Introduction
In the latest release of the Beige Book, U.S. businesses’ concerns about the economic outlook have fully emerged. From abnormal semantic patterns to actual data, various signs indicate that policy uncertainty and tariff pressures are significantly disrupting market dynamics and business confidence. This article is authored by DA Labs Macro Researcher Che.
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Foreword
This week, the U.S. Federal Reserve released the latest Beige Book, which clearly reflects that the widespread concerns of businesses about the future economic outlook have started to spill over. Reports from the 12 Federal Reserve Bank districts across the U.S. indicate that both the unusual rise in semantic frequency and the general weakness in economic activity highlight that current policies and market conditions are deeply disrupting businesses’ operational rhythms and capital allocation decisions.
What is the Beige Book?
The Beige Book, officially titled “Summary of Commentary on Current Economic Conditions by Federal Reserve District,” is a report issued eight times a year that provides real-time economic conditions in the 12 Federal Reserve districts. The report is primarily based on qualitative data gathered from business leaders, economists, market experts, and other sources, covering aspects such as consumer spending, employment, inflation, and business investment.
Figure (1): The 12 Federal Reserve districts conduct economic surveys and research within their respective regions (Source: The Federal Reserve)
The main purpose of the Beige Book is to provide the FOMC with an up-to-date overview of economic conditions to inform monetary policy decisions. Unlike reports that rely on quantitative data, the Beige Book emphasizes qualitative observations, capturing economic details that statistical data may overlook, especially during periods of high economic uncertainty.
In short, the authors of the report analyze based on “on-the-ground observations” and “practical experiences,” capturing subtle changes that lagging indicators may fail to reflect. During economic turning points or periods of high uncertainty, the Beige Book serves as an auxiliary tool, offering not only immediate insights into monetary policy decisions but also providing the market with expert evaluations and clearer positions on the future economic direction. This helps the market better understand policymakers’ attitudes and future directions.
Latest Beige Book Warning Signals: Tariffs and Uncertainty Soar, Business Pressures Emerge
According to the latest Beige Book, the most concerning factor is the change in semantic signals. Statistically:
The mention of “Tariffs” increased to 107 instances, up by more than 118% compared to 49 mentions in March, and nearly five times higher than 23 mentions in January. During President Trump’s first term, the peak mentions of “Tariffs” in the Beige Book was 51 times.
Figure (2): Frequency of “Tariffs” mentions in the Beige Book (Source: Federal Reserve, Rosenberg Research)
The mention of “Uncertainty” reached 89 instances, which represents a growth of nearly 100% from March’s 45 and almost seven times higher than 13 in January, setting a new high for recent Beige Book records.
Figure (3): Frequency of “Uncertainty” mentions in the Beige Book (Source: Federal Reserve, Rosenberg Research)
This exponential growth in semantic frequency is not accidental, reflecting internal corporate anxiety over the possibility of President Trump restarting a trade war and implementing high tariffs. While these policies were previously considered potential risks, they have now fully permeated the operational layers of businesses, significantly impacting capital expenditure, import strategies, employee recruitment, and pricing decisions.
Economic Activity Overview: Growth Momentum Cools, Broad Contraction Emerges
According to the Beige Book, only five Federal Reserve districts reported “slight growth,” three districts showed no major change, and the remaining districts reported “slight to moderate declines.” This marks the first observation of a simultaneous decline in growth momentum across most Federal Reserve districts since the pandemic in 2020, signaling a clear weakening of confidence in both businesses and households.
Manufacturing performance showed a divergence, with two-thirds of districts reporting no significant changes or slight declines, reflecting continued weak global demand and unresolved supply chain risks. Non-automotive consumer spending began to weaken, and although commercial real estate showed slight expansion, loan demand remained flat or slightly increased, indicating that businesses and households are tightening financial leverage. The energy sector showed slight growth, and agriculture remained stable but did not contribute substantially to the overall economy.
