Fed’s Beige Book Sees Inflation Pressures Rise But Growth Moderates
The October edition provides hawks a lot more to work with than August did.
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The Fed’s Beige Book, an important input for most FOMC members because it captures the more granular, ground-level data coming up from the 12 Fed Districts, will be in hand when the Committee meets October 27-28. The October edition (observations through October 5) gives the hawks considerably more to work with than August did, particularly on prices.
Executive Summary
- Price pressures reaccelerated, with three Districts reporting robust price growth (from one in August) and four reporting a faster pace than the prior period (from one). In contrast no Districts reported price growth slowing.
- “Higher oil prices permeated all District reports,” and firms expect further increases “as existing contracts expire, and firms must renegotiate hedge contracts.”
- Growth narrowed to nine Districts from 10, with three reporting no change, though none reported a decline. Manufacturing remained a growth driver but also saw a narrowing.
- Consumer spending slipped from “grew slightly” in August to “little or no change” in most Districts, with spending increasingly driven by high-income households.
- Employment was little changed, although five Districts reported firms reducing staff, delaying hiring or expecting less job creation because of AI.
The main takeaway is that while in August the price picture was one of relative softening as the pace of increases was “the same in eight Districts, decreased in three, and increased in one,” October was quite different. “Three Districts characterized overall price growth as robust, while eight noted that growth was moderate—and three of the eight noted that input price pressures were intensifying, if not already growing robustly.” “Moreover, four Districts reported that the pace of price increases picked up since the prior period,” while no District reported a slower pace. As Bloomberg noted, that means half of the 12 Districts saw robust or intensifying price pressures.
And expectations are for price pressures to remain firm: firms expect “that prices will increase further in the coming months, as existing contracts expire.”
Below is a side-by-side comparison of August vs. October.
Overall Economic Activity
August 2026: “Economic activity increased modestly since early July. Ten of the twelve Federal Reserve Districts reported growth in the slight to moderate range; two Districts reported no change.” “The general outlook for the coming months was positive, but sentiment was mixed across sectors, with contacts reporting heightened uncertainty surrounding the effects of higher energy prices, policy, and international conflict.”
October 2026: “Since the prior Beige Book, two of the twelve Federal Reserve Districts reported moderate growth in economic activity. Three Districts reported modest growth, while four reported slight growth, and three reported no significant change.” “Reports on other sectors indicate little growth overall.” “Overall, most Districts reported that firms have maintained a positive economic outlook for the coming months. However, expectations tend to be for slight growth, weighted toward manufacturing and burdened by persistent uncertainties.”
Change: Growth remains but narrowed for a second straight report, to nine Districts from 10 (and 11 in July), with three now reporting no change. Still, none reported a decline, and “slight” was the most common reading. The outlook stayed positive, but October added that expectations are “for slight growth, weighted toward manufacturing.”
Consumer Spending
August 2026: “Consumer spending grew slightly on balance; reports reflected both heightened price sensitivity on the one hand and solid high-end purchases on the other.” “Auto sales were mostly subdued, dampened by downbeat consumer confidence, high fuel prices, and rising financing costs.” “Tourism activity increased.”
October 2026: “Most Districts reported little or no change in overall consumer spending.” “Over half of the Districts noted that consumer spending was driven by high-income households.” “Auto contacts noted flat to modestly lower sales in five of the six Districts that reported.” “Tourism continued to grow, but firms in the Boston, Minneapolis, and San Francisco Districts noted a decline in sales from Canadian tourists.” Even in Dallas, which reported solid retail sales, there were “some reports of lower-income customers being more cautious with spending.”
Change: Spending slipped from “grew slightly” to “little or no change,” with high-income households now explicitly carrying it in over half the Districts. Cleveland reported spending flat “following four consecutive reporting periods of decline,” while Kansas City and Minneapolis reported declines.
Manufacturing
August 2026: “Manufacturing activity picked up across most Districts, with some highlighting ongoing strength in demand for defense and data center-related orders.”
October 2026: “Robust, broad-based growth in manufacturing led the moderate growth reported in the Dallas District. While not as robust, another six Districts reported modest to moderate growth from their manufacturing firms. The remaining five Districts noted little or no manufacturing growth.”
Change: Manufacturing remained the main growth driver, but breadth narrowed to seven Districts growing from “most” in August, with five reporting little or no growth. Dallas said its strength “goes beyond AI or semiconductor-related growth,” and Philadelphia said more than two-thirds of surveyed firms reported higher third-quarter production, “the highest share since the second quarter of 2022.” Dallas also noted that data center construction “has tempered due to a regulatory pause implemented by the state of Texas.”
Labor Markets
August 2026: “Employment rose very slightly overall, with three Districts showing modest gains in employment, four reporting slight gains, and five Districts experiencing no change.” “Skilled trades and technical workers were difficult to find. Districts also reported both positive and negative effects of artificial intelligence on labor demand.”
October 2026: “Most Districts described little or no net change in overall employment levels. While three Districts described modest increases, five reported slight increases, and four reported no significant change.” “Labor supply was generally adequate to meet demand; however, shortages persisted for specialized, technical, and skilled trade workers.” “Five Districts reported that some firms had either reduced staffing levels (through attrition), delayed hiring, or anticipated less job creation after increasing productivity by investing in AI.”
