Introduction
This week, the U.S. Federal Reserve released the latest Beige Book, which clearly reflects that businesses' widespread concerns about the future economic outlook have begun to spill over.
Reports from the 12 Federal Reserve Bank districts across the United States show that whether it is the abnormal rise in semantic frequency or the general weakness in actual economic activity, both highlight that the current policy and market environment are profoundly disturbing the operational rhythm and capital allocation decisions of businesses.
What is the Beige Book?
The Beige Book released by the Federal Reserve System, officially titled 'Summary of Commentary on Current Economic Conditions by Federal Reserve District', is a report published eight times a year that provides an immediate economic situation of the 12 Federal Reserve districts in the United States.
This report is primarily based on qualitative data from business leaders, economists, market experts, and other sources, covering aspects such as consumer spending, employment, inflation, and business investment.
Figure (1): Economic surveys and research conducted by the 12 Federal Reserve districts in their respective areas (Source: The Federal Reserve)
The main purpose of the Beige Book is to provide the FOMC with timely economic overviews as a reference for monetary policy formulation. Unlike reports that rely on quantitative data, the Beige Book emphasizes qualitative observations, capturing economic details that statistical data may overlook, especially during times of high economic uncertainty.
In short, the writers of the report analyzed based on 'on-site observations' and 'practical feelings', capturing subtle changes that lagging indicators of data cannot promptly reflect. During economic turning points or periods of high uncertainty, the Beige Book serves as an auxiliary tool, not only providing immediate insights into monetary policy formulation but also offering expert assessments and clearer positions regarding future economic trends, helping the market better understand policymakers' attitudes and future directions.
The latest warnings released by the Beige Book: both tariffs and uncertainty have soared, and corporate pressures have surfaced comprehensively.
According to the latest Beige Book, the most concerning aspect is the alarming signals from the semantic level. According to statistics:
Tariffs were mentioned 107 times, a more than 118% increase from 49 times in March, and nearly five times compared to 23 times in January. During Trump's first term, the peak mention of Tariffs in the Beige Book was 51 times.
Figure (2): Frequency of 'Tariffs' appearing in the Beige Book (Source: Federal Reserve, Rosenberg Research)
The mention of 'Uncertainty' reached 89 times, compared to 45 times in March and 13 times in January, representing nearly a doubling and an increase of nearly seven times, setting a record high for the Beige Book in recent years.
Figure (3): Frequency of 'Uncertainty' in the Beige Book (Source: Federal Reserve, Rosenberg Research)
This exponential growth in semantic frequency is not coincidental but reflects the extreme anxiety within companies regarding the possibility of the Trump administration reinitiating a trade war and implementing high tariff policies. In the past, these policies were often seen as potential risks, but at this stage, they have begun to permeate into the actual operations of businesses, significantly affecting capital expenditures, import strategies, employee recruitment, and pricing decisions.
Overview of Economic Activity: Growth momentum has cooled down broadly, and widespread contraction is observed for the first time.
According to the Beige Book, only 5 Federal Reserve districts reported 'slight growth', 3 districts performed roughly flat, while the remaining areas reported 'slight to moderate decline'. This is the first time since the pandemic in 2020 that most Federal Reserve districts have reported a simultaneous contraction in economic growth momentum, indicating that confidence in the current business and household sectors has significantly weakened.
First, there is a divergence in manufacturing performance, with two-thirds of regions indicating no significant change or slight decline in activity, reflecting that global demand is weak and supply chain risks have not yet been fully alleviated.
Non-auto consumer spending has begun to weaken overall, and although commercial real estate has slightly expanded, loan demand is generally flat to slightly increasing, indicating that the corporate and household sectors are tightening financial leverage further. The energy sector shows slight growth, and agriculture remains stable, but it is difficult to provide substantial support to the overall economy.
