Fed Beige Book: 11 Districts Economy Expanded Modestly: Tariffs and Geopolitical Conflicts Push Up Supply Chain Costs, Consumption Downgrading Sweeps Multiple Districts

TradingKey - The latest Federal Reserve Beige Book shows that the US economy continued to expand at a "slight to moderate" pace from late May to June, with 11 out of 12 districts reporting growth, and the overall performance was slightly better than the previous period.

On the macroeconomic front, the Beige Book showed that during the reporting period from late May to June, the US economy sustained its steady tone. Reports from multiple districts explicitly noted that robust data center construction and machinery demand directly drove moderate expansion in manufacturing and construction. Meanwhile, in districts such as San Francisco, although businesses reduced hiring quotas, they are further channeling capital into the AI sector.

On the consumption front, the Beige Book showed that World Cup events brought tourism and spending dividends to some districts (such as Boston). However, high fuel prices are eating into residents' purchasing power. Multiple districts reported that consumer spending on discretionary goods has slowed down significantly, customer price sensitivity is surging rapidly, and financial pressure on some low-income families is becoming increasingly evident.

On the inflation front, although overall price growth remained flat or slowed down compared to the previous period, businesses are not having an easy time. Rising non-labor input costs (especially energy, transportation, and raw materials) are severely squeezing profit margins. The Beige Book specifically noted that the Middle East conflict and higher tariffs are the direct drivers of frequent supply chain issues and rising transportation costs. As end consumers become increasingly sensitive to price hikes, some businesses have no choice but to passively absorb the pain of rising costs.

On the labor market front, five districts reported employment growth (compared to only one in the previous period). However, structural shortages of skilled workers, such as technicians, persist. To cope with competing for talent with higher wages and labor shortages, an increasing number of enterprises are starting to introduce AI tools into their hiring and screening processes, or leverage AI to directly boost the productivity of existing employees.

Overall, contacts remained optimistic about future economic expansion, but fuel costs and geopolitical uncertainty remain key risk factors.