Fed beige book report finds stalling job market

The US economy remains stuck in low employment rates and low job firing rates, according to the Federal Reserve’s Beige Book report.

Although there was no hard data attached to Wednesday’s report, which covered September and early October, the Beige Book painted a picture of employers across the country avoiding mass layoffs and also shying away from hiring many new workers. The report is always based on anecdotes from business and community leaders.

Refund employment

One restaurant owner in Cleveland’s Fed District summed up the sentiment in the report, saying their business “hasn’t had any growth, so no new jobs will be added.”

Another businessman in the Atlanta Fed District said there has been a “hiring chill,” with companies avoiding layoffs but welcoming attrition.

“Employment levels have been largely stable in recent weeks, and labor demand has been generally weak across regions and sectors,” the report said.

When it comes to assessing the labor market, the Beige Book usually takes a backseat to the Bureau of Labor Statistics’ monthly report on job creation, which is based on large-scale surveys of businesses and households.

But with the government and the Bureau of Labor Statistics mostly closed since Oct. 1, the Beige Book is one of the Fed’s few reliable sources of information on how the economy is performing. The report tells the same story as the latest official data for August, which showed that the summer saw the slowest salary growth in years.

The Fed’s policy committee meets on October 29-30 to set the central bank’s key federal funds rate, which sets borrowing costs for all types of short-term loans. Federal Reserve officials are widely expected to cut interest rates by a quarter of a percentage point, the second cut in as many meetings, to boost the labor market.

Tariff problem

The labor market slowdown is at least partly due to tariffs imposed by President Donald Trump, according to businessmen cited in the Beige Book. The report said that Trump’s import taxes created uncertainty and slowed business in many parts of the country.

Some companies also reported passing on the costs of import taxes to consumers, while others said they were paying customs duties themselves and had not yet raised prices.

“Increases in input costs resulting from tariffs have been reported in many regions, but the extent to which those higher costs pass through to final prices varies,” the report said.

What does this mean for the Fed?

The report could be important to the FOMC because it already confirms widespread expectations that the Fed will cut interest rates at least several times in the coming months.

Fed officials are currently grappling with whether to cut interest rates significantly to boost the labor market or keep interest rates high longer to fight inflation. Inflation remains above the Fed’s target of 2% on an annual basis.

The report showed “little change in the economy, continued weakness in hiring, and some limited pressure on prices from tariffs,” Sal Guatieri, chief economist at BMO Capital Markets, wrote in a commentary. “Given the FOMC’s recent preoccupation with downside labor market risks, it will likely ignore the temporary inflation threat and cut interest rates again later this month.”