Fourth District Beige Book

Summary of Economic Activity

On balance, business activity in the Fourth District was flat in recent weeks, although contacts expected activity to increase modestly in the months ahead. Consumer spending was down, and some auto dealers and consumer lenders noted declining consumer confidence related to policy uncertainty and inflation. