U.S. economic activity has risen slightly but unevenly since mid-January, employment nudged higher, and prices increased modestly, the Federal Reserve said on Wednesday, with businesses and households expressing continued optimism amid rising uncertainty about how U.S. President Donald Trump's policies will affect future growth, labor demand and prices.
"Six Districts reported no change, four reported modest or moderate growth, and two noted slight contractions," the U.S. central bank said in its summary of observations from the commercial and community contacts of each of the Fed's 12 regional banks. "Overall expectations for economic activity over the coming months were slightly optimistic."
Known collectively as the "Beige Book," the document provides a snapshot of the nation's economic experience and mood two weeks ahead of each Fed policy meeting. Compared with January, it reflected growing anxiety among businesses across most districts about how Trump's plans to increase import duties and restrict immigration could affect demand and prices.
The report included 47 mentions of uncertainty, up from 17 in the January report, and 49 mentions of tariffs, up from 23 in January and 11 in December. Contacts in multiple Fed districts also said rising uncertainty over immigration and other matters was influencing current and future labor demand, the report said.
With all its data collection complete by February 24, it may already be stale.
Although the White House on Wednesday said autos coming in through the U.S.-Mexico-Canada trade agreement would be exempt from the tariffs for a month, some Wall Street economists say the new levies augur stronger inflation and slower growth, a combination that could give the Fed a difficult policy choice.
That challenging mix is already evident in surveys showing rising consumer inflation expectations, slowing business activity, a drop in new factory orders and an increase in prices paid for manufacturing materials.
"Consumer spending was down," the Cleveland Fed said in observations dovetailing with national consumer sentiment surveys, "and some auto dealers and consumer lenders noted declining consumer confidence related to policy uncertainty and inflation."
The Atlanta Fed also pointed to a decline in consumer spending, noting that casual dining restaurants said more customers were skipping appetizers and desserts.
Tariff worries were front and center across the districts. The St. Louis Fed reported prices were rising moderately but were above expectations and tariffs were seen as adding to price pressures later. "Contacts noted that they were holding off investment due to policy uncertainty and indicated that tariffs would result in higher prices," it said. "The outlook has declined from slightly optimistic in our previous report to neutral."
HEADWINDS AND TAILWINDS
In the Midwest, crop producers "noted higher-than-normal uncertainty given potential for federal policy shifts, especially regarding trade," the Chicago Fed said.
"Numerous business leaders expressed heightened concern over inflation, largely stemming from expected pass-through of increased tariffs," said the Dallas Fed, which noted, however, that its business contacts, as in many other Fed districts, had some cause for optimism. "Reduced labor supply as a result of stricter immigration policy, increased costs from tariffs, and decreased government spending were cited as headwinds for economic activity, while potential deregulation and corporate tax cuts were seen as tailwinds," it said.
They also want to see how the Trump administration's policies, including tariffs but also tax cuts, immigration restrictions, and cuts to federal jobs and spending, will affect the economy in the coming months.
Fed policymakers say that observations directly from communities and businesses can be particularly informative when the economy may be changing quickly, as data in official reports often lags reality by weeks and months.
