The latest Beige Book released Wednesday indicates that US economic activity experienced a slight increase since mid-January, yet concerns persist over the potential impact of trade tariffs. Construction activity saw a decline, as some contacts expressed nervousness regarding how upcoming tariffs could affect the prices of lumber and other essential materials.
Vehicle sales also faced a downturn amidst these developments. In a move to address these concerns, President Donald Trump has exempted automakers from tariffs on imports from Mexico and Canada for a month, with the possibility of further relief measures being considered. This announcement follows the implementation of recently announced 25% tariffs on the two nations, effective Tuesday, while the US has simultaneously doubled its levies on Chinese imports.
Both Canada and China are responding with retaliatory measures, complicating the trade landscape. According to the Beige Book, prices increased moderately across most districts, but there were several reports of an uptick in price increases compared to the previous reporting period. Many contacts indicated that expected tariffs on inputs would likely compel them to raise prices, with some firms even raising prices preemptively in anticipation of these changes. Most Fed districts reported slight to modest gains in manufacturing activity, but contacts within the manufacturing sector expressed lingering concerns about potential shifts in trade policy that could affect their operations.
Meanwhile, consumer spending declined, influenced by unusual weather patterns that impacted demand for leisure and hospitality services in varying regions. The prior report, dated January 15, had indicated a slight to moderate increase in economic activity through late November and December 2024. Notably, employment figures have seen a slight uptick, with wages growing at a modest to moderate pace, albeit at a somewhat slower rate than reported previously.
Looking ahead, expectations for economic activity appear to be slightly optimistic, suggesting businesses may be preparing for gradual recovery as the year progresses..