Beige Book January 2025 – What the Fed's Economic Checkup Means for You

Prices and Inflation

Here's where you might feel some relief – price increases have shifted from a sprint to a jog. The Fed reports prices increased modestly overall, with some places even seeing flat or decreasing prices, particularly for retail goods and some manufactured items. That doesn't mean things are getting cheaper (sorry!), but the rate of increase has slowed down considerably. However, your specific experience may vary. Some costs continue to climb stubbornly – especially insurance (particularly health insurance). And there's one specific item that jumped out: egg prices are up again due to another outbreak of avian flu. So while the overall trend is improving, your grocery bill might still have some unpleasant surprises.

Wages

Finally, some good news for workers! 🎉 Wage growth actually picked up to a moderate pace in most districts. This means paychecks are growing a bit faster for many people, which helps offset those lingering price increases. However, not everyone is feeling this boost equally – there were some reports that wage pressures had actually eased in certain areas.

Future Price Concerns

Looking ahead, businesses expect prices to continue rising in 2025, with some specifically noting that higher tariffs could contribute to price increases. This is worth watching because if tariffs on imported goods increase, those costs often get passed along to consumers at the checkout counter.

Job Market Condition

Finding or keeping a job isn't getting dramatically easier or harder – the employment situation is largely stable. Employment ticked up on balance, with exactly half the districts (six) reporting a slight increase and the other half reporting no change. Think of it as a steady job market rather than a hot one. Some sectors are doing better than others. Contacts in several service industries, notably healthcare, continued to see job growth, and construction employment increased slightly. Meanwhile, manufacturing employment was basically flat.

Layoffs and Hiring

The good news? Reports of layoffs remained rare. However, contacts in some districts expressed greater uncertainty about their future staffing needs. So while mass layoffs aren't happening, some businesses are getting more cautious about their hiring plans. The days of desperate employers offering big signing bonuses might be fading, but opportunities still exist – especially if you have skills in growing fields like healthcare.

Holiday Spending

Remember those holiday shopping stats we mentioned? This is where they really matter. Consumers came through with stronger-than-expected spending during the holidays. That's a sign that despite concerns about prices, Americans were still willing to spend on gifts and celebrations. It suggests consumer confidence – a key driver of our economy – is holding up reasonably well.

Cars and Houses

Vehicle sales grew modestly, which is pretty typical for this time of year. But the housing market tells a more complicated story. Residential real estate activity was unchanged on balance. Why? The culprit is still high mortgage rates that continue to hold back demand. If you're waiting to buy a house, you're not alone – many potential buyers are still sitting on the sidelines, hoping for more favourable financing terms.

Why People Are Holding Back

Beyond mortgage rates, the report hints at other reasons people might be postponing big purchases. Concerns about potential policy changes (like tariffs) and general economic uncertainty have some businesses and consumers playing it safe. When people are unsure what the future holds, they tend to think twice about major financial commitments like houses, cars, or big home improvements.

Boston: Travel is bouncing back! ✈️ Domestic air passenger traffic through Boston finally surpassed 2019 levels.

Philadelphia: Auto sales led consumer spending with a modest increase, though manufacturers reported a slight decline in activity. Dallas: This region saw moderate expansion with growth resuming in manufacturing and rising retail revenues. Texans were feeling optimistic, though policy concerns remained.

San Francisco: Retail sales grew modestly in the West, while the housing market held steady and conditions in agriculture softened slightly.

Kansas City: Contacts noted consumers are increasingly using longer-term financing and consolidating debt to manage household cash flows – a sign some budgets are getting stretched.

Business Hopes and Worries

The business outlook for 2025 is a mixed bag. On the positive side, more contacts were optimistic about the outlook for 2025 than were pessimistic. That's generally a good sign for future hiring and investment. However, concerns are definitely lingering. Businesses in several districts expressed worries that changes in immigration and tariff policy could negatively affect the economy. Why does this matter for regular people? Immigration changes could affect labor availability (and potentially costs) in sectors like hospitality, agriculture, construction, and manufacturing. Tariff changes could mean higher prices on imported goods that you buy.

Policy Impacts on your Costs and Job

Think about it this way – if tariffs make imported materials more expensive for businesses, those higher costs often eventually find their way to your grocery bill, your shopping cart, and your household budget. Similarly, if immigration changes reduce the available workforce in certain industries, it could affect everything from restaurant service to construction timelines to food prices.