The Federal Reserve's Beige Book: The US economy expands moderately and the outlook for inflation intensifies

The Zhitong Finance App learned that the latest “Beige Book” released by the Federal Reserve on Wednesday shows that economic activity in the US has been growing at a slight to moderate pace in recent weeks. Employment levels in most regions have not changed much, and overall prices have continued to rise moderately. The situation in the Middle East and the cost pressure brought about by tariffs are still receiving corporate attention, but there are clear differences in judging future inflation trends in different regions.

This “Beige Book” was compiled by the Chicago Federal Reserve. The information comes from corporate and market feedback collected by the 12 regional Federal Reserve banks of the Federal Reserve as of July 6.

The report shows that the US economy has generally continued to expand recently, but the performance of various regions is not consistent. Most companies expect economic activity to continue to grow in the next few months, but several regions point out that fuel cost prospects are highly uncertain.

On the price side, the Federal Reserve said that overall prices continued to rise at a moderate pace. Some companies attributed the increase in costs to the Middle East conflict, while others mentioned the impact of tariffs. Meanwhile, consumer prices continue to rise, and some regions reflect consumers becoming more sensitive to price changes.

Expectations for future inflation are not consistent across regions. Some companies expect price increases to maintain the current rate in the next few months, while others believe that inflation may gradually slow down as fuel prices fall.

Overall inflation in the US fell month-on-month in June, mainly driven by a fall in gasoline prices. Previously, the US and Iran reached an interim peace agreement to ease the pressure on household energy spending, but recently the two sides have once again broken out, and international oil prices have once again risen sharply, leaving future inflation trends facing new uncertainty.

Recently, a number of Federal Reserve officials expressed concern about high inflation and warned that interest rates may still need to be raised this year. However, Federal Reserve Chairman Walsh and New York Federal Reserve Chairman Williams have recently made relatively moderate statements about short-term inflation prospects.

In terms of the labor market, the “Beige Book” shows that employment levels are basically stable in most regions, and wage growth rates have remained mild to moderate. In some regions, upward pressure on wages still exists as companies compete for skilled workers.

Looking at the situation in various regions, manufacturing companies in the Boston Federal Reserve increased their employees slightly, and the number of seasonal hires in the retail and hospitality industry was higher than last summer. Employment in the service sector is generally stable, but one company cut white-collar workers on a small scale due to artificial intelligence (AI) improving operational efficiency.

Tourism activity in the New York Federal Reserve has been strong. Driven by World Cup visitors, hotel occupancy rates and room prices in New York City have risen, and some restaurants and bars have also recorded strong sales due to game watching events. The number of international travelers arriving at the airport picked up after weak performance in the spring.

Manufacturing activity related to data centers, AI, and defense continues to be strong, according to Philadelphia Federal Reserve data. Cleveland Federal Reserve homebuilders say demand for affordable homes is rising while demand for luxury homes remains strong.

Port activity in the Richmond Federal Reserve has returned to a moderate level of growth after slowing down in previous cycles. Transportation demand in the Atlanta Federal Reserve increased slightly. Freight brokerage companies said that with the gradual digestion of excess capacity formed during the COVID-19 pandemic, industry conditions stabilized or improved, and freight volume surpassed the same period last year for the first time since 2021.

Chicago Federal Reserve companies said that retailers' increased promotions boosted consumer activity, partly because Amazon (AMZN.US) Prime Day and competitor discount campaigns were brought forward from July to June. Companies in the St. Louis Federal Reserve generally expect that they will continue to pass on higher costs to consumers in the coming months.

Some companies in the Minneapolis Federal Reserve pointed out that rising gasoline prices are curbing overall consumer spending. Consumers are also increasingly switching from cash and debit cards to credit card payments, while credit card fees further reduce corporate profits, especially small businesses.

Kansas City Federal Reserve employers say they are willing to provide training for job seekers with insufficient technical ability, but it is more difficult to recruit those who lack soft skills such as communication and cooperation.

According to the Dallas Federal Reserve recruitment company, demand for workers in various industries and skill levels has generally rebounded. One agency said June was its best performing month since before the pandemic.

The San Francisco Federal Reserve, on the other hand, shows that price-sensitive consumers continue to switch to lower priced products. A Southern California company said that offline consumers have not only reduced their purchases of high-priced food, but the number of purchases has also declined.

Overall, the “Beige Book” shows that the US economy is still resilient, but the growth rate is limited, and the job market is generally stable. Meanwhile, the Middle East conflict, energy price fluctuations, and tariffs are likely to continue to drive up corporate costs and become important variables affecting the Federal Reserve's future policy decisions.