On Wednesday local time, the Federal Reserve released its national economic conditions survey report - the Beige Book. The report indicated that the uncertainty surrounding international trade policy is significantly worsening the economic outlook in many parts of the U.S. Its effects have begun to manifest in actual economic activities, such as consumers making early purchases and the decline in the number of international travelers.
The Beige Book released by the Federal Reserve reflects the economic conditions collected from communications between the presidents of the 12 regional Federal Reserve banks and local businesses and community leaders. It has on-the-ground, real-time characteristics, and is therefore of great concern. The latest Beige Book released on Wednesday shows that the uncertainty of current international trade policy is a common presence in reports across the U.S., and with the increase in uncertainty, the economic outlook in multiple regions has significantly worsened.
This concern about tariff policy can be felt through the number of times the terminology is used in the report. The term 'tariff' appeared 107 times in this report, more than double the 49 times it appeared in the March report, and significantly higher than during Trump's first term from around 2018 to 2020.
Additionally, the April report mentioned the term 'uncertainty' and similar vocabulary 89 times, which is higher than the 47 times in March. Specifically, for example, in Atlanta, U.S., contacts in the timber and wood product manufacturing industry reported that demand is slowing due to the uncertainty surrounding tariff policies. Some companies even expressed a complete lack of confidence in future forecasts, even just six months ahead, and being unable to determine how trade policies will unfold has become the biggest obstacle to current expansion and mergers.
The impact of tariffs has begun to manifest in economic activity. One phenomenon of concern is that multiple regions have reported a significant increase in automobile sales, which analysts believe is a surge of consumer purchases made before the tariff policy takes effect. The Beige Book report also pointed out that if automobile consumption is excluded, consumer spending in the U.S. has actually declined compared to the previous Beige Book.
Another phenomenon of concern is the changes in the tourism industry. The Beige Book shows that Americans are traveling less, and the number of international travelers visiting the U.S. is also declining. Economists predict that this trend could lead to losses of hundreds of billions of dollars in the U.S. tourism industry this year.
Wahan Janjigian, Chief Investment Officer at Greenwich Wealth Management in the U.S.: Many foreign tourists are canceling their trips to the U.S., and tourism is one of our largest export sectors. This has already caused substantial damage to America's (international) reputation, and it may take a long time to repair.
Finally, the former president of the Kansas City Federal Reserve pointed out in an interview with CNBC that in the current highly uncertain environment, the Federal Reserve's decision-making has become more challenging. The Beige Book shows that while economic data overall appears slightly weak, it has not yet reached the point where a rate cut is necessary. Looking ahead, the Federal Reserve needs to focus on the trends in inflation expectations.
Esther George, former president of the Federal Reserve Bank of Kansas City: The Federal Reserve must closely monitor the trends in inflation because once tariffs are implemented, they are bound to bring inflationary pressures to a certain extent. But at the same time, the Fed must weigh the impact of tariffs on short-term and medium-term economic growth.
