Fourth District Beige Book

Summary of Economic Activity

Contacts’ reports suggested flat overall business activity in the Fourth District in recent weeks, though contacts expected activity to increase slightly in the months ahead. Retailers noted a pullback in consumer spending, and new vehicle purchases decreased after a surge in pre-tariff sales. Demand for professional and business services remained robust, and some clients moved forward with previously paused projects despite ongoing uncertainty. Contacts generally continued to report slight increases in employment levels, but many were holding off on hiring or reducing staff until they had more clarity on economic conditions. Wage pressures continued to be moderate but subsided in sectors with softer labor demand. Contacts’ reports suggested that their nonlabor cost pressures remained robust and that their selling prices grew only modestly amid increasing price sensitivity.

Labor Markets

Overall, employment levels increased slightly in recent weeks, according to contacts’ reports. Professional and business services firms continued to report staff increases, though at a slower rate compared to the strong pace at the start of the year. Manufacturing contacts’ demand for labor was mixed, with some hiring for anticipated growth and others reducing staffing levels to cut costs. In response to flattening demand and uncertainty, many contacts across sectors were holding off on changing staffing levels until the direction of demand became clear. On balance, contacts expected employment to increase slightly in the near term.

Contacts’ reports suggested that wages grew moderately in recent weeks, continuing the pace of growth that started at the beginning of the year. Many of the firms across industries continued to raise wages through fixed annual adjustments. Some contacts in banking, professional and business services, and healthcare noted persistent upward pressure on wages due to competition for skilled workers. But wage pressures were reportedly subsiding in the retail and construction sectors, with contacts noting a slower job market. One retail contact said, “[we’re] not losing employees to other businesses, so we are not getting into matching offers to retain employees.”

Prices

On balance, contacts’ reports indicated that nonlabor input costs continued to rise at a robust pace in recent weeks and that the cost stabilization seen during 2024 had dissipated. Many manufacturers noted that tariffs had increased the costs of the materials they import, and some retailers reported tariff-related cost increases from foreign and domestic suppliers. Elevated costs for insurance and technology, including AI and data security, continued to impact banking and professional and business services contacts. Contacts generally expected costs to grow at a strong pace in the coming months.

Selling prices rose modestly on balance, according to contact reports. Across industries, contacts continued to report raising prices to cover costs related to tariffs and elevated prices of materials and insurance. Many reports indicated increased price sensitivity related to softening demand. This sensitivity was evidenced by contacts selectively and cautiously increasing prices, holding prices steady while making other cost-saving changes, and, in some cases, cutting prices to compete. Other signs of this sensitivity were the dips in sales after commercial construction contacts raised their prices. Still, several contacts in manufacturing and professional and business services anticipated increasing prices in the near term ahead of contract renewals.

Consumer Spending

On balance, contacts said consumer spending declined slightly in recent weeks. New vehicle purchases decreased following a surge in sales from customers who were seeking to avoid tariff-related price increases. One tourism contact benefited from customers taking “staycations,” whereas a hospitality contact was hurt by a 20 to 30 percent decline in travel to their market. Overall, retail store contacts reported flat sales and said that customers purchased only essentials and avoided discretionary items. Looking ahead, contacts expected no change in demand in the coming months.

Manufacturing

Contacts’ reports suggested that demand for manufactured goods was unchanged in recent weeks, having stabilized at a low level during the prior reporting period. Several contacts continued to report flat or declining orders because of uncertainty about trade policy or federal regulations; one producer’s order backlog was at its lowest level since 2018, and another noted that shipments were at their lowest level in decades. Multiple firms selling into consumer markets, including housing, automotive, and nondurable goods, reported softer sales. Manufacturers generally expected demand to change little in the coming months unless trade policy and other federal regulations come into better focus.

Real Estate and Construction

Residential construction and real estate contacts reported that demand increased moderately in recent weeks. One real estate broker observed more buyers in the market but noted more frequent reductions in listing prices, and another highlighted that homeowners remained reluctant to sell because of concerns about losing their low mortgage rates. Looking ahead, one homebuilder expected economic and political uncertainty to discourage large purchases, dampening demand for homes. On balance, contacts expected a slight decline in demand over the coming months.

Commercial construction and real estate contacts reported moderate growth in demand in recent weeks. One real estate developer reported that retail traffic increased steadily, driving leasing activity, and another said that trends toward in-person work continued to bolster demand for office space. However, several commercial builders mentioned that clients had delayed projects or that new inquiries had slowed amid economic uncertainty. Contacts anticipated continued moderate growth in demand in the coming months.

Financial Services

On balance, bankers reported that loan demand was flat over the past several weeks. Commercial bankers continued to attribute sluggish borrowing activity to trade policy uncertainty, and one commercial banker noted that some businesses delayed large investments as the economic outlook remained unclear. One banker said consumer loan demand declined following increased auto, RV, and marine purchases earlier in the year ahead of potential tariffs. In the coming months, bankers anticipated a slight decline in overall loan demand as many businesses wait for more clarity on trade policy and interest rates.

Nonfinancial Services

Professional and business services contacts generally reported robust growth in demand for the second consecutive reporting period, a situation which they expected to continue in the coming months. A contact’s clients began to advance previously paused projects despite continued uncertainty. Additionally, a law firm said that their demand was up as clients sought consultations on downsizing options. By contrast, transportation contacts across multiple sectors including air cargo, passenger air, and freight hauling reported a steep decline in demand. Several transportation contacts commented on weak economic conditions, and they highlighted low export activity and reduced import activity following a pre-tariff surge. Transportation contacts expected the sharp decline to continue over the coming months.

Community Conditions

In a recent survey of nonprofit organizations that support small businesses, contacts reported challenges associated with capacity constraints and growing demand for services. Several respondents reported federal funding reductions, with one rural organization describing cuts of more than 40 percent to their federal and state grants. Others raised concerns about whether private funds would remain available for their organizations given economic uncertainty. Meanwhile, demand for these organizations' services increased, as small business owners sought assistance managing higher expenses, modifying supply chains, and obtaining credit. Additionally, respondents noted that small businesses had lost federal contracts and that federal policy changes were raising concerns about future contract opportunities, especially for women-, minority-, and veteran-owned businesses.