Consumer Price Index Falls in May, Wage Gains Still Being Outpaced by Official Inflation Rate
This scenario is particularly likely given that the Federal Reserve Board Wednesday released its periodic Beige Book, reporting on economic activity across the nation.
The latest report indicates sustained growth in most industrial sectors and in most of the country, with little evidence available that the economy is slowing down. Region by region, the June 15, 2005, Beige Book describes an economy of relatively plentiful jobs, moderate to strong industrial and other commercial activity, and the possibility of some room for businesses to firm up profits through gains in "pricing power." Striking in the report is that, across the 12 Federal Reserve system districts, there are few distressed pockets (the area served by the Philadelphia district bank being notable for its recent downturn), even though the Bureau of Labor Statistics' own data shows that, over the past 12 months, wages for the average American worker have risen by only 2.6 percent, while the consumer price index indicates that inflation has eroded real purchasing power by 2.8 percent, meaning that, even by the figures of the government itself, American labor has lost ground to inflation over the past year.Dark Wraith CyberGloss
The Beige Book is compiled from impressions reported by each of the 12 district banks in the Federal Reserve system.
As was the case Tuesday when the apparently good news about prices at the wholesale level were released, the major stock market indices finished Wednesday only slightly higher.
Interestingly, after this morning's report, stock prices dropped noticeably, in part on surging crude oil prices, which crossed the $57 per barrel mark for some grades of crude. It was only later that an intra-day rally bouyed the stock indices back into positive territory; but the optimism seemed surprisingly tempered considering the back-to-back inflation reports, the possibility of a let-up by the Fed, and a Beige Book that looked more like the Bluebird of Happiness Book. Whether or not the surprisingly muted glee of investors is justified will be more evident over the next several days as further data is released by the government and private economic data providers.Dark Wraith CyberGloss
By selling stocks and using the proceeds to buy crude oil futures, investors cause stock prices to fall and the crude futures prices to rise.
One possible reason for investor worries is that, while the Bureau of Labor Statistics was reporting on an economy where inflation has come back under control, the Commerce Department was releasing news that industrial production had roared upward by twice what analysts had predicted for May, scoring a gain of four-tenths of a percent, after sliding three-tenths of a percent in April.
The overall jump was led by the manufacturing component of industrial production, which rose a dramatic six-tenths of a percent. To an outside observer, this is nothing but good news; but economists and sophisticated investors understand that such a growth rate—a monthly growth rate of six-tenths of a percent translates into an annualized growth rate of 7.44%—is unsustainable for a large economy and a clear sign of inflationary pressures "heating up" the economy because excess money is causing rapid, short-term increases in real output that will ultimately vanish and be replaced by nothing but inflated prices. To a certain extent, with the Federal Reserve Beige Book pointing to room for firms to boost profits by increasing prices, the central bank is perhaps unintentionally acknowledging that this scenario is a possibility in the months ahead.Dark Wraith CyberGloss
In the short-run, real output can be induced to rise by growth of the money supply in excess of the real growth rate of the economy. In the long-run, however, production returns to its original level, and the excess money becomes nothing but inflated prices on the original production schedule.
Published 6/15/2005 09:36:00 PM
<< 23 Comments Total
It is funny how all bullshit news and the real complexity of the economy can be boiled down into a 30 page report, where all the districts pretty much sound the same. No wonder they call it The Beige Book.
Business contacts report continued growth... Who are these contacts, are they old cronies of Greenspam or what? Seriously though, can you shed some light on the process of who and how this info is developed?
Notice a word I used, Mr. Goat, in that article: "impressions" is what those 12 district banks are reporting.
The "contacts" are very much as you characterized them: cronies in the business community, often the CEOs and CFOs of companies that share data with the Fed boys at the district banks. Accountants, lawyers in some cases, bankers quite a bit. You know: the usual suspects. According to one economist I know at a district headquarters, these cats at the upper levels of the Fed—the president of the district bank and other high-ranking officers—are in what essentially constitutes a network for purposes of communications, mutual assistance to some extent, and even fraternity among the wealthy.
