Beige Book’s “Little Changed” Isn’t: Tariff/Insurance Shocks and Softening Demand Define the 2025-11-01 Release

PRESS RELEASE SUMMARY

On 2025-11-01, the Federal Reserve’s Beige Book press release headlined “economic activity was little changed.” The district details tell a different story: demand is cooling across more regions, outlooks are slipping, and upstream cost shocks from tariffs and insurance are intensifying—while firms struggle to pass them through.

Here’s what the data reveals:

• Multiple districts reported outright declines or broad weakening—New York, Philadelphia, Kansas City, Dallas, Minneapolis, and San Francisco—contradicting a stable national narrative.

• Outlooks were not “unchanged.” They deteriorated in Dallas and St. Louis, edged lower in Kansas City and Chicago, and were flat-to-no improvement in New York and Cleveland.

• Input costs are not “moderate.” A Cleveland retailer noted costs up about 20% YoY due to tariffs; Minneapolis flagged aluminum cans up 18%; Kansas City firms passed through only about 20% of higher inputs—classic margin squeeze now, with price hikes later.

• Consumer demand is softening from the middle down, with declines in retail and hospitality across New York, Philadelphia, Atlanta, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco; higher-income spending shows pockets of resilience but is decelerating in places like Chicago.

• Labor markets are easing via freezes, attrition, and reduced hours; holiday hiring is notably weak (Chicago; Minneapolis “about half the normal” headcount in one mall). Adoption of automation and advanced software is substituting for some entry-level roles, slowing net hiring in several districts.

The Breadth of Cooling: Districts vs. National Framing

The national “little changed” line underplays the breadth of softness across core demand channels—retail, services, and consumer-facing segments. Districts reported:

• New York: Overall activity “declined modestly”; small retailers saw “sharp declines.”

• Philadelphia: “Modest declines overall,” including retail and services.

• Kansas City: Activity “slowed slightly,” with consumer spending down; foot traffic and leisure slowing.

• Dallas: “Weakened slightly,” with declines in services and retail; loan performance deteriorated.

• Minneapolis: “Flat,” but consumer spending down; weak holiday hiring plans.

• San Francisco: “Mixed,” with retail and residential easing further.

• St. Louis: “Unchanged,” but demand continues to slow.

Even where manufacturing showed pockets of stability or modest improvement (New York pickup; Chicago/Kansas City/Dallas modest gains), other districts contracted (Philadelphia, Cleveland, Richmond) and flagged tariff uncertainty clouding planning.

EVs and tax policy: a clear, negative impulse

Multiple districts cited EV sales declines following expiration of federal credits (New York, Atlanta, Chicago, St. Louis), compounding auto softness even as some non-EV inventory normalizes. This is a clean, policy-driven downshift in demand.

Outlooks Are Drifting Down, Not Staying Put

“Outlooks were largely unchanged” masks a steady drip of caution:

• Dallas: “Outlooks generally worsened.”

• St. Louis: “Outlook deteriorated…pessimistic.”

• Kansas City: “Outlook for 2026 has deteriorated slightly.”

• Chicago: Expects a “slight decline” over the next year.

• New York: “Did not expect much improvement.”

• Cleveland: “Flat.”

Only a handful expressed cautious optimism (Boston; certain Atlanta segments; San Francisco “little changed”), and even those were selective. Compared to prior reports, districts are increasingly explicit about downside risk and customer pullbacks—classic late-cycle behavior.

“Moderate” Prices? Upstream Pressures Say Otherwise

The common refrain—“prices rose moderately”—obscures the intensity and persistence of upstream costs:

• Tariffs: A Cleveland retailer reported average costs up about 20% YoY; New York cited a consumer-facing importer bankruptcy and a brass machining company on the brink.

• Packaging: Minneapolis flagged aluminum cans up 18%.

• Insurance: Rising premiums were cited across the National Summary and districts (New York, Chicago, Minneapolis, Philadelphia), adding to labor cost inflation even as wage growth “modest.”

• Pass-through is constrained: Kansas City firms are passing through only about 20% of higher input costs; Philadelphia and Atlanta noted future price increases in the pipeline.

• Timing: Chicago expects the peak tariff impact to hit in 1H26; Philadelphia firms expect competitors to raise prices in early 2026 “because they can.”

• Current pricing behavior: Minneapolis reported 29% of firms raised prices in October, with a similar share planning to raise prices next month.

The pattern is straightforward: margin compression now, with explicit, time-stamped plans to raise prices later. “Moderate” understates the cumulative shock.

Labor: Easing Quietly—and Structurally in Places

Hiring demand is cooling without headline-grabbing layoffs:

• Districts report freezes, attrition, and hours adjustments (Boston, Cleveland, Richmond, Atlanta, Kansas City, Dallas, San Francisco).

• Holiday hiring is weaker: Chicago and Minneapolis both flagged materially reduced seasonal staffing, including one Minneapolis mall at “about half the normal” level.

• Technology substitution: Businesses across Boston, New York, Philadelphia, Dallas, and San Francisco increasingly rely on automation and workflow software to offset entry-level hiring needs. That’s a structural tempering of demand for certain roles, not just cyclical noise.

Credit, Real Estate, Energy, and Agriculture: Secondary Frictions

• Credit/finance: Loan demand is soft where confidence is weakest. Dallas reported falling demand and deteriorating performance; Philadelphia saw lending edge lower with rising household/small-business delinquencies; Cleveland/Richmond saw modest delinquency increases. New York improved but remains elevated; San Francisco quality is “high.” Chicago noted some loosening in financial conditions.

• Real estate: Residential is soft/flat in Philadelphia, Cleveland, Richmond (mixed), Atlanta (down slightly), Dallas (weak), and San Francisco (eased slightly). Exceptions include Boston (sales up YoY on lower rates and higher inventories) and Chicago (slight improvement). Office shows selective stabilization (New York, Boston, Dallas, Atlanta), but concessions are rising; multifamily absorption softening in Kansas City.

• Energy/agriculture: Energy activity is flat/down amid low prices (Dallas, Kansas City; National Summary cites “low-price environment”). Agriculture is weak despite strong harvests (Minneapolis); low crop prices are biting (Dallas), though some crop prices rose (Chicago; Kansas City). Community groups across New York, Atlanta, St. Louis, Dallas, and San Francisco report elevated food insecurity linked to the government shutdown and SNAP disruptions—an immediate, low-end demand headwind.

Numbers Behind the Narrative

To reconcile the press release with the district-level data, the breadth of softening and the forward pricing signal are critical. Here’s a condensed snapshot:

What This Means for Markets

• Equities:

• Credit:

• Rates and policy:

• Real assets:

• Commodities:

Positioning ideas

• Upgrade quality: overweight cash-rich, pricing-power franchises; underweight levered, mid-market discretionary.

• Barbell inflation hedges: modest commodities/real assets alongside duration-neutral, high-quality credit.

• Seek “margin control” plays: firms explicitly expanding pass-through and productivity (automation, procurement, SKU rationalization) ahead of the 1H26 tariff impact window.

• Keep an eye on lenders with outsized exposure to small business/consumer in weakening districts; consider CDS or pair trades vs. higher-quality peers.

The national headline favors calm; the district ledger leans cautious. When demand cools while upstream costs grind higher, margins become the battlefield. For investors, the edge goes to businesses that can either pass through the pain or sidestep it entirely—before 2026 puts that capability to a tougher test.