The Federal Reserve’s latest Beige Book, released on June 4th, indicates that economic activity in the United States has declined slightly since the previous report. All 12 Federal Reserve districts reported increased levels of economic and policy uncertainty, leading to more hesitant and cautious decision – making among households and businesses. This decline in economic activity is attributed to the impact of tariffs and heightened uncertainty across the economy.
Rising Tariffs and Uncertainty
The Beige Book highlights that higher tariffs are a key factor driving up costs for businesses. The term “tariff” was mentioned 122 times in the report, up from 107 times in the previous period. This increase reflects the growing concern among businesses about the impact of tariffs on their operations. Many businesses expect costs and prices to rise at a faster pace in the future, with some describing these anticipated cost increases as “strong,” “significant,” or “substantial”. Some businesses plan to pass on tariff – related costs to consumers within the next three months.
Employment and Labor Market
Employment conditions in most of the 12 districts showed relatively small changes, with seven districts describing employment as “flat.” The number of job seekers increased, and employee turnover rates declined. All districts reported a decline in labor demand, including reductions in hours worked and overtime, hiring freezes, and plans for layoffs. However, these layoffs were not widespread across industries.
Inflation and Price Levels
Prices in the US are rising at a mild pace, according to the Beige Book. Many businesses expect costs and prices to rise more rapidly in the future due to higher tariffs. Some businesses may respond by reducing profit margins or adding temporary fees or surcharges. The report notes that higher tariff levels are exerting upward pressure on costs and prices.
Business Outlook and Consumer Sentiment
The overall economic outlook remains slightly pessimistic and uncertain. Businesses are concerned about the impact of tariffs on their operations and the broader economy. The uncertainty surrounding trade policies and tariffs is causing businesses to be more cautious in their decision – making. This uncertainty is also affecting consumer sentiment, with some consumers pulling forward spending on big – ticket items to avoid potential price increases.
Impact on Specific Sectors
Retail and Tourism: Retail sales, excluding automobiles, weakened moderately in the first quarter of 2025 compared to the fourth quarter of 2024. Tourism from Canada slowed considerably, and there are concerns that summer travel from Europe and China could suffer due to negative reactions to US tariff policies.
Manufacturing: Manufacturing sales were flat on average, with some firms experiencing drops in sales to automotive industry clients. Capital spending remained within firms’ forecasts, but there were concerns that tariffs might require them to raise output prices and/or absorb cost increases.
Commercial Real Estate: Activity picked up slightly, but uncertainty had put a damper on decision – making. There were concerns that tariffs could blunt construction activity, raise energy costs, and dampen demand for warehouse space.
Conclusion
The Federal Reserve’s Beige Book paints a picture of a US economy facing increased uncertainty and a slight decline in economic activity. Rising tariffs and their impact on costs and prices are a major concern for businesses and consumers alike. The labor market shows signs of flattening, and the overall economic outlook remains pessimistic. As the US continues to navigate these challenges, the impact of tariffs and policy uncertainty will be key factors influencing the direction of the economy.
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