Fourth District Beige Book

Summary of Economic Activity

On balance, contact reports were consistent with flat business activity in the Fourth District in recent weeks, suggesting a weaker-than-usual spring. Contacts generally expected activity to remain flat in the months ahead. Consumer spending was down; however, some auto dealers reported an increase in sales as customers sought to purchase cars ahead of potential tariffs. Demand for manufactured goods continued to soften, a situation which contacts attributed to uncertainty regarding tariffs. Construction contacts noted an uptick in demand but expected demand to diminish in the coming months given potential materials cost increases due to tariffs. On balance, employment levels increased slightly, and wage pressures remained moderate. Although contact reports suggested moderate growth in nonlabor input costs, reported price increases continued to be modest.

Labor Markets

Employment levels generally increased slightly in recent weeks, according to contact reports. Contacts in the manufacturing, construction, and retail sectors reported hiring additional staff to accommodate business expansion and increased demand. A few contacts noted that their firms took advantage of the cooler labor market to hire for roles in which candidates were previously scarce. By contrast, several contacts reported that softer demand caused them to reduce headcounts, while others put hiring efforts on pause because of an uncertain market outlook. On balance, firms expected employment to continue to see slight growth.

Contacts reported that wage pressures were moderate over the last two months. Across industries, firms continued to implement cost-of-living and merit-based wage increases for existing employees. New employees in some key positions earned higher starting salaries, though contact accounts suggested that labor market pressures were broadly softening, allowing firms to maintain flat starting wages for many roles.

Prices

On balance, contacts indicated that nonlabor input costs rose at a moderate pace in recent weeks. Contacts from multiple sectors noted that some of their suppliers increased prices in anticipation of import tariffs, and many firms whose suppliers had yet to raise prices said that they expected increases in the near term. Manufacturers and construction contacts reported higher costs for steel and other materials, while multiple retailers reported higher costs to import both intermediate and finished goods. Contacts generally expected costs to grow at a strong pace in the coming months.

Contacts suggested that selling prices again grew at a modest pace on balance, though most continued to report holding prices steady in recent weeks. Many firms that raised prices reported doing so to keep pace with rising employee compensation or materials costs, while a smaller share mentioned normal annual increases. Overall, retail contacts indicated that they were increasing prices moderately, and one retailer added that its firm was testing the effects of price increases to offset anticipated import tariffs.

Consumer Spending

Consumer spending declined moderately, and contacts expected this decline to continue—albeit at a slow pace—over the coming months. Several food and hospitality contacts tied decreased foot traffic to economic and political uncertainty, and they expected consumers to pull back on spending or trade down to more affordable options. Conversely, some auto dealers reported that the threat of tariffs drove customers to purchase automobiles prior to potential price increases. Several retailers had difficulty forecasting the impacts of policy and economic uncertainty on consumer demand, and they worried that consumer spending would pull back further.

Manufacturing

Contact reports suggested a moderate decline in demand for manufactured goods, and the largest share of firms expected demand to be stable at the current low level in the coming months. Contacts across industry segments cited uncertainty about import tariffs and other government policies as the primary reasons for softer orders, and some producers were concerned that their firms’ exports could be subject to reciprocal tariffs; one contact added that some foreign customers had already begun to cancel existing orders. Still, a small number of manufacturers expected demand for their products to increase if firms seek domestic sources of inputs previously sourced from abroad or as trade policy comes into better focus.

Real Estate and Construction

Demand for homes increased moderately in recent weeks as the spring selling season began to heat up. One homebuilder saw somewhat lower mortgage rates attracting buyers to the market, and another attributed higher contract volume to new-home buyers getting ahead of potential materials cost increases related to tariffs. One industry contact saw falling demand for new builds but rising demand for remodels and additions. Contacts expected a slowdown in demand over the coming months due to increasing construction costs associated with tariffs and uncertainty in the broader economy.

On the nonresidential side, contacts reported that demand for new projects declined slightly. Several commercial builders said that tariff policies and an uncertain economic environment were keeping firms from moving forward with projects. On balance, contacts expected activity to slow further in the coming months. Many anticipated that policy uncertainty would continue to dampen demand for commercial buildings.

Financial Services

Overall, bankers reported that loan demand increased slightly over the last several weeks. A couple of bankers attributed this increase to improved optimism among some of their clients related to a more “pro-business” administration. Another banker said that loan demand was stronger for commercial real estate and commercial and industrial loans than in previous years. However, several other bankers noted that clients held off on large purchases due to increased economic uncertainty. Looking ahead, some bankers anticipated a decline in loan demand due to uncertainty surrounding interest rates, government spending, and trade policy. Bankers predominantly reported that core deposits increased at their institutions, a situation which one attributed to clients withdrawing money from the stock market.

Nonfinancial Services

Demand for professional and business services was robust on balance in recent weeks, according to contact reports. One law firm saw increased demand from government and nonprofit clients driven by questions on policy changes. Meanwhile, another law firm specializing in mergers and acquisitions reported stable demand as its clients awaited policy clarity, but it expected demand to rise as tariff policies become clearer. Contacts generally expected professional and business services demand to grow slightly in the coming months. By contrast, freight contacts reported a slight decline in demand, a circumstance which several contacts attributed to economic policy uncertainty. Freight contacts expected modest growth in the coming months.

Community Conditions

In a semiannual survey of nonprofit organizations, respondents who assist jobseekers reported a decline in job availability over the past six months. Some respondents indicated that employers were less willing to train individuals and were conducting more interviews before hiring. A majority of respondents said that price increases continued to impact the financial well-being of low- and moderate-income households, leading more households to rely on credit cards to purchase basic necessities. Several contacts expressed concern about their organizations’ funding due to a decline in individual donations and uncertainty regarding federal funding.