Manufacturing rises as tariffs weigh on consumers, Fed Beige Book shows in World Economy News 05/03/2026 Economic activity across the United States showed signs of weakening in late February, with five of twelve Federal Reserve districts reporting flat or declining conditions, up from four in the prior period, according to the Fed’s Beige Book released Wednesday. Meanwhile, seven of the twelve districts showed a slight to moderate increase in economic activity. The divergence reveals a bifurcated economy where manufacturing gains mask consumer struggles, complicating the Federal Reserve’s policy deliberations ahead of its March 17-18 meeting. The report, prepared at the Federal Reserve Bank of Cleveland based on information collected through February 23, comes as markets digest the aftermath of Supreme Court restrictions on President Trump’s sweeping tariff powers and the implementation of his replacement 15% global tariff starting the week of March 4. The S&P 500 ETF (SPY) gained 0.95% to 686.81 on Wednesday. Manufacturing strengthens on data center boom Manufacturing emerged as the economy’s bright spot, with eight districts reporting varying degrees of growth and only two seeing declines. Manufacturing contacts across multiple districts cited increases in new orders, with several highlighting demand from data centers and related energy infrastructure as key drivers. The Cleveland district specifically noted data center development as a primary catalyst for increased manufacturing and commercial construction activity. This aligns with the ISM manufacturing index showing steady growth in February, though input prices surged to their highest level in nearly 3.5 years, according to Reuters. However, the production gains haven’t yet translated to hiring. Manufacturing employment has declined by 83,000 jobs since January 2025, according to ISM data reported by Reuters, even as output expands—suggesting companies are meeting increased demand through productivity improvements rather than workforce expansion. Employment levels remained generally stable across the broader economy, with seven of twelve districts reporting no change in hiring as firms cited rising nonlabor costs and economic uncertainty. Consumer spending weakens as lower-income households pull back Consumer spending increased only slightly on balance, with two districts reporting ongoing declines. The Fed noted that “sales were dampened by economic uncertainty, increased price sensitivity, and lower-income consumers pulling back on spending.” The report highlighted a bifurcated economy where higher-income consumers continue spending while lower and middle-income households struggle with necessities. One district reported that immigration enforcement activity negatively affected customer demand in urban areas, while districts impacted by winter storms saw retail traffic slow. The Financial Select Sector SPDR (XLF) rose 0.61% as commercial lending remained the primary area of strength in financial services, while the Industrial Select Sector SPDR (XLI) gained 0.31% on the manufacturing improvement. Tariff uncertainty mounts after Supreme Court intervention Nine districts mentioned that tariffs contributed to increased costs, with firms split between passing increases to customers and absorbing costs due to price-sensitive consumers. “Most Districts received reports of some firms holding selling prices stable despite higher costs because their customers were increasingly price sen