Fed Report Gives Clue to Economy
US FEDERAL RESERVE
BORED by anecdote-filled verbal reports from presidents of the Federal Reserve's regional banks, Arthur Burns, President Nixon's Fed chairman, asked to receive them in writing. Twenty years later, Dr. Burns's solution has become something of an institution. Eight times a year the Federal Reserve Board issues its ``Summary of Commentary on Current Economic Conditions by Federal Reserve District,'' better known as the ``beige book,'' for the color of its cover.
The next report, due out March 14, will be eagerly read by Wall Street stock and bond traders. Economists will scan it looking for early indications of changes not yet reflected in statistics. They may give some clue to future monetary policy, since the Fed's seven-person Board of Governors also reads the report prior to meeting with the presidents of the regional banks to decide interest rate policy.
``You can't lean on anecdotal information alone,'' says Lyle Gramley, a former Fed governor, ``but looking at statistics alone is hazardous as well. Business sometimes gives an insight the numbers somehow fail to convey.''
Obviously, the Fed does not rely on one report. If it did, it would have reduced interest rates after the Jan. 24 report, which painted the picture of a generally sluggish economy.
Weighing the evidence
Brian Fabbri, a former economist at the New York Fed, says the report is one piece of evidence the Fed weighs before making decisions. The Fed also looks at private opinions and its own staff forecasts and surveys. ``Sometimes the Fed decisions run counter to the interpretations read into the beige book by market participants,'' says Mr. Fabbri, now chief economist at Midland Montagu Economics.
In fact, the Fed takes more care with the report now that it knows the markets scrutinize it, says Paul Kasriel, another former Fed economist. ``In the past it has not had the best reputation,'' says Mr. Kasriel, now an economist at Northern Trust Company in Chicago.
Most criticism of the report stems from its anecdotal nature. It is not a scientific survey. It reflects the effort different Fed districts put into it.
The report begins with a five-page summary covering most areas of the economy: retailing, manufacturing, agriculture, natural resources, banking, and real estate. It is dry reading.
Reports from each of the 12 Fed districts follow. Some name publicly announced developments. In the last report, the New York district mentioned a $200 million modernization plan for Ford Motor Company's Buffalo stamping plant. The Cleveland district talked about area industries, such as steel, ball bearings, and electrical equipment, without naming a single company.
Many businessmen would not talk to the Fed if they thought their companies were going to be named. ``There has to be confidentiality,'' says Mr. Gramley.
Businessmen often talk about pricing - a touchy subject. For example, the Atlanta district reported that a plastics producer expects the prices of bulk chemicals and resins to continue falling. If the producer were named, it might give his competition an advantage and cause a Federal Trade Commission investigation.
Even so, there are often tantalizing clues. The Chicago district, for instance, noted that a Michigan utility's industrial customers, led by auto producers, had a sharp drop in December consumption. This has to refer to Detroit Edison, since it covers most of the southeast corner of the state, where the auto plants are.
At the New York Fed, a spokesman says the work is normally done by one or two economists who spend 10 to 15 days on it. Rarely do they talk to other economists. ``It's hands-on business people,'' says the spokesman.
Interpreting the report requires some discrimination, says Kasriel. For example, the report may mention the Minneapolis district has a strong economy while the Atlanta district is weak. ``It would be a mistake to weight them equally,'' says Kasriel. ``Atlanta would be more important than Minneapolis.'' Kasriel, in fact, thinks it is more useful to read the individual reports than the summary.
``The summary may be put together by someone with an axe to grind,'' he says.
(For a free copy of the beige book, write the Federal Reserve Board, Publications Dept., 20th & C Streets NW, Washington, D.C. 20551.