Change: Labor markets got a slight upgrade to eight Districts with slight to modest gains from seven in August, as one District moved from no change to a slight increase. The more notable shift was AI: from “both positive and negative effects” in August to five Districts reporting reduced staffing, delayed hiring or less expected job creation.
Wages
August 2026: “Wage growth was modest to moderate in most Districts. Significant wage increases were most often connected to demand for skilled workers in construction and manufacturing.”
October 2026: “Five Districts described moderate growth in overall wages, four reported modest growth, and two reported slight growth.” “Several Districts noted that inflation has spawned additional wage pressure in the form of higher cost-of-living demands from individuals as well as challenges from rising benefit costs.” “Staffing contacts in the Boston District noted that workers were motivated to seek new jobs as wage increases lagged inflation.”
Change: Wage growth held with most Districts at modest to moderate (two at slight). But the highlighted driver of wage gains rotated from skilled-worker demand back to cost-of-living pressure, a theme last seen in June.
Prices
August 2026: “Prices increased moderately in eight Districts, with two Districts reporting modest increases, one slight increases, and one robust increases. Compared with the previous reporting period, the pace of price increases was the same in eight Districts, decreased in three, and increased in one.” “Consumer-facing contacts in a few Districts noted that heightened price sensitivity among customers was putting a limit on their ability to pass through input price increases.”
October 2026: “Three Districts characterized overall price growth as robust, while eight noted that growth was moderate—and three of the eight noted that input price pressures were intensifying, if not already growing robustly. One District reported modest price growth. Moreover, four Districts reported that the pace of price increases picked up since the prior period.” “Firms reported elevated diesel prices and noted that fuel surcharges were passing on increased costs throughout the supply chain. Contacts in multiple Districts also noted continued price pressure from other commodities, tariffs, and insurance.” “Consumer-facing firms noted tighter profit margins as price-sensitive customers continue to resist price hikes.” “Firms in several Districts cited persistent uncertainty around energy and tariffs and expect that prices will increase further in the coming months, as existing contracts expire, and firms must renegotiate hedge contracts for their own inputs and/or delivery contracts to their customers.”
Change: As mentioned at the top, the clearest deterioration in the report: robust readings rose to three Districts from one, Districts with a faster pace rose to four from one, and none reported a slower pace (three did in August). Pricing power remains split, with consumer-facing firms absorbing costs while manufacturers pass them through. Philadelphia said its future prices paid and received indexes “are now among their highest readings of the past 35 years.”
Nonfinancial Services and Banking
August 2026: “Services firms reported slight to modest increases in activity. Financial conditions improved slightly as loan volumes remained solid or increased across most Districts.”
October 2026: The national summary did not address services or banking separately beyond noting that “reports on other sectors indicate little growth overall.”
Change: Higher rates showed up in the District detail. Dallas bankers’ outlooks “turned pessimistic,” citing “the increase in the federal funds rate” among other factors. A New York regional bank reported “resetting its loan stress-test assumptions to reflect higher rates,” and Kansas City lenders said spreads on commercial real estate loans “rose substantially.”
Real Estate and Construction
August 2026: “Residential construction declined while nonresidential construction increased on balance, with some Districts noting a high concentration of activity related to data center projects.”
October 2026: Real estate was not addressed as a national theme.
Change: District reports pointed to rising mortgage rates as a continued drag on housing. Philadelphia said “rising mortgage rates in September slowed activity in the housing market even further.” On the nonresidential side, Chicago contacts said “megaprojects were crowding out capacity for other projects.”
Agriculture, Energy and Transportation
August 2026: “Agriculture conditions saw slight improvement but generally remained strained; the livestock sector was strong while conditions were stressed among crop producers.”
October 2026: Agriculture and energy were not addressed as national themes, though “higher oil prices permeated all District reports.”
Change: Diesel was the common thread in the District detail. Dallas reported fertilizer prices “up 10 to 25 percent from a year ago and diesel prices have nearly doubled.” Kansas City contacts in rural Colorado reported “intermittent diesel shortages at gas stations in recent weeks.”
Other Notable Regional Anecdotes
- Contract repricing is expected to result in another wave of price increases. Philadelphia contacts expect “the impact of contract repricing and expiring hedges to broaden over the next few months, leading to further price pressures.”
- Shipping now costs more than the product. A Richmond regional grocery chain said that with diesel up 30% from last year, “they now pay more to transport a head of lettuce from California than the cost of the lettuce itself.” Richmond also reported ocean freight spot rates “up 200 percent to the East Coast since February.”
- Lower-income strain is deepening. In a Cleveland semiannual nonprofit survey, 87% of respondents (“the highest share in the survey’s history”) said their clients’ financial well-being had declined. In New York, a payroll services contact noted “rising 401(k) hardship withdrawals and growing use of earned wage advances among lower-income workers.”
- Data center buildout hits limits. Chicago reported that tech companies “had tried to buy all the available electrical equipment for their data center developments,” while Texas has paused data center permits pending audits of grid reliability and water resources.