The latest April composite PMI data shows that the index dropped to 51.2, the lowest point in 16 months, indicating that private sector economic activity has significantly slowed. Although the manufacturing PMI unexpectedly rebounded to 50.7, barely maintaining expansion territory, new orders and export demand still face pressure. The services PMI fell to 51.4, indicating further weakening of domestic demand momentum.
On the other hand, the future expectations indicators for businesses have also significantly deteriorated, dropping to near lows seen during the pandemic, indicating that corporate confidence in the future economic outlook is rapidly declining. Both J.P. Morgan and Goldman Sachs have pointed out that if business confidence and capital expenditure willingness weaken simultaneously, it may trigger further deterioration in the employment market, creating a negative cycle that puts pressure on economic growth.
Figure (4): Changes in Manufacturing & Services PMI Index (Source: S&P Global)
Employment momentum is cooling down, and companies are entering a wait-and-see period.
The employment market also conveys turning signals. The Beige Book survey results indicate that currently, only one region reports 'moderate growth', four regions show 'slight growth', four regions present 'no significant change', and three regions experience 'slight decline'. Overall, it has slightly deteriorated compared to the previous report, indicating that labor market momentum is gradually slowing down.
Most regions reflect that companies are generally postponing or slowing down hiring actions, especially in industries closely interacting with end consumers, such as retail, dining, and tourism, showing more caution regarding future demand prospects. Notably, a small number of companies have initiated layoff plans, indicating that profit pressure in some industries may have begun to become irreversible.
Although the overall labor supply has improved, some regions are constrained by tightened immigration policies, and industries such as construction and agriculture are still facing labor shortages, becoming structural bottlenecks in the supply-demand structure.
Price strategy shifts, with companies facing dual pressures of costs and demand.
In terms of prices, this Beige Book shows that six regions report 'moderate increases'; another six regions show 'moderate increases', which is basically consistent with the previous report.
However, companies generally point out that in response to recent tariff policies raising input costs, combined with supply chain bottlenecks not yet fully alleviated, there is still room for upward price pressure in the future. In such an environment, companies have adjusted their pricing strategies to cope with higher uncertainty and weak demand, including:
Shortening quotation cycles: Companies choose to shorten quotation cycles to adapt to the uncertainty of price fluctuations in order to reduce the risk of price commitment.
Imposing additional tariff charges: Some companies are directly passing on tariff costs to consumers by imposing additional tariff charges to alleviate upstream pressure.
Adjusting product mix and promotional structure: To cope with weak demand, companies are also starting to adjust their product mix and promotional strategies based on market demand to try to attract consumers.
However, despite these adjustments, end consumer demand remains weak, resulting in limited space for price pass-through, which makes it increasingly common for companies to face continued pressure on profit margins in a high-cost environment. This phenomenon not only increases operational pressure on businesses but also further exacerbates market uncertainty, and future price trends need to be closely monitored.
Summary
According to various indicators observed in the Beige Book, the U.S. economy has not yet entered an official recession but has entered a stage of broad stagnation, declining confidence, and rising cost pressures.
Economic growth is limited to a few regions and industries, with a noticeable slowdown in corporate hiring willingness, and some industries are showing signs of layoffs. At the same time, under the circumstances of limited price pass-through, corporate profits are gradually being compressed. Additionally, the frequency of keywords related to 'tariffs' and 'uncertainty' in the Beige Book has significantly increased, reflecting that businesses' perception of policy risks is heating up sharply.
If the Federal Reserve and relevant policy-making agencies cannot timely release forward-looking and clear policy signals to stabilize corporate and market expectations, the U.S. economy may fear entering a new normal of low growth and high uncertainty, which will become a continuous source of risk suppressing the performance of risk assets.
This report is for information sharing purposes only and does not constitute any form of investment advice or decision-making basis. The data, analysis, and opinions cited are based on the author's research and public sources, which may be subject to uncertainty or changes at any time. Readers should make investment judgments prudently based on their own circumstances and risk tolerance. For further guidance, it is advisable to seek professional consultation.