The Federal Reserve’s latest Beige Book painted a picture of an economy that continues to grow but is increasingly feeling the effects of higher energy costs and persistent inflation pressures. Economic activity expanded at a “slight to moderate pace” in ten of the twelve Fed districts, while consumer spending was uneven and increasingly divided along income lines. One notable observation was that middle-income households are now “squeezing more life out of every dollar before deciding to spend it,” while lower-income consumers are showing greater financial strain through increased credit card use and a focus on necessities.
Despite softer consumer trends, the labor market remained remarkably stable. Employment showed little or no change across eleven districts, with most regions describing a “low-hire, low-fire environment.” Manufacturing hiring remained one of the stronger areas, supported by defense-related demand and the ongoing expansion of data-center investment. Wage growth was generally described as “modest to moderate”, but businesses increasingly reported cost-of-living adjustments and more frequent wage reviews as workers faced higher fuel and household expenses.
The strongest message from the report came on inflation. The Beige Book noted that prices increased at a “moderate to strong pace overall,” with most districts reporting higher inflation than in the previous survey. Energy-related costs linked to the Middle East conflict were identified as the primary source of pressure, with spillovers into shipping, packaging, groceries, and fertilizer. Importantly for policymakers, businesses reported that non-labor costs were rising faster than selling prices, creating margin pressure that could eventually lead to further price increases.
