Reading the Tea Leaves in the Beige Book

And yet one of the most widely read documents produced by the Federal Reserve is actually short on them. That document is the "Beige Book," more formally known as the "Summary of Commentary on Current Economic Conditions by Federal Reserve District." Issued eight times a year, the "Beige Book" is a highly impressionistic survey of the nation's economic landscape, based on conversations staff at the 12 Federal Reserve Banks have with businesses in their regions.

Instead of serving up hard figures on total tourist traffic, the Beige Book will talk about what the operator of a ski lodge in Montana said about bookings when contacted by someone at the Federal Reserve Bank of Minneapolis. Instead of providing percentage changes in mine output, in its pages one finds general terms -- "strong," "weak," "modest," "robust" -- based on conversations with some unspecified numbers of mine operators. And the impressions vary from region to region. The Third Federal Reserve District, for instance, includes many farms in southern New Jersey and eastern Pennsylvania, but there's nary a word about agriculture in the Third District's report in the current Beige Book; in contrast, talk of agriculture takes up a good chunk of the reports from the Eighth, Ninth and Tenth Districts, which contain most of the nation's breadbasket.

One of the few things discussed in every district in more than passing terms is banking and finance - understandable for an economic survey from the nation's central bank. But even here, there are variations in emphasis and detail depending on the region. And once again, the most notable absence from the reports are numbers.

Given this, it would seem to me that bottom-line-oriented financial types should find this report nearly useless. Yet it's followed and commented upon every bit as much as the meetings of the Federal Open Market Committee, which sets the central bank's interest rates.

So what does this say about the financial sector and the larger economy? First, it says that soft data - impressions, sentiments, expectations, attitudes - matter just as much as hard numbers do in making economic decisions. It also says that one can gain as much knowledge about the economy by just talking to people as by poring over statistics. And finally, it suggests that even bankers enjoy a good read every once in a while.