South-Western College Publishing - Economics  
Better Than Expected
Topic Employment, Unemployment, and Inflation
Key Words Wages, Price Index, and Economic Growth
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Reference ID: A157818713

News Story The Federal Reserve report known as the Beige Book, from the color of its jacket cover, is a survey of regional economic conditions. The report is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. The Beige Book is released two weeks prior to each FOMC meeting eight times per year so Fed officials can use the data in policy making.

The report indicates that a tight labor market is pushing up worker's wages in most regions of the country. The Kansas City Fed reported worker shortages in groups as diverse as hotel housekeepers and accountants. In West Virginia one retailer surveyed reported having to pay lower-wage workers more because of the competition for their services. Anytime there is a shortage of workers in a free market, wages will rise until supply and demand are equal.

With higher wages consumers are spending more even though some prices are higher. The Producer Price Index indicated that food became more expensive in December as prices of fruit and vegetables jumped by more than one-fifth. Chicken and fish also cost more than in November. Energy prices also contributed to the increase in the PPI with gasoline increasing by 7.1 percent and home heating oil was up by 4 percent. The PPI increased by 0.9 percent in December, but the rate of increase in the index was down compared to November.

The Beige Book said that overall inflation was moderate, and in some cases appeared to be stabilizing. In New York, for example, businesses reported some pressure to increase prices based on costs of production, "but no discernable acceleration in consumer prices." Since the Fed generally gives more weight to the 'consumer Price Index they are not likely to change their neutral stance on interest rates when they meet at the end of the month.

All the Fed regions reported a continuing softening of the housing market but there were signs that the market was leveling off. Manhattan remained relatively isolated from price declines with sales of coo-ops and condominiums rising noticeably. In Richmond, Virginia real estate agents said sales grew 9 percent in December compared with a year earlier. In Minneapolis and St. Paul, inventories of unsold homes declined as contractors adjusted to the housing market by focusing on remodeling rather than on new construction.

Bernard Baumohl, managing director of the Economic Outlook Group, commented: "In the last few weeks we've been getting a string of data that consistently seem to point to an economy that is turning out to be stronger than anyone expected. We really are shifting into a higher gear."

Questions
Discussion Questions:
1. Visit http://www.minneapolisfed.org/bb/ and summarize in your own words the history and use of the Beige Book.
2. Use a diagram of supply and demand for labor to explain the wages increases experienced in Kansas City.
Multiple Choice/True False Questions:
1. The Beige Book is published monthly by the Labor Department to use in economic policy making.
  1. True
  2. False
2. A shortage of workers in a particular skill is likely to cause wages to rise.
  1. True
  2. False
Source Jeremy Peters, "Some Signs of Economic Resilience Seen" The New York Times Online, January 18, 2007.
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