More exciting than it sounds: the Beige Book

The most human economic report has a name meant to be uninspired.

Don’t let all the math fool you. At its heart, the economy is a social creation, driven by both our higher-order functions of risk and reward and the ancient part of our brain that causes flop sweat. So when you want to get a sense of how things are going, you should look at the numbers, but there can also be value in asking people about the view out their window. The Federal Reserve thinks so.

For most, a chatty cabbie or a “How’s business?” over scotch rocks at the sky lounge might net some novel real-world economic insight, but the Fed takes the idea a bit further. Eight times a year, each of the 12 regional banks that comprise the Federal Reserve System asks a bunch of people about how their economy has changed since the last report. These responses are then analyzed, plucked for interesting nuggets and published in brief form.

It’s not an opinion poll or a scientific survey, and it’s not vox populi. Instead, it’s the Beige Book.

Each bank sets its own Beige Book reporting priorities, though prices, jobs and real estate are common themes. The Kansas City Fed, for example, covers nine topics, including community conditions, community and regional banking and agriculture.

Nicknamed for the color of its cover, the Beige Book is known formally as the “Summary of Commentary on Current Economic Conditions,” a title used only in articles explaining the Beige Book. It was the “Redbook” when it was created in 1970 on account of its red cover but was changed to beige in 1983 when it was first made available to the public. Red was seen as too exciting. Fed leaders feared people would overestimate the report’s importance if it were a bolder hue.

Federal Open Market Committee (FOMC) members presumably add the Beige Book to the slurry of economic information they ingest before setting the nation’s monetary policy. The FOMC, among its other important duties, sets interest rate targets.

“The Indicator,” an offshoot podcast from NPR’s “Planet Money” program, is a big fan of the Beige Book, selecting a comment from each edition and finding the underlying story. The result often rehydrates the dry language of economic analysis that can obfuscate point No. 1: The economy is made by and for people.

If you care to, you can read the Beige Book yourself on the Fed’s website. New issues typically publish two weeks before each FOMC meeting. The following excerpt comes from the Federal Reserve Bank of Boston’s contribution to the January report:

“On Cape Cod in the fourth quarter, hotel occupancy rates and retail sales met expectations and were roughly on par with the fourth quarter of 2023, but restaurants experienced weaker-than-expected sales.”

Occupancy flat, shopping flat, chowdah down. There you have it.

The bellwethers, who are kept anonymous in the report, are not selected at random. Each Federal Reserve bank contacts its own branch directors and also issues questionnaires and conducts interviews and roundtables with business leaders, community organizations, market experts, economists and “other sources” within their geographic district.

Some Beige Books are more broadly sourced than others, reflecting the breadth of their districts: The Federal Reserve Bank of Philadelphia, District 3, comprises the eastern half of Pennsylvania while the Federal Reserve Bank of San Francisco, District 12, is made up of the nine westernmost states. 

If this seems a little loosey-goosey for your taste, you’re not alone. The empirical value of the Beige Book is the topic of a long-simmering debate among market watchers and academics.

In January, two St. Louis Fed analysts took a crack at quantifying the “soft” data. A simple analysis of the archives found that the economic sentiment contained within, gauged by the ratio of positive words to negative words in each report, tracked closely with GDP growth. If commenters were more positive about the economy, the GDP was also positive, and vice versa.

So why not run the positive/negative sentiment report and add it to the pile of hard data? What global-scale economic information can be derived from a pasta die maker? It’s about connecting the dots, the researchers said.

“Neglecting to read the Beige Book and instead focusing only on the numerical sentiment scores derived from it may cause an observer to detect big fluctuations in economic conditions without understanding the driving forces behind those changes,” they wrote.

That makes the Beige Book a kind of deductive grease, helping Fed leaders understand the causes and curiosities that shape our economy before casting votes with the potential to affect billions of lives, from the point of view of those lives. There’s nothing beige about that. 

Sources: U.S. Federal Reserve System, Federal Reserve Bank of Boston, Federal Reserve Bank of St. Louis, Federal Reserve Bank of Kansas City, NPR.