This report reeks of stagflation, defined as rising prices and recession simultaneously.

Please consider the Beige Book, a Summary of Commentary on Current Economic Conditions by the Fed.

Regional Overview

• 3 Growing: Chicago and Atlanta slightly, Richmond mildly.
• 3 Unchanged: Cleveland, St. Louis, Dallas
• 6 Declining: San Francisco, Minneapolis, and Boston slightly. Kansas City, New York, and Philadelphia modestly or moderately.

Overall Synopsis

Overall Economic Activity

Reports across the twelve Federal Reserve Districts indicate that economic activity has declined slightly since the previous report. Half of the Districts reported slight to moderate declines in activity, three Districts reported no change, and three Districts reported slight growth. All Districts reported elevated levels of economic and policy uncertainty, which have led to hesitancy and a cautious approach to business and household decisions. Manufacturing activity declined slightly. Consumer spending reports were mixed, with most Districts reporting slight declines or no change; however, some Districts reported increases in spending on items expected to be affected by tariffs. Residential real estate sales were little changed, and most District reports on new home construction indicate flat or slowing construction activity. Reports on bank loan demand and capital spending plans were mixed. Activity at ports was robust, while reports on transportation and warehouse activity in other areas were mixed. On balance, the outlook remains slightly pessimistic and uncertain, unchanged relative to the previous report. However, a few District reports indicate the outlook has deteriorated while a few others indicate the outlook has improved.

Labor Markets

Employment has been little changed since the previous report. Most Districts described employment as flat, three Districts reported slight-to-modest increases, and two Districts reported slight declines. Many Districts reported lower employee turnover rates and more applicants for open positions. Comments about uncertainty delaying hiring were widespread. All Districts described lower labor demand, citing declining hours worked and overtime, hiring pauses, and staff reduction plans. Some Districts reported layoffs in certain sectors, but these layoffs were not pervasive. Two Districts noted that, for many of their contacts, hiring plans had not changed since the start of the year. Wages continued to grow at a modest pace, although many Districts reported a general easing in wage pressures. A few Districts indicated that higher costs of living continued to put upward pressure on wages.

Prices

Prices have increased at a moderate pace since the previous report. There were widespread reports of contacts expecting costs and prices to rise at a faster rate going forward. A few Districts described these expected cost increases as strong, significant, or substantial. All District reports indicated that higher tariff rates were putting upward pressure on costs and prices. However, contacts’ responses to these higher costs varied, including increasing prices on affected items, increasing prices on all items, reducing profit margins, and adding temporary fees or surcharges. Contacts that plan to pass along tariff-related costs expect to do so within three months.

Ordinary Recession or Stagflation?

This report reeks of stagflation, defined as rising prices and recession simultaneously.

The ISM services report showed prices increasing for 96 straight months, now with declining orders. That’s stagflationary as well.

However, yield on the 10-year treasury declined 11 basis point to 4.35 percent and the yield on the 30-year long bond declined 10 basis point to 4.88 percent.

Those yield moves suggest more of an ordinary recession than stagflation. Much will depend on labor markets and retail sales.

Depending on what Trump does and how fast the markets react will determine the outcome.

Either way, it’s recession of one form or another, just as economists decided Trump pulled the economy back from the brink with tariff pauses.

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