The Beige Book reveals concerns beneath the shiny surface of the U.S. economy: consumers are becoming increasingly sensitive to prices

According to the Zhitong Finance APP, the Federal Reserve stated in its latest national economic conditions survey report (the "Beige Book") that after experiencing slight changes in the previous months, the economic activity indicators in the U.S. increased slightly in November, and American businesses have become more optimistic about the demand outlook. The Federal Reserve pointed out in the Beige Book that the economic growth expectations in most regions of the U.S. have "moderately increased," while also revealing concerns about U.S. economic growth: consumers' sensitivity to prices has further increased.

The rising sensitivity of consumers to prices serves as a warning from the Beige Book regarding the momentum of the U.S. economy, indicating that the outlook for consumer spending, the core pillar supporting the U.S. economy, is not as strong as recent retail sales figures and reports from retail giants suggest. Additionally, the sensitivity of American consumers to prices will limit the potential for businesses to pass on costs to consumers. Furthermore, the important driving force of consumption indicated in the Beige Book survey—namely, the growth rate of U.S. wages—is not as optimistic as presented in the non-farm payroll report. In the breakdown of U.S. GDP, the vast majority of items are closely related to U.S. consumer spending, with rough estimates showing that 70%-80% of the components of U.S. GDP are closely tied to consumption expenditures, meaning that a trend of weakening consumer spending will severely impact the U.S. labor market and the overall U.S. economy.

On Wednesday local time, the Federal Reserve released this Beige Book report in Washington, stating: "Although the growth rate of economic activity in various regions of the U.S. is generally small, growth expectations have increased in most regions and industries." "Business people are more optimistic than in previous surveys about demand rising in the coming months. Overall, consumer spending remains stable."

Overall, the Federal Reserve's Beige Book survey report paints a bleaker picture of the U.S. economy than the official government statistics recently displayed, showing a stable yet weak growth curve, a slight decline in employment rates, and only a modest increase in prices.

In many cases, the survey data shown in the Federal Reserve's latest Beige Book contradicts top-line economic data—specifically, it contrasts with the overall economic data that still shows strong U.S. economic activity driven by robust consumer spending and relatively low unemployment rates.

The Federal Reserve's various regions generally reported that inflation rates have only risen slightly, and as consumers become increasingly picky about prices, businesses find it more difficult to pass on rising costs. This is in stark contrast to the "re-inflation" trends indicated by the CPI, PCE, and reports from retail giants, suggesting that the long-term impact of inflation on American consumers may be more profound than the economic data reflects.

In this Beige Book report, hiring activity is viewed as "relatively sluggish," while the positive news is that employee turnover rates are low, and layoffs are limited. Business contacts generally indicate that they expect the U.S. job market to remain stable with moderate growth, rather than the strong expansion seen in recent years.

Wage growth is also not as strong as presented in the non-farm employment report, with the Beige Book report stating: "Wage growth has slowed in most regions, and both businesses and consumers expect wage growth to slow in the coming months." The Federal Reserve's Beige Book report, along with various government data, will help shape the intense debate among Federal Reserve policymakers during the monetary policy meeting on December 17-18, when they will consider whether to implement a third interest rate cut.

The Kansas City Fed compiled the latest edition of the Federal Reserve Beige Book based on business and economic survey information collected on or before November 22, covering the latest specific views of consumers and businesses across regions regarding the economic growth outlook following the U.S. elections. This latest survey report includes anecdotes and comments from businesses and other commercial contacts in each of the 12 Federal Reserve districts about the state of the U.S. economy.

Key details from the latest Beige Book regarding important U.S. regions

Boston: "Sales at a clothing retailer have plummeted, partly due to the unusually warm and dry autumn in New England, leading to sales of cold-weather apparel far below business expectations. Sales of snowmobiles have also significantly decreased compared to the same period last year, with recent weather patterns again considered a significant factor contributing to this unexpected phenomenon."

New York: "Indecision surrounding the presidential election has led to some business decisions being put on hold, although business contacts generally expect hiring activity to pick up again."

Philadelphia: "Manufacturers have become more widespread and general in their growth expectations for manufacturing activity, new orders, and shipments over the next six months; however, plans for future capital expenditures have not changed."

Cleveland: "In recent weeks, selling prices have also risen slightly, although most business contacts are maintaining their prices. Some retailers and consumer goods manufacturers that have not yet raised prices indicated that they have launched numerous promotions due to gradually weakening demand and a noticeable increase in consumer price sensitivity."

Richmond: "The damage caused by Hurricane Helen is beginning to gradually manifest in the residential and commercial real estate markets. An agent in North Carolina noted that residential sales in the Boone area have decreased by about 25%, while residential sales in the Asheville market have dropped by 30% to 35%. The long-term impact on commercial real estate is even more uncertain, as many buildings have been destroyed, and businesses continue to close in recent weeks."

Atlanta: "During the reporting period, rising mortgage rates and the lagging effects of recent extreme weather events have led to a slight decline in housing demand. Although sales in most areas of the region have remained flat or slightly increased, Florida experienced a significant year-on-year decline in sales in October. The existing housing inventory in many Florida markets has also increased, with some markets, particularly in southwestern Florida, currently considered to be oversupplied."

Chicago: "Retailers are planning to increase inventory in anticipation of expected tariff hikes, and a construction supplies supplier is actively increasing stock. Additionally, a computer retailer noted that sales have increased in recent weeks, primarily because business clients have implemented replacement plans early to avoid anticipated significant price increases on imported electronics."

St. Louis: "In Kentucky, due to the scale of damage from earlier hurricanes, the automotive manufacturing industry has increased shifts to catch up on production targets. However, the electric vehicle manufacturing sector has already laid off workers in advance, and sales are expected to remain weak Minneapolis: "The agricultural conditions in the region remain weak. In a recent agricultural credit conditions survey, as many as 85% of respondents indicated that farm income in the third quarter had significantly declined compared to the same period last year, as production was insufficient to offset the negative impacts of low commodity prices and rising operating costs."

Kansas City: "Contacts in the renewable energy industry report that the commercial electricity demand from large data centers is continuously growing, which is a key driver for new generation capacity in the region over the next few years. However, utility companies and developers are facing challenges in rapidly constructing new power infrastructure to meet the increasing demand. Business contacts pointed out that there are constraints in the approval and construction of new power infrastructure (especially inter-regional transmission), rising equipment costs, and a persistent shortage of technical labor, all of which are significant obstacles for new renewable energy projects."

Dallas: "Business contacts noted that international oil prices in 2025 may be weaker than previously expected, and poor price outlooks along with improved productivity could lead to reduced capital expenditures next year. Contacts expressed optimism that the pause in liquefied natural gas (LNG) export licenses that occurred for most of this year will soon be lifted, promoting more natural gas infrastructure development and LNG export investment in the coming years."

San Francisco: "In recent weeks, the overall turnover rate in the labor market has remained stable, but it is still significantly lower compared to the peak of the COVID-19 pandemic. However, business contacts in commercial services, community support services, retail, and finance continue to face ongoing challenges with employee retention. The number of applicants for previously posted positions has generally increased, but reports commonly emphasize some quality mismatches between applicants and job requirements."