Americans are rushing to buy cars ahead of looming price hikes, fueling a short-term spending spree on goods most vulnerable to the latest wave of tariff disruptions.
In its Beige Book released Wednesday, the Federal Reserve said most regional districts reported moderate to robust vehicle sales, attributing the surge to "a rush to purchase ahead of tariff-related price increases."
The data underscores growing anxiety as the 25% tariff on imported automobiles, imposed by the Trump administration, took effect on April 3.
A Tale of Two Consumers: Autos Hot, Everything Else Not
While Americans are racing to lock in car deals, non-auto consumer spending has taken a hit.
The Beige Book's national summary described overall economic activity as "little changed," with only five of the 12 Fed districts reporting slight growth. In contrast, three districts were flat, and four reported declines.
The diverging consumer behavior is stark. In the Cleveland district, for instance, retail demand slumped, but auto dealers saw a wave of customers "pulling forward purchases" in anticipation of higher prices.
In New York, economic activity contracted modestly, and businesses conveyed "significant concern about tariffs," leading many to brace for declining activity and surging costs.
Inflation Fears Mount As Tariff Surcharges Hit Supply Chains
Prices rose across all districts due to trade disruptions.
At least six districts described the price growth as moderate, and another six as modest, yet across the board, tariffs were named as a key driver. Businesses are already receiving cost-hike notifications from suppliers and in many cases are adding surcharges or shortening pricing horizons.
"Most businesses expected to pass through additional costs to customers," the Fed said, although several also flagged the risk of margin compression as demand weakens, particularly for consumer-facing firms.
In Kansas City, expectations of price growth rose "at a robust rate," particularly in the goods sector, while in Dallas, "input cost pressures accelerated" and outlooks deteriorated amid trade uncertainty.
Outlook Worsens As Trade Uncertainty Takes Hold
The clearest theme from the Fed's April Beige Book is that the U.S. economy is barely growing.
While pockets of strength, like the auto sales boom, show consumers are still willing to spend, those surges appear driven by fear of future costs rather than optimism.
That fear of higher prices, lower margins, and supply disruptions is increasingly shaping decisions for both consumers and businesses.
Michigan-based automakers General Motors Co. (NYSE:GM) and Ford Motor Co. (NYSE:F) are scheduled to release their first-quarter earnings on April 29 and May 5, respectively.
Investors will be closely watching to see whether the recent increase in vehicle sales has come with added costs—and how that has impacted automakers' profit margins.
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