The Federal Reserve’s latest Beige Book showed subdued economic growth and limited consumer demand, even as businesses continued to face widespread inflation pressures. Of the twelve Fed Districts, two reported moderate economic growth, three modest growth, four slight growth, and three little change. Manufacturing provided much of the momentum, particularly in Dallas, where firms reported robust, broad-based expansion. However, most other sectors showed little growth, while consumer spending was largely stagnant. Most Districts reported “little or no change in overall consumer spending,” with more than half indicating that spending was driven by high-income households. Even in Dallas, retailers reported “some reports of lower-income customers being more cautious with spending.” Business expectations were generally positive but pointed toward only slight growth ahead.
Labor market conditions were similarly subdued, with most Districts reporting little change in employment despite continued wage pressures. Labor supply was generally sufficient to meet demand, although shortages persisted among specialized and skilled workers. Notably, five Districts reported firms reducing staffing through attrition, delaying recruitment, or expecting less job creation after improving productivity through AI investment. Meanwhile, five Districts reported moderate wage growth, four modest growth, and two slight growth. Several noted that higher living costs were generating additional wage demands, while rising employee benefit expenses added to labor costs. The combination suggests that businesses are becoming more cautious about hiring even as inflation continues to exert upward pressure on compensation.
Price pressures remained widespread and intensified in several regions despite sluggish consumer demand. Three Districts described price growth as robust, eight as moderate, and one as modest, while four reported an acceleration since the previous survey. Higher oil prices featured across all twelve Districts, with businesses reporting elevated diesel costs and fuel surcharges passing through supply chains. Additional pressure came from commodities, tariffs, and insurance. However, price-sensitive consumers continued to resist increases, forcing businesses to absorb higher costs through tighter margins, selective price adjustments, and targeted incentives. More importantly, several Districts expected further price increases as existing contracts expire and input and delivery costs are renegotiated. The findings highlight the risk that persistent cost pressures could sustain inflation even without a meaningful acceleration in domestic demand.
Key Takeaways
- US economic growth remains subdued: Only two Fed Districts reported moderate growth, while most others saw modest, slight or no expansion. Manufacturing provided much of the momentum, particularly in Dallas.
- Consumer spending shows limited strength: Most Districts reported little or no change in spending, with demand increasingly concentrated among higher-income households. Lower-income consumers remained cautious.
- Employment remains stable as AI affects hiring: Most Districts reported little change in employment. Five noted that AI-related productivity improvements were contributing to hiring delays, staffing reductions through attrition, or expectations of slower job creation.
- Inflation pressures remain widespread: Three Districts reported robust price growth and eight moderate increases. Four Districts saw price pressures intensify, with higher oil prices, diesel costs and fuel surcharges affecting supply chains.
- Further price increases remain a risk: Businesses face pressure from energy, tariffs, commodities and insurance, but consumer resistance is squeezing margins. Several Districts expect additional price increases as existing contracts expire and costs are renegotiated.
