U.S. businesses told the Federal Reserve in June and early July that the loss of immigrant labor is adding to their struggles with the effects of fast-changing trade policies as the Trump administration's economic strategies began gaining traction. The U.S. central bank's latest snapshot of the economy, released on Wednesday, showed activity picked up in recent weeks, but the outlook was "neutral to slightly pessimistic" as businesses reported that higher import tariffswere putting upward pressure on prices. The Reuters Tariff Watch newsletter is your daily guide to the latest global trade and tariff news. Sign up here. Advertisement · Scroll to continue
Report This Ad "Contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer," according to the Fed's "Beige Book" report, which was based on surveys, interviews and observations collected from the commercial and community contacts of each of the central bank's 12 regional banks through July 7. All districts reported the impact of trade policy, with only a few examples of businesses citing benefits, including from potential reshoring of manufacturing. Many mentioned the effect of price increases, already seen or expected soon, and, in some cases, a slowdown in business. Advertisement · Scroll to continue
Report This Ad "A metal fabricator reported that current business volumes were stable, but there 'appears to be an ominous volume cliff ahead which is signaling a dramatic downturn,'" the Minneapolis Fed reported. "Some businesses have raised prices ahead of imposed tariffs," the Atlanta Fed said. "Others said they were waiting to raise prices until they had more clarity on trade policy, which puts pressure on margins but minimizes price volatility. Several contacts noted they were still working through pre-tariff inventories, thus delaying price adjustments." Employment was reported to have increased very slightly, the Fed said, and "many contacts expected to postpone major hiring and layoff decisions until uncertainty diminished." Immigration enforcement and deportations, which are a key pillar of President Donald Trump's policy framework, appeared to hurt businesses in a number of regions. Earnings season takes centre stage as President Trump's tariffs loom.
"A construction company reported that the lack of workers was slowing project completion, and a landscaping company reported that they were unable to fulfill more than half of their customer requests," the St. Louis Fed reported. "Some small seasonal businesses reportedly decided not to reopen due to the lack of available immigrant workers," according to the New York Fed. TRUMP'S PRESSURE Fed policymakers have kept their policy rate in the current 4.25%-4.50% range since December and are widely expected to leave it there at least until September as they wait to see how the economy responds to trade and other policy changes. "Overall business activity was up in the last month, but the outlook was slightly more pessimistic," said Jeffrey Roach, chief economist at LPL Financial. "We should be watchful for signs of margin compression at the business level, financial stress via rising delinquency rates, and a sluggish housing market as inventories rise."
