The Federal Reserve's Beige Book: Economic activity has increased slightly due to holiday sales, outlook is optimistic but policy concerns remain.

date
16/01/2025
avatar
GMT Eight
According to the beige book report released by the Federal Reserve, the overall economic activity in the United States showed "slight to moderate" growth from late November to December, mainly supported by strong holiday sales. However, while overall business outlook for 2025 leans towards optimistic, some businesses expressed concerns about potential impacts of changes in immigration and tariff policies. The report noted that some manufacturers increased inventory reserves in response to potential tariff hikes. Employment during this period increased slightly overall, with 6 of the 12 Fed districts reporting slight growth in hiring while the other 6 showed no significant change. Wage levels increased in most regions, particularly in industries like healthcare which continued to show strong employment growth. However, employment in manufacturing remained relatively flat. Prices showed "moderate growth" overall. Many businesses expect prices to continue rising in 2025, with some mentioning that new tariffs could drive up costs. Particularly in the retail and manufacturing sectors, while overall prices rose slightly, there were also cases of prices remaining stable or even decreasing. Here are some specific situations in various regions: St. Louis: A company in the Memphis area stated that generative artificial intelligence technology will "shape its workforce structure" in the upcoming year, with existing employees relying on new technology and new employees needing relevant skills. Minneapolis: A contact at a shopping center in Minnesota noted that labor demand during the holiday season seemed "less of a challenge" compared to previous years. Kansas City: Food manufacturing and agricultural businesses in Kansas and Nebraska mentioned that restrictions on temporary immigrant labor could result in supply shortages. The leisure and hospitality industry in Colorado also expressed concerns about immigration restrictions exacerbating labor shortages near vacation communities. Dallas: Businesses generally believe potential tariffs will increase input costs, so many are planning to pass on some of the cost increase to consumers. While input cost growth is expected to slow in 2025, businesses plan to raise selling prices more than in 2024. New York: Tourism activities in New York City performed strongly at the end of the year, with visitor numbers reaching pre-pandemic levels for the first time in 2019. Contacts expect 2025 to be a record year for the tourism industry. Philadelphia: Most businesses anticipate increased inflationary pressures due to changes in fiscal, trade, and immigration policies. Cleveland: Many manufacturers are reducing manpower by cutting shifts or not replacing departing employees to cope with a decrease in order volume. Atlanta: Many businesses plan to maintain stable employee numbers in 2025, with a few expecting slight reductions in personnel through natural attrition, and possibly layoffs due to soft demand. The beige book is compiled based on regional economic information up to January 6, organized by the Chicago Fed. The report specifically mentioned that this data was collected before the recent wildfires in Los Angeles. Recent economic data shows a strong performance in the US job market, while encouraging signals of inflation. A key inflation indicator released on Wednesday showed a slowdown in core inflation for the first time in six months. The beige book is one of the important economic briefings for Federal Reserve officials before policy meetings. The next Federal Reserve meeting is scheduled for January 28-29, with the market expecting almost zero likelihood of a cut in benchmark interest rates then.

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