Beige Book: US Economy Grows Slightly as Price Pressures Build

The United States economy kept growing in recent weeks, at a slight to moderate pace in most regions, according to the Federal Reserve's latest Beige Book, released on Wednesday, October 14. The report draws on interviews with business and community contacts across the Fed's 12 districts, collected on or before October 5.

Nine of the 12 districts reported growth: two at a moderate pace, three modest and four slight. Three districts reported no significant change. Most districts said contacts stayed positive about the months ahead, though expectations leaned toward slight growth, weighted toward manufacturing amid persistent uncertainties.

Jobs on hold

Employers are mostly standing pat. Most districts reported little or no net change in employment, a low-hire, low-fire pattern. Wage growth stayed modest to moderate. Several districts said inflation is pushing workers to press for cost-of-living raises amid rising benefit costs.

Artificial intelligence is showing up in staffing decisions. Five districts, including Boston, Chicago and New York, reported that some businesses had reduced staff or delayed hiring because AI tools raised productivity. In the Chicago district, one business services contact said AI adoption let the company shrink its headcount through attrition.

Shoppers feel the squeeze

Most districts reported little or no change in consumer spending. More than half said the spending that did occur was driven almost exclusively by high-income households, while lower-income customers grew more cautious. In New York, one contact reported a rise in 401(k) hardship withdrawals and earned-wage advances. Auto sales were flat to modestly lower in five of the six districts reporting them.

Tourism grew nationally, though Boston, Minneapolis and San Francisco reported fewer Canadian cross-border visitors.

Prices creep through supply chains

Prices continued to rise. Three districts described price growth as robust and eight described it as moderate, while three noted that input price pressures were intensifying. Four districts said the pace of price increases had picked up since the prior reporting period.

Higher oil prices permeated all district reports. Firms said elevated diesel prices and fuel surcharges were passing higher costs through the supply chain. Contacts in multiple districts also cited tariffs, other commodities and insurance. Consumer-facing firms said customers are resisting higher prices, which is tightening profit margins. Firms in several districts expect prices to climb further in coming months as existing contracts expire.

Factories carry the load

Manufacturing was the bright spot. Dallas reported robust, broad-based factory growth, and six other districts saw modest to moderate gains, tied in part to data center construction, defense spending and power generation. Five districts reported little or no manufacturing growth. In the Kansas City district, contacts said the data center buildout is crowding out other production and tightening labor supply, pushing firms to add overtime. Most firms there said they could pass higher costs on to customers, but services firms reported less ability to do so, squeezing margins.

What it means for rates

The Beige Book lands ahead of the Fed's October 27 and 28 policy meeting. The central bank raised its policy rate by a quarter of a percentage point last month, to a range of 3.75 percent to 4.00 percent, and most officials have indicated another hike is likely this year. Government data released the same day as the Beige Book showed consumer prices rose 3.7 percent in the 12 months through September, and traders priced about a 37 percent chance of a hike at the October meeting.