Federal Reserve's Beige Book - Economic Growth, Tight Employment And Rising Wages

Includes: SP500
by: Tim Worstall

The Beige Book from the Federal Reserve is essentially all the gossip we don't get in the standard economic numbers.

As such it's a useful guide to the way people are thinking, but not, obviously, to the numbers.

The current reading is that economic growth goes on, the labour market is tight and we can expect continuing growth in wages.

This Isn't An Economic Statistic

The Federal Reserve - or rather the people who work for the constituent banks - spend a lot of their time out there and talking to people. Trying to get a handle on what people think about what is going on. Some level of understanding beyond mere and simple numbers.

The result of all of this is parceled up and published as the Beige Book. The Fed absolutely doesn't try to apply any numerical analysis to this. It's a lightly filtered set of the gossip they've been told if we like to think of it that way.

The Beige Book.

This collection is published eight times a year. It's rather fun for those who like something as specialised as business and economic gossip.

However, it does have a use for us here beyond that. It's another test of all of the other information that we're getting. Note what Keynes himself said about recessions and the business cycle - they depend upon the animal spirits of businessmen. So, we can read this as being a recording of those spirits.

The Results Of This Edition.

There's not really anything like "a result" because we're not talking numbers that can be quantified. But the general tone is, as Moody's analytics puts it:

The Beige Book covering economic activity from mid-July through the end of August indicates that the U.S. economy expanded modestly throughout the reporting period. Economic activity increased in nearly every district, though the pace of growth varied. Employment expanded modestly, but manufacturing payrolls dipped in some districts. Wages rose steadily as firms raise compensation to compete for workers amid a tight labor market.

We expect this to continue as well, the most important part being this:

The labor market remains a major strength for the U.S. economy; job seekers will benefit in the near term as the scarcity of labor transfers bargaining power to workers. Anecdotal reports of higher wages should manifest in wage acceleration,....

Essentially, We're Doing OK

Maybe not great, but OK. We've still got economic growth and a tight labour market. That's leading to higher wages. That in turn will feed through into higher consumer demand - we're doing OK.

Making Numbers Of Non-Numbers

Of course someone will always try to take determinedly non-numerated information and make it into a number. As Moody's analytics does with their Beige Book Index:

The Moody's Analytics Beige Book Index posted a score of 94 for the July report, marking its second uptick in as many months. Multiple districts regained ground in the wake of deep losses over the last year. Gains were concentrated largely in the Northeast region.The Beige Book Index relays a relatively healthy economic landscape, indicating that the U.S. economy is heading in the right direction. Despite some downside risks, business contacts are broadly optimistic about growth in the near term.

Or in graphic form:

Beige Book Index (Beige Book Index From Moody's analytics)

That Economic Hip Bone Is Connected To The Economic Thigh Bone

The one thing we do need to make sure about any such numbers or stories is that they make sense. They accord with the other information we're getting from other sources. And we've just had the PMIs for the US and they are saying much the same thing. We've a slight weakness in manufacturing, services are doing just fine, growing nicely in fact.

We've not got one light flashing red, another green that is.

My View

As far as is actually possible - don't forget recessions are impossible to predict even in theory - all the information we're getting is telling us the same story. We might have growth slowing a little bit but it's still there. The employment market is tight, wages are and will be rising therefore.

Perhaps it's not a very exciting economy but it's doing just fine.

The Investor View.

We're currently expecting at least one if not two minor rate cuts from the Fed this year. None of the stories we're getting, none of the numbers, tell us that anything different is about to happen. Steady as she goes until we get new information telling us something different.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.