Fed Beige Book Data Highlights Pressure on Consumer Spending

The word “uncertainty” appears in the Federal Reserve’s latest Beige Book 34 times.

The report, which comes out eight times a year and offers qualitative insight on consumers and commercial business trends in each of the central bank’s dozen districts, notes slight growth overall. But there are some storm clouds massing: The report also observes that there’s mounting worries overall, particularly over tariffs, as banks and businesses ponder what comes next.

The Beige Book from Wednesday (March 5) also cites a drop in consumer spending, which since mid-January has been “lower on balance, with reports of solid demand for essential goods mixed with increased price sensitivity for discretionary items, particularly among lower income shoppers.”

Preemptive Price Increases

The trade war and tariff situation is fluid, but the central bank’s sources are already pivoting, which means that the pressure on consumers may only deepen. At the moment, businesses are grappling with the costs of doing business, and the pass through, to consumers, seems just on the horizon.

“Input price pressures were generally greater than sales price pressures, particularly in manufacturing and construction,” the report details.

“Many Districts noted that higher prices for eggs and other food ingredients were impacting food processors and restaurants. Reports of substantial increases in insurance and freight transportation costs were also widespread.

“Firms in multiple Districts noted difficulty passing input costs on to customers. However, contacts in most Districts expected potential tariffs on inputs would lead them to raise prices, with isolated reports of firms raising prices preemptively.”

Boston offers up this snapshot: “Prices increased moderately on average as wholesale food prices spiked, and contacts expressed concerns that tariffs would contribute to more intense pricing pressures moving forward.”

In New York, “Many businesses noted heightened economic uncertainty and expressed concern about tariffs.”

Half of the districts note a contraction in consumers spending.  The chart below indicates that only two districts, in fact, saw a boost in consumer spending.

As PYMNTS reported last week, personal consumption expenditures decreased 0.2% month over month in January. This is the first time consumption measured in current dollars decreased month over month since March 2023.

The Fed’s Beige Book found sentiment about economic growth varied across districts, with several noting modest expansions but others reporting stagnation or slight declines. Atlanta, Richmond and Dallas highlighted modest to moderate growth, supported by sectors like manufacturing, transportation and lending. In contrast, San Francisco and Kansas City saw slightly weaker activity, reflecting soft consumer demand and housing market pressures.

Labor market conditions remain mixed. Loan demand was uneven. Districts like Cleveland, Atlanta, and Kansas City reported increased demand, while Chicago noted a modest increase in business loans but with declining loan quality with a deterioration in asset quality for auto suppliers. New York saw eased credit standards.

Manufacturing and construction firms noted that tariffs were increasing material costs, creating uncertainty for long-term pricing and investment decisions.

PYMNTS Intelligence has found that uncertainty already was taking a toll, for a while, headed into 2025.  Twenty-eight percent of middle market companies indicate that they navigated uncertainty last year; uncertainty cost an average of 6% of annual revenues for firms with sales of between $50 million to $1 billion. Nearly half of firms, at 45%, say that uncertainty has resulted in diminished profits.