Beige Book Flags Hiring Chill as Bank Profits Soar Amid Data Blackout

Beige Book reveals a hiring chill and pockets of weakness

The Federal Reserve’s Oct. 15 Beige Book, a survey of business conditions across the central bank’s 12 regions, offered a mixed assessment of the U.S. economy. Overall activity was “little changed” from late summer, and employment levels were “largely stable.” Beneath the surface, however, the report highlighted a hiring chill and growing signs of fragility.

Business contacts in several districts said they were reducing headcount through layoffs or attrition. Employers cited weaker demand, elevated economic uncertainty and, notably, increased investment in artificial intelligence — which is allowing firms to automate tasks and slow hiring. Labor supply remained tight in hospitality, agriculture, construction and manufacturing as new immigration restrictions constrained the workforce. The report noted that labour‑market strains were particularly acute in parts of the Southeast, where businesses welcomed employee attrition and kept turnover at historically low levels.

Consumer spending — the main engine of U.S. growth — “inched down” and was soft in five of the 12 districts. Retailers reported a drop in discretionary purchases, with diners skipping desserts and alcohol and shoppers seeking out discounts and promotions. Regional anecdotes described a “middle‑class recession”: households with moderate incomes relied more on food banks and buy‑now‑pay‑later services, while hotel owners said travel demand had weakened over the past few months. Wealthier consumers continued to spend on luxury travel and accommodation, exacerbating the divide.

The Beige Book made clear that tariffs are now a major driver of price pressures. Businesses across multiple districts described tariffs pushing up input costs. Some firms absorbed the increases or renegotiated with suppliers, but many passed higher costs to consumers, and many contacts predicted further price increases into 2026. Executives warned that the tariff shock is only just beginning to filter through to final prices.

In the Atlanta Fed’s Sixth District (which covers Alabama, Florida, Georgia and parts of Louisiana, Mississippi and Tennessee), contacts reported little change in overall activity but cited pockets of slowing. Consumer spending and leisure travel softened; home sales declined as buyers grew cautious; and office vacancy rates increased despite more return‑to‑office mandates. Retailers said tariffs could soon raise prices and weaken demand during the holiday season. Manufacturing activity edged higher, but firms remained uneasy about tariffs and rising costs. The energy sector remained robust, with strong crude oil and liquefied natural gas production, while agriculture faced volatile exports as buyers turned to cheaper suppliers abroad.

Shutdown costs mount as officials tout an investment boom

The Beige Book’s qualitative evidence carries added weight because the federal government has been partially closed since 1 October. The shutdown has halted publication of key data such as retail sales, inflation and the employment report. A Treasury official estimated on Wednesday that the shutdown is costing the U.S. economy about $15 billion a week in lost output — correcting Treasury Secretary Scott Bessent’s earlier assertion that the toll was as high as $15 billion per day.

Bessent argued that the only thing holding back the economy is the shutdown. Speaking at a CNBC event on the sidelines of the International Monetary Fund and World Bank meetings, he said President Donald Trump’s policies — including corporate tax incentives and tariffs — have unleashed a wave of investment reminiscent of the late‑1800s railroad boom and the 1990s tech surge. He predicted that the investment boom would continue even if economic data are suppressed, and he compared the current moment to past transformative periods in U.S. history. Bessent also said the federal deficit for fiscal 2025 was smaller than in 2024 and that the deficit‑to‑GDP ratio could decline toward 3 % in coming years if growth stays strong and spending is restrained.

At the same event, Bessent attempted to ease concerns about escalating trade tensions, saying the administration does not want to deepen the conflict with China. He signaled that Trump is open to meeting Chinese President Xi Jinping later this month and that a measured approach to tariffs could continue fueling investment without sparking a full‑blown trade war.

Retail sales driven by high-income households as others struggle

With official retail sales figures delayed, economists turned to the Chicago Fed’s Advance Retail Trade Summary (CARTS). The CARTS estimate suggested that retail sales excluding autos and parts rose 0.5 % in September, following a 0.7 % increase in August. Much of that gain likely reflects higher prices rather than higher volumes, because tariffs have pushed up the cost of imported goods. When adjusted for inflation, retail sales excluding autos may have increased just 0.2 %, down from 0.3 % in August.

The CARTS report echoed the Beige Book’s theme of uneven consumer spending. Analysts noted that higher‑income households — buoyed by stock‑market gains and rising home values — continue to drive sales growth. These consumers are still spending on electronics, appliances and general merchandise, and their wage growth remains solid. By contrast, middle‑ and lower‑income households are showing signs of financial strain. They are more sensitive to higher prices, have less access to credit and have seen fewer job opportunities as businesses cut back on hiring. Fiserv’s payment data showed that retail sales rose 2.5 % year‑on‑year in September, down from 3.8 % in August, with weakness in nonstore, health and personal‑care, furniture and home‑furnishing retailers.

