US economic activity saw “little” change in most of the 12 Federal Reserve districts from the previous month, according to the Fed’s latest Beige Book, an anecdotal survey of the state of the US economy. The report, compiled with analysis from 12 central banking districts, said economic activity in three districts saw “mild to modest” growth, five reported “no change” and four noted “slight softening.”
In essence, the report suggests that there has been a slight loss of momentum in activity over the past eight weeks, which confirms Fed Chair Jerome Powell’s message this week that the economic situation has not improved since the Fed cut rates by 25 basis points on September 17. The messages are not particularly comforting in view of the next meeting on 28 and 29 October and this, according to analysts, will convince the Fed to proceed with further interest rate cuts in the next two meetings at the end of the year.
Spending stagnates and hits manufacturing
Overall consumer spending, particularly on retail goods, has fallen slightly in recent weeks, although auto sales have been boosted in some districts by strong demand for electric vehicles ahead of the expiration of a federal tax credit in late September. Several reports highlighted that low- and middle-income families continued to seek discounts and promotions in the face of rising prices and high economic uncertainty.
Manufacturing activity varies by district, and most reports have highlighted challenging conditions due to rising tariffs and declining overall demand. Activity in the agriculture, energy and transportation sectors was generally down among districts that submitted data. Conditions in the financial services sector and other interest rate-sensitive sectors, such as residential and commercial real estate, have been mixed; some reports have highlighted an improvement in business lending in recent weeks thanks to lower interest rates, while others have continued to highlight weak activity. Sentiment has improved in some districts, with some contacts predicting increased demand over the next 6-12 months. However, many others continued to predict that the high uncertainty would weigh on activity. A district report highlighted the downside risk to growth from a prolonged government shutdown.
Labor market in stalemate
Employment levels have remained broadly stable in recent weeks and labor demand has been generally weak across districts and sectors. In most districts, more employers reported staff reductions through layoffs and attrition, with contacts citing weaker demand, high economic uncertainty and, in some cases, increased investment in AI technologies. Employers who reported hiring generally noted improved labor availability, and some preferred hiring temporary and part-time workers to offering full-time employment opportunities.
However, labor supply in the hospitality, agriculture, construction and manufacturing sectors has been challenged in several districts due to recent changes to immigration policies. Wages grew across all districts, generally at a modest to moderate pace, and labor cost pressures have intensified in recent weeks due to disproportionate increases in employers’ health insurance costs.
Input costs increasing with tariff effect
Prices increased further during the reporting period. Several district reports indicated that input costs have increased at a faster pace due to higher import costs and higher costs of services such as insurance, healthcare and technology solutions.
Tariff-induced increases in input costs have been reported in many districts, but the extent of these increased costs passed on to final prices has varied. Some companies facing tariff-induced cost pressures have kept sales prices largely unchanged to preserve market share and in response to resistance from price-sensitive customers. However, there have also been reports of companies in the manufacturing and retail sectors passing on the increased import costs entirely to their customers.