The latest April Composite PMI data shows the index fell to 51.2, the lowest point in 16 months, indicating a significant slowdown in private-sector economic activity. While the Manufacturing PMI unexpectedly rebounded to 50.7, barely remaining in the expansion zone, new orders and export demand continued to face pressure. The Services PMI dropped to 51.4, signaling further weakening of domestic demand momentum.
On the other hand, businesses’ future outlook indicators have also significantly deteriorated, falling close to pandemic-era lows, reflecting a rapid decline in business confidence about the future economic outlook. Both J.P. Morgan and Goldman Sachs have pointed out that if business confidence and capital expenditure intentions weaken simultaneously, it could trigger further deterioration in the job market, creating a negative feedback loop that would put pressure on economic growth.
Figure (4): Manufacturing & Services PMI Index Changes (Source: S&P Global)
Employment Momentum Cools, Businesses Enter Wait-and-See Mode
The labor market also shows signs of turning. The Beige Book survey indicates that only one district reported “moderate growth,” four districts showed “slight growth,” four districts experienced “no significant change,” and three districts reported “slight declines.” Overall, this marks a slight deterioration compared to the previous report, signaling a gradual slowdown in labor market momentum.
Most districts reported that businesses have generally delayed or slowed down hiring actions, especially in industries closely related to end-consumer contact, such as retail, dining, and tourism, where there is greater caution about future demand prospects. Notably, a few companies have initiated layoff plans, indicating that profit pressures in certain industries may have already reached an irreversible stage.
Although the overall labor supply has improved, some regions, particularly in construction and agriculture, continue to face labor shortages due to tighter immigration policies, forming structural bottlenecks in the supply-demand balance.
Price Strategies Shift, Businesses Face Double Pressure of Costs and Demand
Regarding prices, the Beige Book indicates that six districts reported “moderate increases,” and another six reported “moderate increases,” remaining generally consistent with the previous report.
However, businesses generally noted that due to recent tariff policies increasing input costs and unresolved supply chain bottlenecks, future price pressures are expected to rise. In such an environment, businesses have adjusted their pricing strategies to cope with higher uncertainty and weak demand, including:
- Shortening quotation cycles: To reduce pricing commitment risks, businesses have chosen to shorten quotation cycles to adapt to price volatility uncertainty.
- Imposing tariff surcharges: Some businesses have directly passed tariff costs onto consumers by imposing surcharge fees to alleviate upstream pressures.
- Adjusting product mix and promotional structure: To address weak demand, businesses have started adjusting product offerings and promotional strategies based on market demand in an attempt to attract consumers.
However, despite these adjustments, end-consumer demand remains weak, limiting the ability to pass on price increases. This makes it increasingly common for businesses to experience profit margin compression in the face of high-cost environments. This phenomenon not only increases operational pressures on businesses but also exacerbates market uncertainty, making future price trends a key issue to monitor.
Conclusion
In summary, observations from the Beige Book indicate that while the U.S. economy has not yet entered an official recession, it has entered a phase of broad stagnation, declining confidence, and rising cost pressures, creating a triple squeeze. Economic growth is limited to a few regions and industries, business hiring intentions have significantly slowed, and some industries are experiencing layoff preparations. Meanwhile, businesses’ profits are gradually being squeezed due to limited space for price increases. Additionally, the frequency of key terms related to “tariffs” and “uncertainty” in the Beige Book has notably risen, indicating that businesses’ perceptions of policy risks are intensifying.
If the U.S. Federal Reserve and relevant policy-making institutions fail to release timely, forward-looking, and clear policy signals to stabilize business and market expectations, the U.S. economy may soon enter a new normal of low growth and high uncertainty, which will continue to be a risk source suppressing the performance of risk assets.
This report is for informational purposes only and does not constitute investment advice or a basis for decision-making. The data, analysis, and viewpoints cited in the article are based on the author’s research and public sources, which may contain uncertainties or be subject to change. Readers should make investment decisions based on their own circumstances and risk tolerance. For further guidance, it is recommended to seek professional advice.
