Federal Reserve Beige Book: Little change in U.S. economic activity, tariffs drive up prices, consumers feel the impact

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According to the Federal Reserve's Beige Book, a survey released Wednesday on the economic situation in U.S. regions, U.S. economic activity has changed little in recent weeks. Of the twelve districts, three reported slight to moderate growth, five reported no significant change, and the remaining four reported slight slowdown.

The outlook for economic growth also varies by region, with some business contacts expecting demand to pick up over the next 6 to 12 months; other regions point out that a prolonged government shutdown could pose risks to growth.

The Beige Book report shows that overall consumer spending in the United States has slightly declined.

In the labor market, overall employment levels have remained stable. However, most districts reported an increase in employers reducing their workforce through layoffs or attrition, due to weak demand, persistent economic uncertainty, and increased investment in artificial intelligence. Companies still seeking to hire generally found it relatively easier to recruit, though some industries still faced hiring difficulties. The Beige Book report stated:

Due to recent changes in immigration policy, labor supply in the hospitality, agriculture, construction, and manufacturing sectors has been restricted in several districts.

In terms of inflation, prices continue to rise, and several districts reported an acceleration in input cost increases. The Federal Reserve Beige Book stated, "Input cost increases triggered by tariffs were reported in several districts, but the extent to which these higher costs were passed on to final prices varied. Some businesses chose to keep prices stable to retain customers, while others passed the higher import costs fully onto consumers."

The latest Beige Book report is based on information collected by the twelve regional Federal Reserve Banks up to October 6, and was compiled by the San Francisco Fed.

Against the backdrop of a U.S. government shutdown delaying the release of key economic data, "anecdotal information" from businesses and consumers contained in the Beige Book has become especially important. Federal Reserve policymakers are currently divided on the extent of interest rate cuts. They are weighing the balance between a cooling labor market and inflation which still exceeds the 2% target.

Federal Reserve Chair Jerome Powell hinted on Tuesday that the Fed may cut rates later this month. Powell said that since officials cut the benchmark rate in September and projected two more cuts this year, there has been little change in the economic outlook. According to futures market pricing, investors are nearly certain that the Fed will announce a rate cut at its October 28-29 meeting.

Regional Highlights:

Philadelphia Fed: "Multiple contacts noted that some suppliers cited tariffs as a reason for price increases, even if their products were not actually subjected to higher tariffs."
Cleveland Fed: "A manufacturer said they had delayed layoffs waiting for an industrial rebound, but now can no longer postpone them."
Atlanta Fed: "Contacts warned that the price passthrough from tariffs has only just begun and expect price increases to continue until 2026."
Chicago Fed: "A contact in the trucking industry said the current situation is similar to a recession."
Kansas City Fed: "Although high input costs remain one of the biggest burdens, a manufacturing company said raw material costs have eased from boiling to simmering, and the company no longer has to scramble with every shock."
Dallas Fed: "Employment in the energy sector has further declined, as companies continue to leverage technological improvements to complete more wells in less time with fewer people."
Minneapolis Fed: "A Minnesota advertising company said demand for junior employees will decrease as AI tools can complete work more quickly."
San Francisco Fed: "Reported increases in business closures and reduced operating hours, as well as a slight uptick in loan delinquency rates."
St. Louis Fed: "Contacts in manufacturing, construction, and agriculture continued to report labor shortages, as some workers stayed away from work out of fear of deportation."

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