Today’s Beige Book showed that the overall economic activity improved during the latest reporting period (information collected on or before January 5th 2026). Across the twelve Fed Districts, eight Districts reported slight-to-modest growth (up from one in November), one noted a modest decline (down from two in November), and the remaining three saw no change (down from nine in November). The report noted that this performance marks an improvement from the previous three report cycles where majority of Districts reported no change. Some of the rebound in activity at the end the 2025 is likely due to the ending of the government shutdown.
Most districts reported “slight to modest growth” in consumer spending. The report also noted the K-shaped nature of the consumer spending with stronger spending among higher-income consumers, and increased price sensitivity and hesitancy to spend by low- and middle-income consumers. Residential real estate activity softened in most Districts, which runs counter to existing home sales data, which shows a pickup in sales in recent months.
Banking conditions were said to be “stable or improving”, with increased credit demand for home equity loans, credit cards, and commercial loans.
The labor market remained stable, with employment mostly unchanged. This is consistent with the modest pace of hiring in November and December. Firms were reported to rely more on temporary workers “to stay flexible in uncertain times” and were mostly backfilling vacancies rather than creating new positions. Encouragingly, even as many firms were exploring AI implementation, the report notes that “AI’s current impact on employment was limited” with more significant effects expected in the coming years. Wage growth was moderate, returning to “normal” levels as labor market cooled off.
There was little change on the inflation front. Prices grew at a moderate pace, unchanged relative to the previous reporting period. Cost pressure due to tariffs also remained a consistent theme across Districts. Some firms were starting to pass higher costs via higher prices to consumers, but others – particularly in retail and restaurant industries – were hesitant to do so for the fear of alienating price-sensitive consumers.
Key Implications
The anecdotal evidence from today’s Beige Book report points to a rebound in economic activity at the end of last year as the government reopened. Recent economic data also suggests that the impact of the lengthy government shutdown was smaller than feared. Recent reports on retail sales, inflation and employment have been encouraging, painting a picture of relative resilience across key economic indicators during the turbulent fourth quarter.
Taken together with other economic data points, today’s report provides policymakers with further reassurance that the economy stabilized at the end of the year while price pressures remained contained. This supports the case for a “pause” on rate cuts until the summer.
