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The Fed's "Beige Book" is a compilation of economic activity by each of twelve Federal Reserve districts.

The title sounds impressive but it is little more than a summation of the anecdotes from the latest Fed regional reports (Think Philly Fed, Empire State, etc.).

The Wall Street Journal offers this view: Fed’s Beige Book Finds Manufacturing Shifting Into Higher Gear

Instead, let's dive into the actual Beige Book summary.

Overall Economic Activity

Economic activity expanded moderately in late April and early May with few shifts in the pattern of growth. The Dallas District was an exception, where overall economic activity sped up to a solid pace. Manufacturing shifted into higher gear with more than half of the Districts reporting a pickup in industrial activity and a third of the Districts classifying activity as “strong.” Fabricated metals, heavy industrial machinery, and electronics equipment were noted as areas of strength. Rising goods production led to higher freight volumes for transportation firms. By contrast, consumer spending was soft. Nonauto retail sales growth moderated somewhat and auto sales were flat, although there was considerable variation by District and vehicle type. In banking, demand for loans ticked higher and banks reported that increased competition had led to higher deposit rates. Delinquency rates were mostly stable at low levels. Homebuilding and home sales increased modestly, on net, and nonresidential construction continued at a moderate pace. Contacts noted some concern about the uncertainty of international trade policy. Still, outlooks for near term growth were generally upbeat.

Employment and Wages

Employment rose at a modest to moderate rate across most Districts. Again, the Dallas District was the exception, where solid and widespread employment growth was reported. Labor market conditions remained tight across the country, and contacts continued to report difficulty filling positions across skill levels. Shortages of qualified workers were reported in various specialized trades and occupations, including truck drivers, sales personnel, carpenters, electricians, painters, and information technology professionals. Many firms responded to talent shortages by increasing wages as well as the generosity of their compensation packages. In the aggregate, however, wage increases remained modest in most Districts. Contacts in some Districts expected similar employment and wage gains in the coming months.


Prices rose moderately in most Districts, while the remainder reported slight or modest increases. There were several reports of rising materials costs, notably for steel, aluminum, oil, oil derivatives, lumber, and cement. A few Districts noted that these reports of rising materials costs were becoming more common across contacts. Input cost increases, along with labor shortages in some sectors and strengthening demand, put upward pressure on prices in the transportation, construction, and manufacturing sectors. Some Districts also noted that their retail contacts were more able to pass along price increases to their customers than in the recent past.

Higher Gear?

The problem with the "Higher Gear" thesis is that it is based on anecdotes.

The Fed asks businesses how they feel. Each of the regional reports is a diffusion index. One firm hiring 3 employees will offsect a second firm firing 500 (and vice versa).

The same methodology pertains to capital spending, production, etc.

Industrial Production

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The above chart, shows a Fed compilation of what really happened, as opposed to anecdotes. Let's hone in on the acceleration.

Year-Over-Year Change in Industrial Production

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Higher Gear or Hill Top?

A rebound from negative to 2.01% is better than nothing, but it's hardly anything to crow about.

Survival Bias

The Beige Book itself is a collection of anecdotal nonsense heavily skewed by survival bias.

Companies that go out of business don't report. Think of the Dallas region. How many firms when bankrupt when oil plunged to $30 in 2016?

I don't have the answer, but I can tell you that every one of those firms stopped reporting.

Reporting Bias

  • Some firms simply do not bother reporting.
  • The regional reports are all diffusion indexes where small directional changes can and do offset major movements.

Useless Drivel

The Wall Street Journal did not comment on any of these issues.

Instead, the WSJ rehashed useless drivel as if it was news.

Mike "Mish" Shedlock