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Investing.com – The economic outlook “improved slightly,” though persistent uncertainty and rising cost pressures, driven by President Trump’s tariffs and crackdown on immigration, continue to weigh on business sentiment, according to the Federal Reserve’s Beige Book released Wednesday.
“Economic activity increased slightly from late May through early July,” the Fed said in its Beige Book, based on anecdotal information collected by its 12 reserve banks through July 8. But uncertainty remained “elevated, contributing to ongoing caution by businesses,” the report said.
Nonauto consumer spending “declined in most Districts,” while auto sales “receded modestly on average, after consumers had rushed to buy vehicles earlier this year to avoid tariffs,” according to the report. The economic outlook, meanwhile, was “neutral to slightly pessimistic, the report suggested, as only two districts expected activity to increase, and others foresaw flat or slightly weaker activity,
Labor Market Remains Cautious Amid Improved Availability
Employment “increased very slightly overall,” with hiring still “generally cautious,” with many contacts flagging “ongoing economic and policy uncertainty.”
In a sign that President Donald Trump’s immigration crackdown is starting to take effect, the report said several districts pointed to “reduced availability of foreign-born workers, attributed to changes in immigration policy.”
To keep costs lean as AI’s promise to boost productivity takes shape, some employers are accelerating AI adoption. Some companies “ramped up investments in automation and AI aimed at reducing the need for additional hiring.”
Wages “increased modestly overall,” and layoffs, while limited, were “somewhat more common among manufacturers," the report said.
Price Pressures Pick Up Pace as Tariff, Insurance Costs Build
On the inflation front, prices “increased across Districts, with seven characterizing price growth as moderate and five characterizing it as modest,” little changed from the prior report. In all 12 Districts, “businesses reported experiencing modest to pronounced input cost pressures related to tariffs, especially for raw materials used in manufacturing and construction.”
Firms also faced “rising insurance costs,” meanwhile, with many passing on "at least a portion of cost increases to consumers through price hikes or surcharges,” while others held off “because of customers’ growing price sensitivity, resulting in compressed profit margins.”
The Fed noted that contacts in a wide range of industries “expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer.”