Thursday, September 9, 2010

August Beige Book Admits Economy Heading Down

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

The Fed just released its Beige Book summarizing U.S. economic conditions up to the end of August and the takeaway was "widespread signs of a deceleration compared with preceding periods". In general though the report was a mastery of double-speak and attempted obfuscation.

The Beige Book is a compilation of anecdotal reports on various sectors of the economy from the Fed's twelve regional districts (Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco). The Fed uses it as an additional source of information when determining economic policy. If they trust the numbers produced by the U.S. government statistical agencies, it's not clear however why it's necessary to produce this monthly study.

The Beige Book for August seemed particularly strained in its attempt to put some rosy spin on its findings. This was most evident in the section on Consumer Spending and Tourism. The opening sentence was positive and gave the picture of a slow growth economy (the story the Fed is trying to sell to the voting public):

"Reports on consumer spending were mixed but suggested a slight increase on balance. Most Districts reported that non-automotive retail sales rose compared with the previous reporting period or were above their levels from 12 months earlier."

The details that followed however indicated that consumers throughout the country were acting as they do during a recession:

"Atlanta reported a decline in the level of sales, and Richmond noted that sales "sputtered" in August, while New York and Dallas reported that growth in retail sales slowed. Several Districts noted an emphasis on necessities and lower-priced goods. Boston reported that back-to-school purchases were focused on immediate needs; in Cleveland, consumers focused on "value-priced seasonal items;" and in St. Louis, Kansas City, and San Francisco, sales were relatively stronger for lower-priced items."

Interestingly, the report goes on with a positive view of auto sales, even though they fell by 21% year over year in August and 5% on a monthly basis according to industry source Autodata:

"Most Districts also reported that sales of new automobiles and light trucks were largely stable or up slightly during the reporting period."

The Beige Book's authors would have provided a more accurate description of the state of the U.S. economy in August 2010 if they simply stated the following:

"Consumer spending was reported to be slow in most Districts, with purchasing concentrated on necessary items and retrenchment in discretionary spending. Districts reporting on auto sales described them as falling or steady at low levels."

This would have made their work much easier as well, since this is a statement from the Beige Book for August 2008.  That report was issued just before the U.S. economy fell off a cliff.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

No comments: