The Federal Reserve’s Beige Book is out: the U.S. economy is booming, but inflation differences are intensifying

The latest Beige Book from the Federal Reserve shows economic activity expanding in 11 of the 12 districts, but the outlook for inflation is diverging, while the labor market remains steady.
(Background recap: Fed Beige Book: U.S. inflation grows moderately, economic outlook is pessimistic; Fed officials call for rate cuts in Q4)
(Additional context: The Fed’s latest Beige Book analysis: worries among businesses escalate, market and policy pressures intensify)

Table of contents

Toggle

• 11 districts expand: slight to moderate economic growth
• Energy surges: divergence in inflation outlook intensifies
• Shortage of skilled workers: wages rise moderately
• East Coast hotspots: tourism and technology as dual engines
• Cooling on the West Coast: consumers shift to lower-priced alternatives

The Fed’s latest Beige Book shows that from late May to June, U.S. economic activity improved moderately, with 11 out of 12 Federal Reserve districts recording growth.

11 districts expand: slight to moderate economic growth

The latest Beige Book, released by the Fed on Wednesday, slightly supported a shift in its recent hawkish stance. In recent weeks, U.S. economic activity has achieved slight to moderate growth, and employment levels in most areas were little changed or nearly unchanged.

The report said that from late May to June, U.S. economic activity improved moderately. Of the 12 Federal Reserve districts, 11 saw growth rates slightly to moderately higher, while one district, San Francisco, showed no change. This growth pace was slightly better than the June report, when 10 districts’ economic activity expanded, 1 district was flat, and 1 district saw a decline.

Overall price levels rose moderately, with 9 districts reporting moderate price growth, 2 districts reporting strong price growth, and 1 district reporting a slight increase. Compared with the previous reporting period, price growth was the same or slowed across all districts. The Fed said in the report:

“Some business contacts attribute these cost increases to the conflict in the Middle East; others cite tariff factors. Consumer prices continue to rise, and a few districts said business contacts have noticed that their customers’ sensitivity to prices has increased.”

The report is based on information gathered by the Fed’s 12 regional banks before July 6, and was compiled by the Federal Reserve Bank of Chicago.

Energy surges: divergence in the inflation outlook intensifies

Several Fed officials have expressed concern about high inflation and warned that interest rates may need to be raised this year. However, in recent remarks, Fed Chair Jerome Powell and Federal Reserve Bank of New York President John Williams both offered a comparatively more moderate view of the inflation outlook.

The report said that because the situation in the Middle East adds additional volatility to energy prices, there are differences in forecasts for inflation. The report said:

“Each district’s expectations for price growth over the next few months differ. Some contacts expect inflation to remain at its current pace, while others expect inflation to ease, which is partly helped by a decline in gasoline prices.”

Due to a pullback in gasoline prices in recent weeks, the monthly inflation rate in June fell. A temporary peace agreement between the U.S. and Iran gave U.S. households a brief respite, but the subsequent resumption of hostilities drove oil prices up again. The report said:

“Contacts generally expect the economy to continue expanding over the next few months, but multiple districts noted that uncertainty about fuel cost prospects has increased.”

Shortage of skilled workers: wages rise moderately

On the labor market, the report showed that employment and wage increases were slight to moderate. However, some districts saw wage growth as they competed for skilled technical workers.

Employment rose somewhat. In five districts, employment increased slightly, moderately, or steadily; in seven districts, employment changed little to nothing. In the previous report, only one district saw employment increase slightly, moderately, or steadily.

Employment increased across multiple industries, including manufacturing, construction, and retail. It is difficult for businesses across the board to find skilled workers, especially technical personnel and tradespeople. In most districts, wage growth was modest; in two districts, wage growth was very small. Some wage growth was attributed to intensified competition for skilled workers.

Boston: Manufacturing firms reported a slight increase in headcount; retail and hospitality said seasonal hiring was higher than last summer. Employment in the service sector was generally stable, but one company conducted small-scale layoffs of some white-collar employees after using AI to improve efficiency.

New York: Driven by international soccer fans for the FIFA World Cup, tourism activity in New York City remained strong. Hotel occupancy rates and room prices rose, and some restaurants and bars performed strongly due to demand from match-watch crowds. The number of international flight passengers, which had been weak earlier in spring, also rebounded.

East Coast hotspots: tourism and technology as dual engines

Philadelphia: Respondents said activities related to data centers, artificial intelligence, and defense manufacturing continue to grow strongly.

Cleveland: Real estate developers said demand for economic housing is rising, while demand for higher-end homes remains robust.

Richmond: After slowing in several prior periods, port trade activity returned to a level of moderate growth.

Atlanta: Transportation demand rose moderately. Truck brokerage companies said as the excess capacity built up during the pandemic is gradually absorbed, conditions in the industry improved steadily, and freight volumes surpassed the same period last year for the first time since 2021.

Chicago: Respondents said a larger scale of retail promotions boosted consumer spending, partly because Amazon Prime Day and other competitors’ promotions were moved earlier to June rather than July as in past years.

Cooling on the West Coast: consumers shift to lower-priced alternatives

St. Louis: Respondents generally expect that businesses will continue to pass higher costs on to consumers over the next few months.

Minneapolis: Several respondents said that rising gasoline prices are suppressing overall consumer spending; at the same time, consumers’ payment methods are shifting from cash and debit cards to credit cards. Credit card processing fees further squeeze business profits, especially affecting small businesses more.

Kansas City: Employers said they are willing to train job seekers who lack technical skills, but hiring is more difficult for candidates without soft skills such as communication and collaboration.

Dallas: Staffing firms said hiring demand rose across industries and across skill levels. One respondent said June was its best month since before the outbreak of the pandemic.

San Francisco: Price-sensitive consumers continue to shift to cheaper alternatives. One respondent in Southern California said in-store shoppers not only bought fewer expensive foods, but also started buying fewer items overall.