That's the characterization that was given to me, and it was by a fellow who was in no way critical of this network; in fact, he aspires to become more and more a part of it.
This isn't much different from how business in general is conducted in many upper echelons where the common folk never visit; but in the case of the Fed, these data "impressions" end up, in minor ways, affecting policy. Honestly, Mr. Goat, the Beige Books are informal, and insiders know very well that they're not to be considered honest-to-God, hard-core rocks of factual information. Unfortunately, the media and some ignorant lawmakers act as if the Beige Books are the periodical equivalents of religious oracles.
I try in a careful way to make that evident in the way I treat my reporting on them when they come out. You'll notice that I don't cite them as authoritative as much as informative, and only to a certain extent at that.
There really is useful information in those Beige Books: if anyone knows what's going on at the big-boys level, it's going to be those big boys, themselves, who are in communication with the district Fed jockeys who submit their components for compilation in the Beige Books. That does not mean, though, that what those Big Boys know is everything that needs to be known by investors and other citizens.
More importantly, don't forget that the Federal Reserve system is separate from the government. While that means it has a fair degree of autonomy, it also means that, if the Fed wants to be partisan, who's going to stop it and exactly how? I don't want to go too far at this point, but I just have this weird feeling that we're getting blitzed this week with what looks for all the world to me like a planned or coordinated blast of good-news stuff. It's just too much sunshine all at once, and I feel like someone's trying to pump that sunshine up my butt.
The Dark Wraith prefers to select his own parts that are to be suntanned.
Pretty much what I figured regarding the "Book".
Now about that extra, acutely focused dose of sunshine...with Bushco stock continuing to tank, do you expect anything else?
As I've told Peter of Lone Tree both on this blog and in private e-mails, the big one hasn't even begun to get traction, yet; and it won't come into focus for quite a while. Of course, from what I hear, more Downing Street type stuff is in the pipeline, too.
The Dark Wraith just loves surprises.
[Except for that one with the... oh, never mind.]
Hiya Dark Wraith - I was listening to NPR this morning and the lady talking mentioned the "Beige" book several times. Imagine that! I actually knew what she was talking about ... because I read your post last night!
Good morning, Old White Lady.
The difference is, of course, that here you not only get the low-down on all things economics, but you also get the great crowd and the grim yet curiously uplifting décor of the hotel.
Plus, obviously, the espresso/hot chocolate bar is always open.
The Dark Wraith delivers.
Mornin Wraith,
I took a look at the Beige report, gave up on trying to figure out how to decipher the CPI page..I do have to work!
But, and let me emphasize this, but...still not getting how the one report cites one thing and the other SOMETHING ELSE..is this common? Again, I have no background in this so it may be an elementary question, it just seems weird!!
For example the following stood out to me from the Summary of the Beige report:
'Reports from most Districts indicated that price increases at the retail level remained modest overall. San Francisco noted that price inflation for final goods and services edged up, largely because of the pass-through of earlier increases in energy costs...."
And yet the CPI seems to state just the opposite. So I imagine it may have something to do with the timing of each report, yes?
And the previous comments on this thread lead me to wonder just which firms are influencing this and why..I think of oh, GM maybe.
P.S. a cpl more paragraphs and I just might submit a paper,LOL!!
Good morning, elf.
Yes, timing has quite a bit to do with disparities you might see between what's in a Beige Book and what comes out of more official, government resources. The Beige Book doesn't come out on the same schedule as data from sources like the Bureau of Labor Statistics, which is bound by regulation to produce public information at specific and relatively short intervals.
Also, if you managed to get through that Beige Book, you'll notice the relatively looser format of presentation. You'll see explanations, and these are, at least in some instances, of a speculative nature. I do that same kind of analysis here at The Dark Wraith Forums, but I try at least in some cases to work down to some theoretical or other level of background so readers will understand the motivation for a particular (and usually dark) explanation.
