Preface
This week, the Federal Reserve released the latest Beige Book, which clearly shows that corporate concerns about future economic prospects have begun to comprehensively overflow.
Reports from 12 Federal Reserve Bank districts across the United States show that both the abnormal rise in semantic frequency and the general weakness in economic activity highlight how current policies and market environments are profoundly disrupting corporate operating rhythms and capital allocation decisions.
What is the 'Brown Paper'?
The Beige Book, published by the US Federal Reserve System, with the formal title 'Summary of Commentary on Current Economic Conditions by Federal Reserve District', is a report issued eight times a year, providing real-time economic conditions of the 12 Federal Reserve districts in the United States.
This report is primarily based on qualitative data from business leaders, economists, market experts, and other sources, covering aspects such as consumer spending, employment, inflation, and business investment.
Figure (One): 12 FED Regional Branches Conduct Economic Surveys and Research Based on Their Respective Regions (Source: The Federal Reserve)
The main purpose of the Beige Book is to provide the FOMC with a real-time economic overview as a reference for monetary policy formulation. Unlike reports relying on quantitative data, the Beige Book emphasizes qualitative observations that can capture economic details that statistical data might overlook, especially during periods of high economic uncertainty.
In short, the authors of the report analyze based on "on-site observations" and "practical feelings", capturing subtle changes that lagging data indicators cannot timely reflect. At economic turning points or during highly uncertain periods, the Beige Book serves as a supplementary tool, providing not only immediate insights into monetary policy formulation but also offering market experts' assessments and clearer positions on future economic trends, thus helping the market better understand policymakers' attitudes and future directions.
Latest Brown Paper Warning: Tariffs and Uncertainty Double Surge, Corporate Pressure Fully Exposed
According to the latest Beige Book, the most notable is the semantic movement warning. According to statistics:
- Tariffs were mentioned 107 times, a surge of over 118% compared to 49 times in March, and nearly five times the 23 times in January. During Trump's first term, the peak of Tariffs mentioned in the Beige Book was 51 times.
Figure (Two): Frequency of 'Tariffs' Appearing in the Beige Book (Source: Federal Reserve, Rosenberg Research)
- Uncertainty was mentioned 89 times, growing nearly double compared to 45 times in March and nearly seven times the 13 times in January, setting a new record in recent Beige Book history.
Figure (Three): Frequency of 'Uncertainty' Appearing in the Beige Book (Source: Federal Reserve, Rosenberg Research)
This exponential growth in semantic frequency is not coincidental, but reflects the extreme anxiety within enterprises about the potential restart of trade wars and implementation of high tariffs by the Trump administration. These policies, previously viewed as potential risks, have now begun to comprehensively penetrate the actual operational level of businesses, significantly affecting capital expenditure, import strategies, employee recruitment, and pricing.
Economic Activity Overview: Comprehensive Cooling of Growth Momentum, First Widespread Contraction Observed
According to the Beige Book, only 5 Federal Reserve districts reported "slight growth", 3 districts performed roughly flat, and other regions reported "slight to moderate decline". This is the first time since the 2020 pandemic that most Federal Reserve districts simultaneously reported economic growth momentum contraction, indicating a clear weakening of confidence in business and household sectors.
Manufacturing performance was divergent, with two-thirds of regions indicating no significant changes or slight declines, reflecting ongoing global demand weakness and unresolved supply chain risks.
Non-automotive consumer spending is generally weakening, and while commercial real estate saw slight expansion, loan demand remained flat to slightly increased, suggesting further financial leverage tightening by businesses and households. The energy sector experienced modest growth, agriculture remained relatively stable, but these were insufficient to substantially lift overall economic performance.
The latest April comprehensive PMI data showed the index dropping to 51.2, the lowest in 16 months, indicating a clear slowdown in private sector economic activity. Although manufacturing PMI unexpectedly rebounded to 50.7, barely maintaining expansion, new orders and export demand remained under pressure. Services PMI declined to 51.4, showing further weakening of domestic demand.
Moreover, future expectation indicators for businesses significantly deteriorated, approaching pandemic-era lows, demonstrating rapidly declining confidence in economic prospects. J.P. Morgan and Goldman Sachs both noted that simultaneous weakening of business confidence and capital expenditure willingness could trigger further employment market deterioration, creating a negative cycle that pressures economic growth.
Figure (Four): Manufacturing & Services PMI Index Changes (Source: S&P Global)
Employment Momentum Cooling, Businesses Enter Observation Period
The employment market also transmitted turning signals. The Beige Book survey revealed that currently only one region reported "moderate growth", four regions showed "slight growth", four regions remained "unchanged", and three regions experienced "slight decline". Overall, this represents a slight deterioration from the previous report, indicating gradual labor market momentum slowdown.
Most regions reported that businesses generally paused or slowed hiring, especially in industries with close consumer contact like retail, dining, and tourism, who appeared more cautious about future demand prospects. Notably, some businesses have initiated layoff plans, suggesting potential irreversible profitability pressures in certain industries.
While overall labor supply improved, some regions faced workforce shortages in construction and agriculture due to tightened immigration policies, creating structural bottlenecks in supply-demand dynamics.
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