According to a Federal Reserve report on Wednesday, the US economy has been contracting for the past six weeks as it is slowing employment and consumers and businesses worry about tariff-related price increases.
In a regular “beige book” overview of the terms, the central bank said “economic activity has declined slightly since the previous report.”
“All districts reported an increase in levels of economic and policy uncertainty, which has led to hesitation and careful approaches to business and family decision-making,” the report added.
Employment has been “almost unchanged” across most of the Fed’s 12 districts, with seven describing employment as “flat,” amid widespread growth for applicants and lower turnover rates.
“All districts described lower labor demand, citing lower labor demand and lower hours and overtime, suspension and staff reduction plans. Some districts reported layoffs in certain sectors, but these layoffs were not prevalent,” the report states.
Regarding inflation, the report explained that prices are rising “at a moderate pace.”
“There have been extensive reports of contacts that are expected to see costs and prices rise at a faster rate in the future. We have explained that these expected increases in costs are strong, significant or substantial.” “All district reports show that rising tariff rates puts upward pressure on costs and prices.”
However, there is a gap around expectations about how much prices will rise, and some companies say they may reduce profit margins or add “temporary charges or additional charges.”
“We hope that plans to take over customs related expenses will do so within three months,” the report said.
The report covers a period of changing landscape for President Donald Trump’s tariffs.
In early May, Trump said he would ease the so-called mutual tariffs on China, but that he responded in kind and helped launch a rallies on Wall Street amid hoping that the duties would not be as Draconian as the original fears.
However, fear remains not only in the impact on inflation, as well as whether employment and the broader economy will slow down due to tariff-related slowdowns.
Thursday’s report mentioned 122 tariffs in comparison to the 107th in April.
Regionally, Boston, New York and Philadelphia all reported lower economic activity. Richmond, Atlanta and Chicago were among the districts reporting better growth.
In New York in particular, the Fed found an input price that “has grown stronger with increasing uncertainty” and “a higher tariff-inducing costs.” Richmond reported a slight increase in employment despite Trump’s efforts to cut federal salaries.