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The Plural Of Anecdotes Is Beige


As noted before, the Federal Reserve’s Beige Book collection of local bank district anecdotes are fascinating for all the wrong reasons. What is revealed is not the state of the economy, but rather the state of how policymakers perceive or often wish the economy was at various points. If the 2007 Beige Books are a collective case study in denial, those in 2008 are of borderline delusion.

Everything had by summer 2008 turned or rolled over, including oil prices and, relatedly, Chinese currency appreciation. The global economy did, too, but you wouldn’t really know it from the Beige Book. The version from September 3, 2008, does not once include the word “recession.” It does, however, mention the word “slow” (or one of its semantic derivations like “slowing” or “slower”) 62 times.

The same is true for the Beige Book published on October 15, 2008, already after the initial panic had concluded. The word “slow” appears 63 times, while again not a single mention of “recession.” Finally, the word shows up just once in the December 3, 2008, Beige Book, but only in reference to the energy sector in the 11th (Dallas) District, talking about “recession-reduced industrial loads” pertaining to just natural gas production.

The NBER had even declared two days prior to that last 2008 issue the “official” cycle peak dating back to December 2007. Yet, the overall perception one could have easily formed from reading these official, anecdotal scorecards was a mysterious but relatively unconcerning general slowing in the US and global economy. You could make the case that policymakers watered down the bad parts so as to avoid further panicky tendencies, but the complete transcripts of the actual FOMC meetings show instead these economists had little to no idea the extent of economy-wide damage and what it really meant.

In that regard, the Beige Book didn’t help at all, and if it did influence opinion it was in the wrong direction.

The latest version was published last week. We do not expect the word “recession” to appear as that is no longer the sharpest point of economic debate. Instead, as you might imagine, economists have become obsessed over inflation. In the context of this economy, that means the unemployment rate and therefore its anticipated relationship with wages. The word “wage” or “wages” appears 74 times in this most recent edition.

The reason for the obsession is simple. If wages accelerate, then the unemployment rate is meaningful and maybe even valid, therefore though monetary policy might not have worked as it was supposed to as was claimed in advance it at least didn’t fail. You can extend the fixation into the current global political posture, where faster wages and inflation for economists undercut the arguments of the populists who would otherwise be in history linked to this most basic and pressing gross failure of the “elite.”

The stakes being posterity are enormous. And yet, even the Beige Book can muster little more than shaky propositions.

Contacts across a broad range of industries reported a shortage of qualified workers which had limited hiring. Wages continued to grow at a modest to moderate pace in most Districts, and many firms attributed these wage gains to tighter labor market conditions. Wage pressures generally trended with employment conditions, and rising wage pressures were noted among both low- and high-skilled positions. A few Districts also reported rising costs of benefits and variable pay.

The second sentence in that quote, as noted a few days ago, directly contradicts the first. That is understandable since businesses reporting a shortage of workers fits this optimistic narrative, and therefore any mention of the word “shortage” in context of work or labor is sure to be included in this or any future Beige Books. The suitability for inclusion in the context of economics (small “e”) is irrelevant.

However, even the Fed’s very own labor market statistic, the Labor Market Conditions Index (LMCI), belies all its highly propped anecdotes. While wages and pay are only pieces of the overall index, it is and was always meant to relay the broader labor market picture. It’s hard to argue that labor market conditions are “tight” or generally good when your statistic shows the opposite.

The rebound after the 2015-16 downturn hasn’t even reached the proportions, according to the LMCI, of the middle of 2015 let alone something like 2011 or as any other recovery/growth period. In the past two months, the LMCI has indicated renewed weakness, or at the very least more downside variability that reduces the altitude of the average. From that we can naturally infer sluggishness.

Just the trajectory is enough to demonstrate this listlessness, corroborated widely at that. Like so many other accounts, the index is meandering upward rather than resolutely surging; the latter indicative of a truly “tight” and “robust” labor market; the former one without momentum if no longer slowing.

As the Beige Book, mainstream wage analysis especially if it includes a “shortage” of workers is not analysis. It is mere wishful thinking, hoping the world that makes sense to economists someday comes back to visit them. The plural of anecdote is never data, and the Fed has on both sides proven the cliché.

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