Fourth District Beige Book

Summary of Economic Activity

Fourth District contact reports suggested flat business activity in recent weeks, but contacts expected activity to increase modestly in the months ahead. Commercial construction and financial services contacts noted an uptick in demand because of lower interest rates. Manufacturers reported modest declines in demand for goods, a situation which they attributed to tariffs and trade-policy uncertainty, and consumer spending declined slightly. On balance, contacts said that their employment levels increased slightly and that wage pressures grew modestly. Nonlabor cost pressures remained robust, and selling prices continued to grow modestly.

Labor Markets

Overall, contact reports suggested a slight increase in employment levels in recent weeks. Many contacts across industries said that they were hiring for open positions and normal turnover. Other contacts were hiring for current or anticipated growth. For instance, one banker reported hiring loan originators in anticipation of lower mortgage rates increasing demand. Overall, retailers held staffing levels steady in recent weeks. As one restaurateur stated, “no growth so no new positions will be added.” Across industries, many contacts said that declining business activity led to reduced labor demand, and in some cases, to layoffs. One manufacturer said that they had postponed layoffs while waiting for industrial production to recover but could not delay cuts any longer.

On balance, wage pressures were modest in recent weeks. Contacts across various industries reported implementing wage increases as part of their scheduled annual adjustments, while contacts in banking and professional and business services said that they had raised wages because of persistent competition in the labor market. Still, wage pressures eased for other contacts. Several manufacturers held wages steady because of lack of profitability, and one restaurateur aimed to hire at as close to minimum wage as possible to bring down overall costs.

Prices

Overall, nonlabor input costs rose at a robust pace in recent weeks, continuing the trend seen in the prior three reporting periods. Tariffs were frequently cited as drivers of these cost increases across industries. Many manufacturers reported tariff-related cost increases on raw materials, imported components, and chemical inputs. Retail contacts noted tariff-driven cost increases on vehicles, beef, coffee, and chocolate. Two contacts noted that foreign producers were factoring in tariffs and cutting prices accordingly to retain market share. Beyond tariffs, banking and professional and business services contacts continued to report elevated costs for technology and insurance, and manufacturers reported rising utilities costs. In general, costs were expected to grow at a strong pace in the coming months.

Contacts generally indicated that selling prices rose modestly in recent weeks, maintaining the pace of growth seen since early 2025. Across industries, contacts continued implementing price increases to cover elevated input costs, with several manufacturers and wholesalers introducing surcharges to cover additional costs related to tariffs. However, pricing power was constrained for other contacts who faced declining demand and heightened price sensitivity. In response, many retail contacts noted offering discounts or raising prices only on select items, while some manufacturers said that they held prices steady despite increased costs to try to gain market share.

Consumer Spending

Consumer spending declined slightly in recent weeks, and contacts expected demand to be flat in the coming months. Several retail stores reported a drop in unit sales, and a large retailer reported lower in-store and online traffic. Similarly, a food and hospitality contact said that customers were “more value aware,” and another large retailer reported that tariff concerns continued to drag down customer sentiment. One tourism contact, who reported a year-over-year decline in activity, said that visits by Canadians fell by 50 percent. Auto dealers generally reported that sales were flat to down, except for used car sales, which one dealership expected to remain strong in the coming months.

Manufacturing

On balance, contacts reported that demand for manufactured goods declined modestly in recent weeks after changing little during the prior reporting period. Several manufacturers continued to attribute flat or weaker orders to import tariffs and persistent uncertainty about trade policy. Firms selling into industrial and agricultural equipment production reported particularly weak demand, and one contact added that orders from these producers were below their previous expectation by roughly 25 percent. By contrast, some firms selling into the fossil fuel industry and electricity generation reported higher orders related to data center construction and operation. Manufacturers generally expected demand to increase moderately in the coming months.

Real Estate and Construction

Residential construction and real estate contacts reported declining demand in recent weeks. One real estate broker noted that current homeowners remained reluctant to sell and lose their lower mortgage interest rates. By contrast, one homebuilder reported that demand for new homes continued to be strong. On balance, contacts anticipated flat demand in the coming months.

Contacts in the commercial construction and real estate industry saw a modest increase in demand over the last two months. Reports from real estate developers and a commercial builder indicated that firms undertook more capital spending as they adapted to tariffs and as short-term interest rates declined. Notably, one contact said that some multinational manufacturers were expanding their domestic capacity, spurring new construction activity. However, other commercial real estate contacts reported softening demand for consumer-facing properties, including hotels, restaurants, and apartments. On balance, contacts expected moderate growth in demand over the near term.

Financial Services

Overall, bankers indicated that loan demand increased moderately in recent weeks, as both households and businesses were encouraged by lower interest rates. One commercial banker also reported that loan demand increased as their clients gained clarity around tariff impacts. Looking ahead, bankers expected a sharp increase in loan demand driven by anticipated cuts to interest rates over the remainder of the year. However, some bankers cited persistent inflation and small upticks in unemployment as sources of economic uncertainty keeping loan demand weak. Bankers also indicated that both core deposits and overall delinquency rates were flat.

Nonfinancial Services

Professional and business services firms reported moderate demand growth in recent weeks and expected a similar pace of growth over the coming months. Both a software and an accounting firm attributed increased demand to changes in the administration’s rules and tax laws. While demand for one firm’s legal services remained steady, the firm’s retail clients were being cautious about new capital investments and acquisitions. On balance, freight contacts reported flat demand and expected modest growth over the coming months, and one contact noted higher shipments of goods warehoused during the pre-tariff import surge. An airport reported declines in passenger and cargo volumes.

Community Conditions

In a semiannual survey of nonprofits, a growing share of respondents indicated that funding for their respective organizations decreased over the past six months. One revealed that their organization had to dip into its reserve fund to cover operating expenses for the first time in more than ten years. Another respondent said that the nonprofit sector was not filling open positions because of uncertainty around federal grants. Respondents who assist jobseekers observed that their clients were more likely than before to receive offers for part-time positions with little or no benefits and that formerly incarcerated jobseekers were having a harder time securing employment.