Fourth District Beige Book

Summary of Economic Activity

Contacts’ reports continued to suggest flat business activity in the Fourth District in recent weeks, and they expected activity to remain flat in the months ahead. Retailers noted a pullback in consumer spending, and manufacturers said that ongoing economic and trade policy uncertainty continued to dampen demand for their goods. Demand for professional and business services increased driven by higher demand for consultations amid the shifting regulatory environment. Overall, contacts reported slight increases in employment levels; however, mentions of staff reductions became more frequent. Wage pressures remained moderate but eased in a couple of sectors amid increased labor availability. Contacts’ reports suggested that their nonlabor costs grew at a robust pace, a situation which they attributed to tariff impacts, and that their selling prices grew moderately.

Labor Markets

Employment levels generally increased slightly in recent weeks, according to contact reports. Professional and business services firms were more likely to report staff increases, while those in manufacturing and freight were more likely to report staff reductions. Increased labor availability allowed some contacts across industries to more easily hire entry-level staff. Some contacts who cited decreased demand reported initiating staff reduction efforts through layoffs, not replacing staff, or cutting hours. On balance, contacts expected employment to increase slightly in the near term.

Contacts reported that wage pressures were moderate in recent weeks. Firms across industries continued to implement cost-of-living and merit-based wage increases for current employees. Professional and business services and banking contacts were more likely than contacts in other sectors to report offering wage increases, a situation which many attributed to sustained competition for skilled workers. Firms hiring for entry-level positions reported declining wage pressures amid increased labor availability. Some manufacturing and freight contacts noted that slowing sales led them to offer minimal pay increases.

Prices

On balance, contacts indicated that nonlabor input costs rose at a robust pace in recent weeks, continuing an upward trend that began after a period of stability in 2024. Contacts from multiple sectors noted that tariffs were now increasing the costs of materials that they import. Some contacts also noted secondary impacts of tariff-related cost increases from domestic producers. For example, one manufacturer said that their US-based raw materials suppliers raised prices to factor in the overtime needed to meet increased domestic demand. Some food and hospitality contacts reported that many food costs remained elevated, but one restaurateur reported relief that egg costs had declined. Contacts generally expected costs to grow at a strong pace in the coming months.

Selling prices rose moderately on balance, and the share of firms reporting that they increased their prices was higher than in the previous reporting period. Contacts across industries, particularly those in manufacturing and construction, said that they raised prices to cover costs related to tariffs and to elevated prices of materials such as steel. Auto dealers generally mentioned raising prices of new and used vehicles, and one said that they were offering less discounting because of higher demand. Overall, professional and business services firms continued to increase their prices moderately; however, one law firm said that clients had started pushing back.

Consumer Spending

In recent weeks, consumer spending was flat on balance. Many auto dealers reported an increase in purchases ahead of planned tariffs, and one dealership expected tariff-related sticker shock to hit customer demand starting in early June. Retailers reported a general pullback in consumer discretionary spending, although one retailer benefited from customers who traded down from larger discretionary purchases to more modest ones. Contacts had difficulty forecasting demand for the coming months because of uncertain impacts of trade policy but expected demand to see a modest slowdown on net during this period.

Manufacturing

On balance, contact reports suggested that demand for manufactured goods stabilized at a low level after declining moderately in the prior reporting period. Several manufacturers continued to report flat or softer orders because of ongoing economic and trade policy uncertainty. Some producers also noted softer orders from international customers, and one contact added that their firm had moved production of international orders out of the United States to avoid retaliatory tariffs. By contrast, a small number of manufacturers reported higher orders from customers that were seeking domestic substitutions for imported products. Some of these customers were looking to avoid import tariffs or stabilize their input prices, while others were aiming to find domestic substitutions for imported products that were being held at ports temporarily during trade negotiations. Contacts generally expected demand to increase modestly in the coming months.

Real Estate and Construction

Reports from residential construction and real estate contacts suggested moderate growth in demand for homes in recent weeks. One real estate broker noted that prospective buyers had accepted current mortgage rates as the norm, making them less hesitant to move forward with purchases. On balance, residential construction and real estate contacts anticipated continued growth in demand in the coming months.

On the commercial construction side, contacts reported a slight decline in activity in recent weeks. Several builders and developers said that uncertainty around economic policy was causing businesses to be more cautious with their construction investment decisions. Contacts expected flat demand in the coming months, anticipating that economic and policy uncertainty will continue to weigh on activity.

Financial Services

On balance, loan demand was flat in recent weeks. Several bankers reported that economic uncertainty surrounding trade policy caused some clients to pause or delay projects and purchases. Conversely, a couple of bankers reported that demand for auto loans increased as clients purchased vehicles ahead of planned tariffs to avoid potential price increases. Looking ahead, bankers expected loan demand to remain flat as economic uncertainty persists. While most bankers reported no change to their loan application standards, one banker mentioned that their institution began to consider tariff exposure as a criterion for credit approval.

Nonfinancial Services

On balance, contacts reported robust demand for professional and business services in recent weeks, a situation which they expected to continue over the coming months. Firms’ demand for legal and consulting services increased amid regulatory changes. By contrast, freight and transportation contacts reported a modest decline in demand in recent weeks and expected a robust decline over the coming months. Following the pre-tariff purchasing surge, a transportation contact noted fewer imports, and a logistics firm noted increased demand for storage capacity.

Community Conditions

Community contacts reported that uncertainty surrounding federal funding, inflation, and tariffs caused disruptions in social service and economic development programs serving low- and moderate-income households. One contact observed that funding cuts led some organizations to pause hiring or provision of new services, and others noted a general reduction in essential wraparound services. Another contact mentioned that funding cuts led to monies being pulled from major brownfield remediation projects, leaving site cleanups and the consolidation of police, fire, and 911 services partially complete. Uncertainty over the impacts of inflation and tariffs on building costs led to the stoppage of some housing developments, according to one organization.