Federal Reserve Beige Book: Overall economy has improved, employment levels remain largely unchanged in most regions, and prices have risen moderately in most areas

The Federal Reserve stated in its Beige Book survey of regional contacts that since mid-November, economic activity in most regions of the United States has been recovering at a "slight to moderate" pace. The report noted: "This marks an improvement compared to the previous three reporting periods, during which most regions reported little change in economic activity."

The period covered by this report follows the end of the longest government shutdown in U.S. history.

In 8 of the 12 Federal Reserve districts, employment levels have remained largely unchanged. The report indicated that wages are growing at a "moderate" pace, with several respondents noting that wage growth has returned to normal levels.

Price levels in most regions are rising at a "moderate" pace. However, the report also pointed out: "Some businesses that initially absorbed tariff-related costs are beginning to pass these costs onto consumers as their pre-tariff inventories are gradually depleted or as the pressure to maintain profit margins intensifies."

This report aligns with the recent views of several Federal Reserve policymakers: the labor market has generally cooled but remains stable. Meanwhile, some officials are cautious about further rate cuts, citing reasons such as inflation still being above the Federal Reserve's 2% target and potential price pressures from President Trump's tariff policies.

After three consecutive rate cuts of 25 basis points each by the end of 2025, investors currently expect that the Federal Reserve will not cut rates again until at least June of this year.

The Richmond Fed compiled this Beige Book based on information collected on or before January 5. The report aggregates comments and examples from executives of businesses in each district. Federal Reserve officials will meet again on January 27-28 to decide on interest rate policy.

Regional Highlights

Boston: "A respondent from the human resources services industry noted an increase in temporary hiring, with many positions likely to transition to permanent roles by early 2026."

New York: "An auto parts dealer on Long Island stated that most of the cost increases due to tariffs on imports from India have been passed on to consumers. A coffee roaster mentioned that although coffee tariffs have mostly been eliminated, sales prices will only decrease after high-cost inventories are depleted."

Philadelphia: "Respondents pointed out that consumers still face affordability issues in multiple areas of their household budgets, including housing, automobiles, utility costs, insurance, and medical expenses."

Cleveland: "Feedback from respondents indicated a moderate rebound in demand for manufactured products after several rounds of stagnation or decline. Some manufacturers still view data center construction as a key driver of demand."

Richmond: "Tariffs continue to impact businesses and erode profit margins. For example, a systems installation manufacturer bears 80% of the tariffs, while a small drilling equipment company has incurred nearly $200,000 in tariff expenses on imported equipment." Atlanta: "Multiple respondents indicated that they are accelerating the adoption of artificial intelligence to improve productivity and manage workforce size, although some pointed out that it will take several years to have a significant impact on staffing."

Chicago: "Truck transportation demand remains flat overall, and freight rates continue to be weak. A consultant in the freight transportation industry predicts that low profits may lead some small fleets to exit the market in the coming year."

Kansas City: "One respondent stated that most of the workers laid off from a rural manufacturing plant recently have found new employment within a month. Looking ahead, businesses expect hiring to increase in the first half of the year, particularly in the manufacturing sector."

San Francisco: "Several respondents from industries such as retail, consumer and business services, construction, transportation, and manufacturing reported that they have implemented price increases to offset higher tariffs as well as rising utility costs, insurance premiums, and some raw material costs."