Books of color…Tealbook, Greenbook, Bluebook, Beigebook, and the Redbook are all important statements produced by the Federal Reserves to report the country's current economic conditions, forecasts, and monetary policy plans. It is important to first recognize the different media of communication of the Federal Reserves to encompass the economic conditions of the country to apply wise educated investment strategies.
Tealbook A and Tealbook B comprise the two parts of the " “Report to the FOMC on Economic Conditions and Monetary Policy" prepared by the staff at the Board of Governors prior to the FOMC meeting. The name comes from merging the Bluebook and the Greenbook in June 2010. The Tealbook A, also called the “Economic and Financial Conditions: Current Situation and Outlook", covers an in-depth analysis of the current economic and financial conditions of the country and the globe, along with an analysis and developments of the financial market., the monetary policy plan and alternatives. While the Tealbook B, also called “Monetary Policy: Strategies and Alternatives,” provides background and context on monetary policy alternatives that the FOMC could consider.
Greenbook, also called Current Economic and Financial Conditions and known for its distinguished green cover, provides an in-depth analysis of the current conditions and outlook of the economy. It’s also distributed prior to the FOMC meeting by a week.
Bluebook, also called Monetary Policy Alternatives and known for its light blue cover hence the name, offers background and context on monetary policy alternatives that the committee might consider at an upcoming meeting.
Redbook, also called Summary of Commentary on Current Economic Conditions by Federal Reserve District, was first published in 1970 and posits a qualitative view of economic developments in each Federal Reserve District. It was considered confidential and was not shared with the public; however, it was discontinued and the Beigebook was released instead Beigebook, also titled Summary of Commentary on Current Economic Conditions by Federal Reserve District, was first published in 1983, and it provides a summary of the Redbook, the predecessor of the Beigebook. The book represents the anecdotal data on current economic conditions in the FED’s district as well as a national summary through reports from the market, and it is released to the public prior to each meeting. The Federal Reserve is responsible for 12 districts including Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francesco.
As the market is in anticipation of the next FOMC scheduled on the 14th-15th of June, we can get insights into the US economy by observing the latest Beigebook. The Overall US activity has seen a slowdown, and increased employment but at a moderate pace, inflationary pressures are still high forcing firms to pass the increased input costs to consumers, especially in raw materials, transportation, and labor costs. The geopolitical pressures, China’s lockdown, and the percussions of the pandemic are hampering supply chains across the globe, and clouding a hopeful economic outlook.
From a deeper viewpoint, according to the Bureau of Economic Analysis of the US Department of Commerce’s first estimates of Q1 that was released on April 28th, the GDP of the United States, which accounts for 18.55% of the global economy, in Q1 decreased by 1.4% compared to an increase of 6.9% in the GDP last quarter, while the market expectation was a growth of about 1.1%. The second estimate of Q1 will be released on May 26th in which it is expected that the GDP will contract further by about 1.3%. The contraction is mainly due to the fall in private inventory investment, increased trading deficits in which exports declined by around 6% and imports increased by 17,7% reaching an all-time high of 10.3%, and a fall in government spending. During the past 6 decades, the average GDP growth rate is 3.18%.
The employment situation in the US has seen better figures than last month; the total nonfarm payroll employment, which is the total number of paid US workers in all business with the exclusion of farmworkers, military workers, NGO volunteers, those who conduct unpaid work in their households, self-employed and unincorporated individuals, reached increased by 428 thousand in April with the highest gains in leisure and hospitality, and manufacturing sectors. The unemployment rate stayed the same at 3.6% in April and it is expected to stay the same in May, and it is worth mentioning that it is below the 1948-2022 average of around 5.75 %.
The annual Inflation rate, on the other hand, started to ease down in April from 8.5 % to 8.3% with energy inflation easing down from 32.048 % to 30.27%, while food prices at home witnessed the highes5t annual percentage increase of 10.8% since November 1980, increasing by 6.8% compared to last month, and it is expected that it will reach the 9% by next month. President Biden in his latest speech warned the world of the existing economic pressures, and that it will take time to get back to pre-pandemic levels.
These economic conditions are reflected in the financial markets in which the Ten-year Treasury yields increased by 57 bps, with expectations of an increase in the term premium during May as a result of the higher interest rates. The graph below shows the 10-year treasury and Adrian- Crump- Moench Term Premium, which measures the extra yield required by bond investors to hold on to a long-term bond in place of a series of short-term bonds.
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Source: Federal Reserve Bank of New York (2022)
Also, the US Equity Market has been affected by the economic pressures; such that equity prices fell by around 8.4% in May compared to the average of April and market volatility rose with the VIX index hiking from 24.4 in April to 33.8 in May 9th, as seen in the below graph.
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Source: S&P and WSJ via Haver (2022)
The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.