Fed’s Beige Book Confirms Stalled Job Market, Increased Prices, and Underwhelming Consumer Spending

Fed’s Beige Book Confirms Stalled Job Market, Increased Prices, and Underwhelming Consumer Spending

This week, the Federal Reserve released its January 2026 ‘Beige Book,’ which provides a detailed look at economic conditions in all 12 Federal Reserve Districts, including consumer spending, labor markets, and pricing patterns. The report, which has been shown to have strong predictive power for economic recessions, suggests the new year is off to a slow economic start, as retailers and business owners report anxiety about consumer spending and the labor market stalls out. Anemic economic growth across the country reflects anxiety among working families who are paying higher prices for health insurance, groceries, and utilities, among other major budget items.

Groundwork’s Chief of Policy and Advocacy, Alex Jacquez, shared his reaction:

“January’s Beige Book isn’t a surprise: Americans are facing higher prices and stagnant wages. Trump’s disastrous tariff policies and his choice to let critical premium tax credits expire, hiking up health insurance rates on working families, don’t help matters. Business owners and consumers alike are rightly anxious about rising economic insecurity, and Trump and Republicans have hung them out to dry.”

BACKGROUND

The Federal Reserve’s Beige Book plays a critical role in informing monetary policy decisions by highlighting regional economic conditions gathered from contacts at businesses, banks, and community organizational contacts at each of the 12 Federal Reserve Districts. Beige Book and its findings have demonstrated remarkable predictive power for economic recessions and explanatory power in nowcasting economic indicators that otherwise lag, including GDP. In the January edition of the Beige Book, contacts reported that:

• Households face economic uncertainty heading into 2026. Contacts across the Federal Reserve Districts are anticipating greater economic uncertainty for both businesses and families in 2026, while the effects of slashes to federal spending and programs from 2025 cause ripple effects throughout the economy.
  • In the Atlanta District, many contacts expect to implement price increases in the first half of 2026 to preserve margins, especially those who held prices steady in 2025.
  • As new hiring remains sluggish, multiple Districts reported an increase in the usage of temporary workers, with one contact reporting this allows them “to stay flexible in uncertain times.” In Minnesota, state data showed an 18% decline in job postings over the past year.
  • A local government in Southern Indiana noted they are starting to feel the strain from national funding cuts, especially in childcare and food assistance programs. Meanwhile, one developer in Indiana reported that affordable housing development has stalled because of cuts to state and federal funding.
• The Trump administration’s chaotic tariffs continue to drive up prices. Many businesses throughout Fed Districts reported being hard hit by Trump’s tariffs and other policies under this administration — and consumers continue to pay the price.
  • Cost pressures due to tariffs were a concern across all Districts. Several contacts that initially absorbed tariff-related costs began to pass them on to customers as pre-tariff inventories were exhausted or as pressures to maintain margins grew more acute.
    • Manufacturers in the Boston District experienced tariff-related increases in the prices of glass and other raw materials, noting that they intend to pass at least part of those cost increases on to customers in 2026.
    • In the Richmond District, manufacturing firms reported non-wage input costs increasing by about 6 to 7% year-over-year, with tariffs one of the most cited reasons for the rising costs.
    • In the Minneapolis District, about 20% of firms raised the prices they charge customers and over a third of firms expect to raise their prices in January.
• Rising health care costs are straining businesses and families. Cuts by Trump and Republicans in Congress to health care programs like Medicaid and the Affordable Care Act have resulted in major health care cost increases for American families.
  • In the New York District, low-to-moderate income populations and the elderly have experienced increasing challenges to maintaining adequate health insurance. Families are facing higher premiums, while many have lost access to low-cost or free health insurance plans and insurance subsidies.
  • Contacts in the Minneapolis District continued to report steep increases in health-care and insurance costs.
  • A health-care provider in the St. Louis District estimated that their self-pay population will increase from 2% to 12% in 2026.
  • In the Kansas City District, a manufacturing firm noted it switched to self-insurance for the first time to try to manage rising health-care costs.
• Working families are struggling as prices for basic necessities rise. While lower- and middle-income families are shifting their spending to address the affordability crisis, upper-income shoppers remain relatively resilient.
  • Several Districts noted that spending was greater among higher-income consumers, with increased spending on luxury goods, travel, tourism, and experiential activities. Meanwhile, low- to moderate-income consumers were seen as increasingly price sensitive and apprehensive to spend on nonessential goods and services.
    • Several contacts in the San Francisco District described how discretionary spending by high-income households — including for luxury products — continued at robust levels. Meanwhile, low- and middle-income households have continued to trim budgets and trade down to lower-cost and store-label alternatives.
  • In a recent survey of low-income workers in the Cleveland District, almost seven out of ten respondents indicated that their expenses had increased, while half stated that their income did not cover their costs. Some contacts noted low-income households, facing tight budgets and higher prices, are eating more at home and purchasing fewer protein options.
    • A Montana restaurant owner said that wealthier customers “seem to still be spending and eating out frequently,” while lower-income consumers “definitely seem to be pulling back, eating out less, or are more price sensitive.”
    • In the Cleveland District, one restaurateur anticipated a decline in dining out if Affordable Care Act subsidies are discontinued.
  • In the Dallas District, auto dealers reported weaker sales compared to the previous year, though one noted that luxury brand sales were faring better. In the Dallas District’s housing markets, demand for entry-level new homes was sluggish, while the luxury markets were more resilient.