Fed Beige Book: 11 Districts Grow, Inflation Diverges Amid Energy Volatility

Woofun AI reports that the Federal Reserve’s latest Beige Book, authored by Yang Chen for Wall Street See News, indicates a modest improvement in U.S. economic activity from late May to June, with expansion recorded in 11 of the 12 Federal Reserve districts. This data provides slight reinforcement for the central bank’s recent shift toward a more hawkish stance, as employment levels remained largely stable across most regions despite the broader growth. The report highlights that while the overall trajectory is positive, the pace of expansion varies significantly, reflecting underlying structural divergences in regional economic health and consumer behavior.

Economic activity and price levels showed distinct patterns during the reporting period. From late May to June, 11 out of 12 Federal Reserve districts experienced slight to moderate growth, while the San Francisco district reported no change. This performance represents a marginal improvement compared to the previous June report, where 10 districts saw expansion, one remained stable, and one declined. Overall price levels rose modestly, with 9 regions reporting mild increases, 2 regions noting strong increases, and 1 region observing slight hikes.

Notably, the rate of price increases was either the same or slower than in the prior period across all regions. The Federal Reserve noted that some business contacts attributed these cost pressures to the Middle East conflict, while others cited tariff factors as primary drivers. Consumer prices continued to climb, with several jurisdictions reporting heightened price sensitivity among customers.

Inflation outlooks remain fragmented, largely due to energy volatility. Federal Reserve Chair Jerome Powell and New York Fed Chair John Williams have recently adopted more moderate views on inflation prospects, contrasting with other officials who warn of persistent high inflation and potential rate hikes. The report highlights that additional volatility in energy prices, stemming from the Middle East situation, has led to divergent forecasts. Some contacts expect inflation to maintain its current pace, while others anticipate a slowdown, partly driven by falling fuel prices. In June, the monthly inflation rate declined as gasoline prices dropped, offering temporary relief to American families following a brief peace deal between the U.S. and Iran.

However, the resumption of hostilities triggered another surge in oil prices, increasing uncertainty regarding future fuel costs. Contacts generally expect the economy to continue expanding, but several jurisdictions noted growing anxiety about energy-related expenses.

Labor market dynamics reveal robust demand, particularly for skilled workers. Employment levels rose slightly, moderately, or steadily in five regions, while remaining almost unchanged in seven regions. This contrasts sharply with the previous report, where only one region experienced such increases. Job growth was evident across manufacturing, construction, and retail sectors. A critical bottleneck remains the shortage of skilled workers, especially technicians and tradespeople, which has driven modest wage increases in most regions. In two regions, wage growth was very low, but elsewhere, intensified competition for talent has pushed compensation upward. The scarcity of qualified personnel continues to exert upward pressure on wages, even as overall employment gains remain modest.

Regional analysis highlights specific sectoral trends. In Boston, manufacturing firms reported a slight increase in employee numbers, while retail and hospitality sectors noted seasonal hiring levels higher than last summer. Service sector employment remained stable, though one company laid off a small number of white-collar workers as AI improved efficiency. In New York, tourism remained strong, driven by visitors attending the FIFA World Cup, leading to higher hotel occupancy rates and prices. Restaurants and bars benefited from match-day demand, and international air travel, which had been weak in spring, picked up significantly. These developments underscore the resilience of consumer-facing industries in major metropolitan areas.

Further regional insights reveal diverse economic drivers. In Philadelphia, respondents reported strong growth in activities related to data centers, artificial intelligence, and defense manufacturing. Cleveland saw rising demand for affordable housing, alongside sustained interest in luxury homes. In Richmond, port trade activity returned to moderate growth after a period of slowdown. These trends reflect varying degrees of industrial and commercial recovery across different parts of the country. The strength in technology and defense sectors in Philadelphia contrasts with the housing market dynamics in Cleveland, illustrating the heterogeneity of regional economic conditions.

Woofun AI data shows, Atlanta and Chicago presented distinct logistical and retail patterns. In Atlanta, transport demand grew moderately, with trucking companies noting steady improvement in industry conditions as excess capacity from the pandemic was gradually absorbed. Freight volume exceeded the same period last year for the first time since 2021, signaling a return to pre-pandemic norms. In Chicago, stronger retail promotions boosted consumption, partly because Amazon Prime Day and other competitors’ promotions were moved up to June instead of July.

This shift in promotional timing provided a temporary lift to retail sales, highlighting the sensitivity of consumer spending to marketing strategies.

St. Louis and Minneapolis faced unique challenges related to costs and consumer behavior. In St. Louis, respondents generally expected companies to pass on higher costs to consumers in the coming months, suggesting potential inflationary pressures. In Minneapolis, rising gasoline prices suppressed overall consumer spending.

Additionally, consumers were shifting from cash and debit cards to credit cards, leading to higher fees that squeezed corporate profits, particularly for small businesses.

This shift in payment methods adds a layer of complexity to cost management for retailers and service providers.

Kansas City, Dallas, and San Francisco revealed labor and consumer trends. In Kansas City, employers expressed willingness to train job seekers with insufficient technical skills but found it harder to recruit candidates lacking soft skills such as communication and teamwork. In Dallas, human resources companies reported increased recruitment demand across industries and skill levels, with one respondent describing June as the best month since before the pandemic. In San Francisco, price-sensitive consumers continued to turn to cheaper alternatives. A respondent in Southern California noted that in-store shoppers were not only buying fewer expensive foods but also reducing the quantity of goods purchased, indicating a broader trend of cost-conscious consumption.

The data compilation for this report was conducted by 12 regional Federal Reserve banks before July 6 and compiled by the Federal Reserve Bank of Chicago.