Another interesting feature of the Beige Book is that the authors at each of the Fed district banks are assiduous followers of mainstream media content in their respective regions. They don't ignore what's being reported in the local press and other information sources. This can be problematic in that some regions are dominated by one or several media companies that heavily shape reporting to reflect political agenda. An example of this would be the Cleveland Fed, where control of several major, respectable media outlets in Columbus and Cincinnati is in the hands of what can be characterized as something close to life-long reactionaries, and this is only partially counterbalanced by more liberal media tendencies in the Cleveland/Akron/Toledo triangle. On the other hand, following the mainstream media reports by the Chicago Fed gets kind of strange because of the decidedly liberal bias in Chicago, itself, which is counterweighted by the much more conservative, in some cases reactionary, media bias in other parts of that state and region. Even Chicago, itself, has a media industry in print and radio that panders to the Right because of the reach those outlets have into the downstate region where they can garner major ratings from locals trying to get news and talk radio that comports with their political views.
Anyway, before you submit your paper, please ensure that the margins are all one inch, and don't forget to put your name at the top.
The Dark Wraith gets really annoyed by assignments submitted anonymously.
If that is so with regards to the watching of media markets, then I will add what I am familiar with regarding the Philadelphia area where I grew up. While it's true that there are conseratives there, the media is not especially different from what one would find in the other major northeastern cities, i.e. liberal in editorial slant, if not as doggedly so as it is in some other cities. The rural areas north and west of Phila. are quite strongly conservative, but the major media outlets generally ignore them.
Were the movie Witness to actually happen (for those of you who have seen it/remember it), it would make quite a splash in the Philadelphia news. It would be treated as a strong cultural oddity, and so be highly newsworthy (in that "scandal of the day" mode that is so popular now).
- oddjob
ps: Boston can be culturally conservative in places, but the news media is largely liberal. (Not that this surprises anyone.)
As I've told Peter of Lone Tree both on this blog and in private e-mails, the big one hasn't even begun to get traction, yet...
I guess I missed that one. Are you by chance referring to the dramatic increase in "pre-war" bombing runs to soften or eliminate strategic targets?
Good morning, OddJob.
Something perhaps a bit subtle in this most recent Beige Book was which of the Fed districts reported a little bit less than everything's-coming-up-roses pictures for their regions: the Cleveland Fed, the Philadelphia Fed, and the San Francisco Fed all had a few negatives in their expositions.
The Dark Wraith leaves it to the readers to see the connections based upon previous comments on this thread.
Good morning, Mr. Goat.
Naw, something else.
The Dark Wraith does not, however, want to stick his neck out on a limb (or mix metaphors, for that matter).
No wonder you like being an economist.
Mr. Goat,
While the host has never said what the hell he knows about that he thinks may make such an ugly mess, previous hints have pointed clearly in the direction of a certain pissed off Korean of messianic temperament releasing seriously damaging information of some kind.
I'll be interested to find out what that may be if DW is correct.
- oddjob
As the Moon rises the bush Son sets?
Dark Side of Rev. Moon
furiously typing my new subscription to The Washington Times
I'm gonna just sit here in the corner and listen if you don't mind, Dark Wraith. May I smoke? I brought a fan.
oddjob: "...a certain pissed off Korean of messianic temperament releasing seriously damaging information of some kind. I'll be interested to find out what that may be if DW is correct".
It just couldn't have anything to do with the U.S. Congress after they treated him so nicely, letting him use Senate chambers for his crowning. We ARE talking about the same Korean, are we not? 'Twas such a nice gesture on the part of the Senators and all. Sort of a welcome back after we sent him up for tax evasion. So he OBVIOUSLY isn't still angered by the humiliation he suffered. There must be another reason for those stories that appear occasionally in the Times and UPI that are embarrassing to the Bush administration.
DW - Would the big one you are referring to be a document signed in georgie's blood?
