The Beige Book
Jul 08, 2015 10:21AM ● Published by Katelyn Nelson
The Beige Book compiles qualitative observations made by community bankers and business owners about economic (labor market, prices, wages, housing, nonresidential construction, tourism, manufacturing) and banking (loan demand, loan quality, lending conditions) conditions in each of the 12 Fed districts (Boston, New York, Philadelphia, Kansas City, etc.). These local reports that make up each Beige Book is compiled by one of the 12 regional Fed districts on a rotating basis—the report is much more “Main Street” than “Wall Street” focused. It provides an excellent window into economic activity around the nation using plain, everyday language. The report is prepared eight times per year, ahead of each of the eight Federal Open Market Committee (FOMC) meetings.
The latest Beige Book suggests that the U.S. economy is still growing at a pace that is at or above its long-term trend, indicating that some of the “transitory factors” that held the U.S. economy back in the first quarter of 2015 have faded and that some upward pressure on wages is beginning to emerge. Overall, the Beige Book described the economy as expanding at a “modest or moderate” pace in most districts. In general, optimism regarding the economic outlook far outweighed pessimism throughout the Beige Book, as it has for the past two years or so.
Watching wages and inflation
As it has over the past year, the June 2015 Beige Book noted that employers were having a difficult time finding qualified workers for certain skilled positions and some reported upward wage pressures for particular industries and occupations. In the past, these characterizations of labor markets have been a precursor to more prevalent economy wide wage increases.
Fewer comments on oil and energy than in past beige books
Oil and energy received a combined 32 mentions in the June 2015 Beige Book, below the 46, 50, and 73 mentions in the April, March, and January 2015 Beige Books. This may suggest that the capital spending cuts, rig count reductions, and job cuts in the oil and gas sector in late 2014 and in the first few months of 2015 may be fading as drags on economic activity.
Fading and current concerns
The uncertainty and lack of confidence around fiscal policy (fiscal cliff, debt ceiling, sequester, government shutdown) that dominated the Beige Book for most of 2011, 2012 and throughout 2014, is now clearly fading. The Affordable Care Act (ACA) and healthcare in general, remained a consistent source of concern among Beige Book respondents, although the impact has faded a bit recently.
Of the major “transitory factors” that impacted the economy and the Beige Book in early 2015, only the strong dollar lingered, however, neither the dollar nor the other headlines of the day were able to dampen the optimism on the economy that has picked up strength in the past year or so.
Angelo Imbrogno is the president of Blue Diamond Wealth Management