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Fourth District Beige Book

Summary of Economic Activity

Business activity in the Fourth District declined slightly, and contacts expected further weakening in the months ahead. The softening in customer demand was evident across sectors as households and firms contended with higher costs and rising interest rates. Additionally for goods producers, ongoing supply chain challenges and heightened uncertainty about the economic outlook led to declines in orders and reduced capital investment. The share of firms that increased staff levels or raised wages has eased since the start of 2022. Still, labor market conditions remained tight. Firms continued to add staff moderately amid high turnover, and they continued to give pay increases that were above historical averages. Looking ahead, most contacts intended to increase their staffing levels throughout the remainder of the year. Reports of higher nonlabor costs were widespread, particularly for food, energy, and petroleum-related products. Most firms raised prices, but a number of contacts reported that their profit margins had shrunk as they were unable to fully pass cost increases to customers.

Labor Markets

Employment rose moderately, albeit at a slower pace than at the start of the year. A few firms noted that worker availability had improved somewhat, but for the most part, contacts cited difficulty finding and retaining workers across skill levels. Tight labor supply prompted one retailer to start recruiting the youngest workers allowed by law. High turnover rates remained a challenge, which some contacts attributed to retirements and employees’ leaving for higher pay. One manufacturer said that a few of the firm’s employees had left because of high commuting costs. Despite difficulty finding workers and recent softening of customer demand, most contacts intend to add staff throughout the remainder of 2022.

Tight labor market conditions continued to put upward pressure on wages. However, the share of contacts reporting such increases has declined from around 70 percent at the end of 2021 to a little more than half during the current reporting period. Pay increases were often above historical averages in percentage terms, although some firms noted that such increases did little to attract more job applicants. Several firms said that pay increases for new workers required them to increase wages for current staff. One manufacturer remarked that employees were worried about rising food and fuel costs and that she was considering offering them memberships to warehouse clubs to help reduce these expenses. A banker with a similar concern said that staff are pushing for remote work and that the firm was considering providing transit benefits.


The vast majority of firms reported that nonlabor costs rose for a broad range of items. There were scattered reports that the sizes of recent cost increases have diminished compared with last year’s but that they remained large relative to historical norms. Higher energy costs were widely cited as a strain on firms, but other inputs, including cardboard, food, and electronics, also increased in cost. Goods producers reported that higher oil and electricity costs have pushed up prices for an array of inputs such as drywall, lubricants, and asphalt. A few contacts reported that lumber and steel prices declined. Contacts generally expected meaningful upward pressure on nonlabor costs to continue over the next few months.

Most firms raised prices as they attempted to keep up with rising costs. There were a few exceptions, though. Spot rates for freight services came down because of weaker demand. Also, in a few instances some manufacturers passed through lower steel costs to customers. Despite raising prices, several retailers and manufacturers commented that they were unable to fully pass cost increases to customers and that their profit margins were shrinking. One manufacturer noted that smaller firms were less able to raise prices than larger firms and consequently were experiencing greater pressure on their margins.

Consumer Spending

Reports suggested that consumer spending slowed. General merchandisers and apparel retailers reported weakened demand, which they attributed to higher food and gas prices decreasing households’ discretionary income. Restaurateurs reported steady sales; however, they also expressed concern that inflation was dampening customer demand. One contact commented that high gas prices caused households to “stay local” for vacations, a situation which benefited his restaurant, but he expected demand to soften as consumers draw down their savings to keep up with rising expenses. Auto dealers reported declines in new-vehicle sales and leasing that they attributed to a lack of inventory and rising interest rates that are pricing out lower-income customers. Some dealer contacts projected high gas prices and rising vehicle prices will further slow demand, a situation which will eventually allow stocks to build.


Demand for manufactured goods remained flat, and manufacturers grew more cautious overall. High inflation, labor shortages, ongoing supply chain disruptions, and concerns over excess inventory contributed to a decrease in orders for some producers. Many manufacturers noted that backlogs were at or near record highs; however, some expected order cancelations to increase in the coming months. Spending on capital equipment declined modestly, with one contact noting that long lead times meant almost all orders for this year would not be fulfilled until next year. On balance, manufacturers expected demand to decrease modestly in coming months.

Real Estate and Construction

Residential construction and real estate activity softened further amid rising interest rates. One real estate agent noted that while demand remained elevated, rising interest rates priced some buyers out of the market, which reduced the number of competing offers on listings. Construction contacts noted that although new traffic has slowed, their large backlogs have kept them busy. Going forward, contacts anticipated housing demand would slow further as rising interest rates and high inflation push more buyers out of the market.

Demand for nonresidential construction and real estate also slowed amid heightened uncertainty about the economic outlook and increasing construction costs and interest rates. One real estate agent noted that growth and expansions for many of his firm’s customers halted at the beginning of June. Contacts anticipated that current headwinds would persist and further dampen demand into the near future.

Financial Services

Overall, banking activity remained stable. Contacts noted a slight increase in demand for commercial loans, particularly for financing inventory and working capital. Nevertheless, one banker noted that commercial clients are contacting his bank more frequently over concerns about a possible persistent slowing in economic activity. On the consumer side, contacts noted declines in auto loan and mortgage applications related to low inventories and higher interest rates. Lenders said that commercial and consumer loan delinquency rates remained low and core deposits were stable. Looking ahead, multiple contacts stated that they expect deposits to decrease into the next quarter as more of businesses’ and consumers’ account holdings are consumed by higher costs. Bankers also expected overall loan demand to level off or slow in the third quarter.

Professional and Business Services

Demand for professional and business services was stable at elevated levels. One consultant noted that while there have been many discussions about a potential slowdown within the next year, there had been no actual change in demand for services thus far. Going forward, software providers and digital authentication firms anticipated that activity would remain elevated as the robust demand for online shopping and services is expected to persist into the near future. Engineering firms were also optimistic and anticipated increased activity related to infrastructure spending.


Freight demand weakened during the reporting period. Demand on the spot market fell amid a decline in imports, partly because of the lingering effects of China's COVID-19 lockdowns and ongoing supply chain issues. Some companies reported reducing capital expenditures given long lead times and other difficulties securing new equipment, while one contact was concerned about future demand for freight services. Driver availability reportedly improved, although, overall, the supply of drivers remained tight.