The Bank of America Institute reported that spending by the lowest‑income households grew just 0.6 % year‑on‑year in September, while middle‑income spending rose 1.6 % and higher‑income spending jumped 2.6 %. Economists said price fatigue is spreading: consumers are prioritizing necessities over discretionary purchases and are more deliberate in their spending decisions. The wealth effect from rising stock prices is widening the gulf between households at the top and those in the middle and bottom.

Bank profits surge on dealmaking and interest income

While Main Street grapples with layoffs and higher prices, Wall Street banks are thriving. On Oct. 15, Morgan Stanley and Bank of America both reported strong third‑quarter results that beat analysts’ expectations, underscoring the divergence between the financial sector and the broader economy.

Morgan Stanley posted record revenue and a 44 % jump in investment banking revenue, thanks to a surge in mergers and acquisitions. CEO Ted Pick told analysts that the rebound in dealmaking has reopened the door for strategic M&A and renewed financing activity. The bank’s finance chief said its investment‑banking pipeline is at “all‑time highs” and suggested it could break 2021 deal volume records next year. Shares jumped nearly 7 %, hitting a record high. Wealth management assets rose to $8.9 trillion, pushing the bank closer to its long‑standing $10 trillion goal, and pre‑tax margins climbed above 30 %. Morgan Stanley’s equities trading business, already the market leader, delivered a standout quarter as clients turned to the bank to navigate volatile markets.

Bank of America, the second‑largest U.S. lender, also beat profit expectations, buoyed by record net interest income and a strong performance in investment banking. Net interest income — the difference between what the bank earns on loans and pays out on deposits — rose 9 % year‑over‑year to $15.2 billion in the third quarter. The bank now expects fourth‑quarter net interest income of $15.6 billion to $15.7 billion, about 8 % higher than a year earlier. Investment‑banking fees surged 43 % to $2 billion as corporations returned to the market with confidence. Bank executives said low unemployment, solid wage growth, stable home prices and a buoyant stock market explain the resilience in consumer and commercial lending. Net income climbed to $8.5 billion ($1.06 per share), far exceeding analysts’ projections. The bank also lowered provisions for credit losses and said loans to distressed borrowers such as bankrupt auto‑parts maker First Brands are backed by strong collateral.

These blowout results highlight the divergent paths facing financial institutions and the real economy. Banks are benefiting from robust capital markets, higher interest rates and a revival of deal activity, while small businesses and consumers contend with layoffs, tighter credit and price pressures.

Markets climb despite trade tensions and data vacuum

The upbeat bank earnings fueled a rally on Wall Street. The S&P 500 gained 0.40 % to close at 6,671.06, the Nasdaq rose 0.66 % to 22,670.08, and the Dow Jones Industrial Average slipped 0.04 %. Seven of the 11 S&P 500 sector indexes advanced, led by real estate and utilities. The banking index climbed 1.2 %, marking its first three‑day winning streak in more than three weeks.

Chipmakers also rallied. The Philadelphia Semiconductor Index jumped 3 % after Dutch equipment maker ASML reported orders and operating income above expectations, reflecting booming demand for AI‑related hardware. ASML’s U.S. shares gained 2.7 %, and the broader rally underscored how artificial intelligence investment continues to buoy certain sectors even as tariffs and higher rates weigh on others.

Investors remained sensitive to U.S.–China trade tensions. President Trump said Washington was considering cutting some trade ties with China and imposing new port fees, prompting concerns about further escalation. Bessent attempted to calm markets by saying the administration wants to avoid inflaming the situation and is open to high‑level talks. The two countries have already begun imposing tit‑for‑tat port fees, adding to the tariff burden on goods.

With official economic reports unavailable, analysts looked to anecdotal evidence and private indicators to gauge the economy’s trajectory. Bank of America’s CFO called the labour market “still pretty good” and said wage growth and home prices remain healthy. Portfolio managers noted that consumer spending appears resilient, though the Beige Book suggests it is narrowing to higher‑income households. Federal Reserve Governor Stephen Miran said two more rate cuts this year are realistic, while Chair Jerome Powell has signaled that policymakers will move meeting by meeting as they balance inflation against a weakening labour market.

What’s next

The data blackout caused by the government shutdown will end only when Congress reaches a funding agreement. Until then, the Beige Book and private surveys will guide the Federal Open Market Committee as it prepares for its Oct. 28–29 policy meeting. Economists expect another quarter‑point rate cut, though the Fed is divided: some officials worry about entrenched inflation driven by tariffs, while others see a labour market on the brink of contraction.

The Bureau of Labor Statistics plans to release the September Consumer Price Index on Oct. 24 so the Social Security Administration can calculate next year’s cost‑of‑living adjustment. That report will be the first official inflation data in weeks and could influence the Fed’s decision. In the meantime, anecdotes — from a hotelier describing a “middle‑class recession” to bankers boasting about record pipelines — underscore the uneven and uncertain nature of the economy heading into the final months of 2025.