South-Western College Publishing - Economics  
Brrrrr--Beige Book Describes "Widespread Cooling"
Topic Productivity and Growth
Key Words Beige Book and Economic Growth
News Story American consumers may be feeling a bit of a lift, according to a recent Federal Reserve report. The report is a summary of economic activity in all of the Fed's regional districts that highlights trends in inflation, employment, agriculture, banking, manufacturing and consumer spending.

Commonly known as the Beige Book, the report is formally entitled "Summary of Commentary on Current Economic Conditions." The Fed issues a Beige Book report two weeks prior to each Federal Reserve Open Market Committee meetings-approximately every six weeks. Analysts carefully scrutinize the report's language because it indicates the Fed's view on the economy-- which in turn provides hints of the Fed's intentions regarding future monetary policy actions.

The most recent report appeared with a generally optimistic tone. The Beige Book described "widespread cooling" in residential housing, but noted growth in commercial real estate activity to pick up some of the slack. National income accountants include both residential and commercial construction as a component of business investment spending and that component appears to be stable despite falling residential real estate values in much of the country. "It seems like things are still stable," said Marisa DiNatale of Moody's Economy.com. "There may be moderating growth, but it's certainly not a drastic slowdown."

Other potential problem spots in the economy--rising prices and slower consumer spending--do not appear to be much of a problem at all in many areas of the country. Consumers are spending more freely on vacations and various forms of shopping. On the employment side, wage growth was described as generally "modest" and the Beige Book reported few signs of inflation as fuel costs dropped.

The relatively stable economic environment described by the Beige Book leads most economists to expect the Fed to leave interest rates unchanged at the next meeting of the Open Market Committee.

Questions
Discussion Questions:
1. Visit http://www.minneapolisfed.org/pubs/region/99-03/stern.cfm and use the article to write a summary of how the Beige Book is used and how Beige Book reports are compiled.
2. The article indicates that national income accountants count both residential and commercial construction as a component of investment spending. Use any source available to name the other two major components of investment spending.
Multiple Choice/True False Questions:
1. The Federal Reserve's Beige Book will contain information on:
  1. employment and inflation.
  2. agriculture and banking.
  3. manufacturing and consumer spending.
  4. all of the above.
2. The Beige Book's report citing relative stability of the economy is likely to cause interest rates to
  1. increase.
  2. decrease.
  3. remain the same.
  4. none of the above
Source Jeremy W. Peters, "Fed Reports Resilience in Economy" The New York Times Online, October 13, 2006.
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