U.S. Federal Reserve Beige Book (October 2025)

Beige Book Points to Modest Economic Activity, Soft Labor Market Conditions

• Today's Beige Book sheds some light on how the U.S. economy fared through September and the first week of October. Overall, economic activity was little changed relative to the previous report and has remained modest. Looking across the twelve Fed Districts, three reported slight to modest growth, five reported no change, and four noted a slight softening. 
• Overall consumer spending eased, particularly on retail goods. Auto sales were the one exception, benefitting from strong EV sales ahead of the expiration of the federal tax incentive at the end of September. Demand for leisure and hospitality by international visitors was reported to have declined further, while domestic demand remained unchanged. 
• On the inflation front, price pressures appear to have intensified compared to the previous period. Several districts reported that "input costs increased at a faster rate due to higher import costs and higher costs of services". The ability of firms to pass cost increases to consumers varied: some firms kept prices unchanged due to price sensitive consumers or competition, while others were able to fully pass higher costs to consumers. Manufacturing firms were especially challenged by tariffs as well as declining demand overall. 
• Labor demand remained subdued and employment levels were largely unchanged compared to the previous period. However, the report noted that "more employers reported lowering headcount through layoffs and attrition" due to weak demand, high uncertainty and in come cases due to additional investment in AI. Layoffs were mentioned 14 times in the latest report, compared to 6 times in the previous one. Across some sectors, namely leisure & hospitality, agriculture, construction, and manufacturing, hiring was reduced due to limited labor availability as a result of changes to immigration policies. 
• On a more positive note, the surge in data center construction was a bright spot in commercial real estate. The report also noted that AI firms were increasingly seeking office space in some districts. 

Key Implications

• With the government shutdown now in its third week and official data unavailable, today's Beige Book is especially significant for the upcoming FOMC rate decision. Even before the shutdown, we anticipated another rate cut in October, and today's report further reinforces this view by pointing to further weakening in consumer spending and labor market conditions. 
• The shutdown has also increased the downside risk to the labor market and raised economic uncertainty, further supporting our view that the Fed will stay the course and provide additional rate relief later this month. Fed Chair Powell reinforced a similar view in a speech yesterday, where he stated that "[inflation] appears to be continuing to increase quite gradually…but now the labor market has demonstrated pretty significant downside risks”, indicating the Fed's increased focus on the employment side of its dual mandate in light of the recent softening in labor market conditions.

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