Federal Reserve Beige Book: Economic activity in the United States has slightly declined in recent weeks, labor demand has weakened, and inflation expectations have strengthened

On Wednesday local time, the Federal Reserve's Beige Book showed that economic activity in the United States has slightly declined in recent weeks since the last report, indicating that tariffs and high uncertainty are having a ripple effect on the economy. The report stated: "All regions reported high levels of economic and policy uncertainty, leading businesses and households to adopt a cautious and wait-and-see attitude in their decision-making."

The Beige Book report noted that prices in the U.S. are rising at a "moderate" pace. Additionally, there are widespread reports that contacts expect future costs and prices to rise at a faster pace. Some regions anticipate these increases will be strong, significant, or substantial. The report indicated that businesses planning to pass on tariff-related costs to consumers expect to implement this within three months.

U.S. President Trump has imposed tariffs on many American imports and threatened to impose higher tariffs on major trading partners. This week, he doubled the tariffs on steel and aluminum. The final form and scale of the tariffs remain highly uncertain. In this edition of the Beige Book, the term "tariff" appeared 122 times, compared to 107 times in the previous edition; the term "uncertainty" and its variants appeared 80 times.

Most regions described employment as "flat" and generally mentioned that hiring has been delayed due to uncertainty. All regions noted weakened labor demand. Wages continue to grow at a "moderate" pace.

The report indicated that the economic outlook remains "slightly pessimistic and uncertain," similar to the previous Beige Book.

This edition of the Beige Book was prepared by the St. Louis Federal Reserve Bank, using information collected through May 23. The report includes comments and anecdotes from business leaders and other contacts from the 12 Federal Reserve districts. The Federal Reserve's next meeting is scheduled for June 17-18.

Regional Highlights

Here are the key points from the reports of the various Federal Reserve districts:

• Minneapolis: Employers generally reported continued improvement in labor supply. A contact in Wisconsin noted that attendance at recent job fairs was "very good," joking that "fewer people are coming in pajamas."

• Kansas City: Both consumers and businesses in the industrial sector are taking a cautious approach to capital expenditures, only making "zero regret" investments, which are projects with shorter payback periods, smaller scales, and lower sensitivity to policy changes.

• Dallas: The retail sector is experiencing layoffs. Some contacts expressed concerns about changes in immigration policy and their impact on the labor force.

• San Francisco: Many businesses have raised final prices. Some companies explicitly listed tariff-exclusive items in their quotes and contracts. One contact noted that even if certain anticipated tariffs fail to be implemented, the pricing based on those expected increases has not been adjusted.

• Richmond: A multinational machinery manufacturer closed a domestic product line aimed at international markets due to export tariffs. A furniture manufacturer reduced the average weekly working hours to four days.

• Atlanta: Contacts reported a decrease in international tourists coming to the U.S., initially mainly from Canada, but now extending to tourists from Asia and Europe. Domestic leisure travel in the U.S. remains flat.

• St. Louis: A restaurant owner in Kentucky stated that customers still come for dinner, but they skip appetizers and desserts. Retail sales have slightly declined, especially for non-essential items

• Boston: A clothing retailer, which usually prices items months in advance, has unusually re-tagged items with higher prices this time to cover tariff costs for products that will be launched in the summer.

• New York: A furniture manufacturer pointed out that market restrictions on its ability to adjust prices have led to an inability to pass on rising costs, significantly compressing profit margins. A heavy construction equipment supplier has raised prices on products not affected by tariffs in advance to secure additional profits before tariff impacts on costs take effect.

• Cleveland: A contact mentioned that funding cuts have led to the withdrawal of funds for major brownfield remediation projects, causing some stagnation in site cleanup efforts and the integration projects for police, fire, and 911 services