The Problem Isn't the Beige Book, It's Those Compiling It
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Back in 1983, Congressman Walter E. Fauntroy wasn’t too happy with the state of the economy. Who could have blamed him? In the final stage of seventeen terrible years of inflation, the US economy fell into not one but two deep recessions. The only silver lining was that the first of those, in 1980, was mercifully short, lasting only seven months. However, it was followed just a year later by a second, much longer contraction.

Though it was over around November 1982, not everyone was convinced of that; nor were they confident inflation had been successfully beaten for good. After all, each time the US fell into recession, three of them from 1969 through 1980, the recovery afterward was spoiled by another burst of consumer price pain.

Exactly what got Fauntroy up in arms has been lost to history though it isn’t hard to guess. Paul Volcker’s Fed has been lionized these days for results he didn’t himself expect. Before the Greenspan era, the place was a literal joke of a clown-show. The central bank’s history up to that point was truly horrendous, what with two “greats” already to its record combined totaling about three of its seven decades.

To begin with, there was no transparency. Before those days, central banks didn’t need it. Gone were the days of legit central banks, however.

Fauntroy was chairman of the House Subcommittee on Domestic Monetary Policy, so he had some juice. And Volcker’s Fed knew it had to come clean on some of its inner workings given the building anger in practically every layer of society. You don’t go that long and perform that poorly without giving up something if only to keep the public from riding politicians enough they just decide to shut the whole thing down and start over.

The story goes Fauntroy demanded the Green Book, for both Congressional scrutiny and then full release to the public.

The Green Book is the math book, the compendium of all the econometric simulations and projections. Small wonder those at the Fed were not interested in letting anyone else see it; they were then, and are now, horrendous. Why so much time and effort are poured into the thing is itself a mystery potentially explained only by unaccountable bureaucracy whose setting never strays far from institutional inertia.

However, understanding just how much heat was on the Federal Reserve at that time, Volcker decided to throw up a distraction. He wouldn’t consider giving Fauntroy green so he offered red in its place.  

The Fed, like any government agency, does love its colors. Its Red Book was relatively new, too. Former Chairman Arthur Burns had started the thing in place of oral reports. It had been tradition before it where the twelve branch presidents recited their assessments of conditions in each district drawn from contracts inside them.  

This made quite a lot of sense given how little information and data existed way back when. In the early days, long before the internet or even widespread standardized statistics on practically any part of the economy, how else would policymakers determine policies? It was a logical, rational approach to lack of information, using the Fed’s privileged position to cull among the local experts and dig up what would otherwise remain hidden.

Of course, it didn’t work; how could it? Whether the information itself was good or bad, it wouldn’t matter because of where it ended up. Either branch presidents sat on it because it conflicted with their pre-existing views, or it ended up in the hands of top officials who were just as “capable.”

Either way, Arthur Burns knew very well this habit was utterly worthless, so he conjured the genius idea, his only one, to skip the oral recitals, save the committee’s time during its deliberations and instead put them all in written form submitted beforehand. They were compiled in a volume and given a red cover, presumably as a joke meant to stop anyone from going inside it.

This was first tried for the May 1970 FOMC meeting, and all the memorandum really says about it is, “In a final observation Chairman Burns said he had found useful the initial issue of the red book and he considered the experiment a success thus far.” The text doesn’t say whether Burns had a smirk on his face while he reportedly made whatever remark though you can easily read one into the statement.

Thus, when Volcker agreed to open the books, so to speak, to Fauntroy he already knew which one it would be. Nothing truly useful, which is why the cover was changed – seriously - from red to tan; which we now know as beige.

Beige is the color of boring. It turns out to also be a shade of Economist jokes.

This isn’t to say there isn’t anything useful in the thing. You could actually make a case the Beige Book has been more useful than anything ever output from the Green Book. We can often tell what is more likely to happen by what isn’t covered under the Beige cover.  

If you go to the September 2007 edition, for example, you get the standard summary; always optimistic takes from whatever the economy is confronting at any given time. Here’s one passage from that particular intro, a solid example of what I mean:

“While several Banks noted that commercial real estate markets had also experienced somewhat tighter credit conditions, a number commented that credit availability and credit quality remained good for most consumer and business borrowers. Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited.”

There was some housing stuff, everyone knew about it, funding markets were acting weird, banks were making noises though in the end the economy seemed generally fine.

Worse, that it seemed fine was taken as a sign of strength and resilience so, case closed. No one in it was even thinking about a recession – that term doesn’t show up once, not a single mention and this was two months before the Great “Recession” (still another great) would begin.

