My first reaction after the market’s knee-jerk zoom on the latest Beige Book was that it was responding to what was, not what is.
I shared this with MarketWatch’s ace D.C. Bureau Chief, Rex Nutting, who is nobody’s fool.
The Beige Book doesn’t have the greatest track record for predicting recessions, or even noticing ones that have already begun. On March 7, 2001, the same month the recession began, the Beige Book reported that seven of the 12 banks reported ‘growth,’ while only one bank reported ‘noticeably slower economic activity.’
He added this, from a March 1999 paper by the Minneapolis Fed:
While the gathering of regional information for the Beige Book provides value to the FOMC as a reflection of the economy, the national summary based on the compilation of regional reports does not improve upon private sector forecasts. Consequently, because the Beige Book does not improve upon private sector forecasts, and because the FOMC looks at an array of forecasts and national indicators, and Board staff generates its own forecasts the Beige Book is not a good indicator of the future course of monetary policy.
Watch the road!