed officials will use to determine interest rate policy, and can position their portfolios accordingly.
Frequency
Eight times a year