Auntie Roo, you're something of a bloodhound, now aren't you? (And I don't mean that as a pejorative, mind you.)
I wouldn't necessarily say that any of Georgie's blood, per se, was shed; but that doesn't say much of anything: Mr. Bush has avoided shedding his own blood on a number of occasions, even before he had the power to cause others to lose theirs.
There is a blood document out there, supposedly; but such a revelation is not the biggest disaster that could befall the President who is just waiting to fall. He is being damaged, now. The damage will not wreck him, nor will it slow him down. In fact, if anything, these current problems are going to energize him, just like they're going to energize his constituencies, each in its own way and to its own purposes.
Mr. Bush is going to be pressed to talk faster, to talk more loudly, to be more aggressive, as he and his handlers show him as a man in charge and a man with a mission who doesn't have time for the trivialities of lesser sorts nipping at his heels.
To be quite honest in assessing his best strategy, he has nothing to gain by seeking accommodation with his political foes. Not that he ever showed any capacity whatsoever to diplomacy, anyway, but he's going to throw his dice at where his core base resides and perhaps behave even more like a jackass just for good measure.
However, I am betting that, after a few weeks, we're going to start hearing more about agreements, accommodations, and something almost akin to downright collegiality flowing in the Senate between a broad faction of moderate and liberal Democrats and their counterparts on the other side of the aisle.
Part of me will be glad to see that if it happens; part of me, on the other hand, wants to blow chow at the prospect of that kind of ass-slapping congeniality.
One way or the other, Mr. Bush's problems have only just begun, though.
As I've mentioned on this blog before, a Chinese wishing you ill will might say, "May you live in interesting times."
The Dark Wraith notes these times in which we are now living are without a doubt just about as interesting as one could stand.
Dear Dark Wraith,
I was a communications major and working at three major LA radio stations in the early '90s (one internship, one volunteer, and one paid) so the following rang a bell:
"impressions" is what those 12 district banks are reporting.
At that time, the record industry switched their music rating system from calling a representative group of record stores and asking whoever answered what records were "hot" this week, to analyzing actual digital records of how many sales each song made.
I remember, in that one week, Bob Dylan's (last) album went from #1 to about #20. I don't think that the music stores were lying or otherwise trying to fudge the stats or hype their friends. I just think this speaks to the concept of "asking around" vs looking at actual data.
...does anyone seriously expect CEOs, CFOs, and their cronies to give up any information that could enrich others....might I even say......the masses?
Good morning, SB Gypsy.
This issue has all kinds of sidestreams, nuances, and connections that are beyond the reach of the vast majority of folks at places like the Fed.
The very psycho-linguistics of communication between people of that realm shapes impressions. I touched on a tiny part of this in the Analysis, "Stone, Sand, and the Writ of History."
When people speak to one another, they convey messages not just about their own perception, but also about their expectations of shared perception. When people of that class and rank in society communicate, their words in their constructions and aggregates push substantial "sub-carriers" that even people below them in their own organizations wouldn't grasp fully if at all. That's why it's entirely specious to talk about being vaulted to the top of a corporate ladder in one fell swoop from the lower ranks. It doesn't work that way: far too much has to be learned, not just on a technical level, but also on a world-view level. Language at the top and bottom of a complex corporation, although syntactically the same, carries semantically different and important nuances that makes it entirely different for the peoples of different ranks. The language of the highest rank must be learned; and to the extent that it is learned, a person can advance.
So when these men and women of the business and financial communities give their "impressions," they're giving far, far more than the outside observer imagines: they're giving their world view as it shapes what they see, hear, know, and sense around them.
That means we can talk to them, read their words, and hear their ideas; but that does not mean we really understand what they have provided.
And they, of course, cannot understand us, either.
The Dark Wraith wishes it were otherwise, but it's not.
That's a fundamental part of what makes a language a language, no?
It certainly works that way in my life. As I've encountered various groups of people during my life each has had its own specialized lingo, and one is never really a full part of the group until one has mastered its lingo.
- oddjob