Cleveland Fed research: How well does the Beige Book predict recessions?

Anecdotal economic data compiled for the Federal Reserve’s Beige Book may be useful in predicting recessions, especially when regional-level economic sentiment is taken into account, according to a new report published by the Cleveland Fed.

Using natural language processing, researchers from the Cleveland Fed and Washington University in St. Louis constructed indices quantifying the sentiment expressed in the text of all 468 editions of the Beige Book going back to its creation in 1970.

The sentiment of the Beige Book’s national economic summary as well as regional summaries compiled by the 12 Federal Reserve Banks was typically negative during recessions. This suggests that these summaries, which are more timely than data such as GDP, may be useful for determining when the nation is in a recession. For instance, the analysis suggests that the probability of a recession has bounced around considerably since the pandemic-induced recession of early 2020, but the probability remains low as of March 2024, based on data from that month’s Beige Book.

The analysis also suggests that relying on the Beige Book’s national economic summary alone does not provide as much predictive power as evaluating regional-level economic sentiment.

“We view these findings as supporting the attention that the regional Reserve Banks give to firsthand reports of economic activity in their respective Districts,” the authors write.

Read the Economic Commentary: Regional Economic Sentiment: Constructing Quantitative Estimates from the Beige Book and Testing Their Ability to Forecast Recessions

About the Beige Book: To learn more or see the latest edition, visit the Beige Book page at federalreserve.gov.