The Federal Reserve’s latest Beige Book painted a picture of an economy that continues to expand while inflation pressures become less widespread, broadly reinforcing the recent message from softer CPI and PPI reports. Economic activity increased at a “slight to moderate pace” in eleven of the twelve Federal Reserve Districts, with contacts generally expecting growth to continue in the months ahead despite elevated uncertainty surrounding fuel costs. Consumer spending edged higher, although several Districts reported that rising fuel prices were weighing on discretionary purchases as households increasingly traded down to cheaper alternatives.
Labor market conditions also remained broadly stable. Employment increased on balance, with five Districts reporting modest to solid hiring gains compared with just one in the previous survey. Wage growth was described as “modest to moderate,” while skilled workers continued to be difficult to find in areas such as manufacturing, construction and technical trades. Manufacturers reported modest to moderate production growth, supported by strong demand from data centers, machinery and defense industries, although supply chain disruptions became somewhat more common.
The inflation picture was more encouraging. The Beige Book noted that prices increased at a moderate pace overall, but importantly, “price growth was the same or slower in all Districts” compared with the previous reporting period. Businesses continued to cite higher energy, transportation and raw material costs linked to the Middle East conflict and tariffs, yet several contacts also reported that selling prices were rising more slowly than input costs, squeezing profit margins. While some Districts still expect inflation to remain elevated, others anticipate further moderation as fuel prices ease.
Together with this week’s CPI and PPI reports, the Beige Book suggests inflation pressures had continued to cool through late June, although the renewed surge in oil prices means that assessment could face an early test in the months ahead.
