Beige Book: Overall activity increased at slight-to-modest pace in most districts

• Eight of 12 districts saw slight to modest growth
• Three saw no change
• One saw a slight decline
• Outlooks for future activity were mildly optimistic with most expecting slight to modest growth
• Prices grew at a moderate rate across large majority of districts

The Federal Reserve’s January 2026 Beige Book indicates a marginal improvement in the domestic economy, with eight of the twelve Districts reporting slight to modest growth. This shift follows three reporting cycles of stagnant activity. Consumer spending during the holiday season served as a primary driver for this uptick, though results were notably divided along socioeconomic lines. High-income households continued to spend on luxury goods and travel, while lower-income consumers exhibited increased price sensitivity and reduced spending on nonessential items.

Labor market conditions remained largely unchanged, characterized by a low-hiring and low-firing environment. Most firms focused on backfilling essential roles rather than expanding their workforce. While wage growth has moderated toward pre-pandemic levels, businesses reported persistent difficulties in recruiting skilled labor for technical trades and healthcare.

Inflation remains a central concern, with prices increasing at a moderate rate across most of the country. A significant factor in recent price action is the cumulative impact of tariffs. Firms that had previously absorbed these costs are increasingly passing them on to customers as older, lower-cost inventories are depleted. Additionally, businesses highlighted rising insurance and utility costs as persistent strains on profit margins.

Regional performance varied, with New York reporting a modest decline in activity and ongoing layoffs, while Philadelphia saw a rebound to slight growth. Manufacturing remained inconsistent, with half of the reporting Districts seeing a contraction. Despite these challenges, the general outlook for 2026 is one of cautious optimism, with most contacts expecting slight growth to continue in the coming months.

The Fed blackout starts Friday night but the chance of a Jan 28 rate cut is less than 10%.