The volume published the following month, October 2007, there was only a single reference though predictably used as a foil to play that same presumed optimism against it: “…some respondents expect an economic slowdown and say they are uncertain whether it will turn into a recession, while others feel that it is not a matter of underlying economic weakness so much as consumer confidence.”

The final Beige Book of the year returned to zero recession even though the text was published, thanks to Fauntroy, a single day before the cycle peak.

This radio recession silence would oddly continue all throughout the following year, one in which that word and worse you’d naturally have expected would’ve been plastered all around the anecdotal stories filling the texts. For the entire year, all of 2008, “recession” appeared a total of five times!

That’s less than one per volume. And of the quintet, three of them showed up in April 2008 alone just after Bear Stearns and all that when policymakers were compelled out of their standard conclusions. Yet, there would be zero again in both September and October. Maybe they just assumed it was foregone conclusion by that point so there was no further pointing in pointing out the obvious (though the NBER still wouldn’t declare it a recession for a further two months).

You might think this is just standard practice, policymakers not wanting to become too loose with language. Yet, the following year, 2009, while the word “recession” was used with a tiny bit more frequency (nine), one term which did curiously overshadow it was, unsurprisingly, “recovery.”

In the June 2009 Beige Book, it talks about “recession” in three cases while “recovery” appears in six. The very next book, July 2009, a pair of recessions yet seven recoveries. Then September, back to zero on recession though thirteen about recovery..

To be fair, the Green Book actually fared worse before and even during that monstrous contraction.

Which is right where we are in the latest edition released this week. If you had to guess how many times it contained “recession”, I sincerely doubt you’d get it right (through no fault of your own, of course, I’ve framed this question and the discussion before it to purposefully lead you toward a lowball prediction).

The answer is…fifteen.

And I don’t mean for the entire year, either; fifteen in September 2023’s publication alone. There had been three in July and a surprising nine in May when people hadn’t yet forgotten about the banking “difficulties” and its inevitable fallout. Before those, the standard zeroes.

The question now is, should anyone care? After all, Red Book and Burns to Volcker turning it Beige, this thing doesn’t have a great track record.

But that’s precisely what I mean. The September 2023 Beige Book is Shakespeare’s Queen Gertrude protesting a little too much here. Nearly all the references are in the context of reassuring a public let in on these inside contacts that a recession isn’t happening. I’ll cite a couple examples:

“Despite the up-tick, sentiment weakened, as expressed by one contact, who said, ‘The chatter is things are slowing down; we are just not seeing or experiencing [a recession].’ Large firms with extensive linkages to the broader economy also noted steady activity and no signs of a recession.”


“On balance, firms continued to expect slight growth over the next six months – weaker than the norm for an expansionary period. Sentiment is divided. A few contacts stated that their sectors were in a recession. However, most expressed that there were no signs of a recession, and many were more optimistic for a soft landing.”

One more:

“Contacts across all sectors expected relatively stable activity moving forward, with further easing of pricing pressures, and fewer of them mentioned the possibility of a recession when considering the outlook.”

This last one truly deserves an LOL. From that quote we can determine quite a few contacts must’ve been talking about a recession before this month that for some reason just didn’t make it into any prior Beige Book, but now that they’re apparently talking about a recession less it’s time for the branches to refer to it more!

These stories go to a transparently absurd length to say that recession risks have passed, in favor of the Goldilocks soft landing Jay Powell and his crew are selling. It is a bold new strategy when compared to 2007 and 2008, back when policymakers instead appear to have believed, out of superstition, if they used the bad word that would make it happen.  

There is one, however, which somehow slipped through and it might be one worth paying attention to. The problem with the Beige Book wasn’t really the book or the method behind it, rather who was or is compiling the information which goes into it and then how it gets used and ultimately by whom. We know what those previous examples are up to.

The St. Louis Fed branch added this one, though:

“A contact in the Memphis transportation industry reported issues with shipping and rising concerns about an upcoming recession due to growing warehouse inventories. Overall, sales and sales expectations for services contacts were generally about the same or slightly lower across all regions.”

Memphis? Transportation industry? If only the Beige Book would be more federally expressing with its language.

Then again, as maybe Congressman Fauntroy eventually figured out, he wasn’t the only bamboozled and by a lot more than a book. 

Jeff Snider is Chief Strategist for Atlas Financial and co-host of the popular Eurodollar University podcast. 

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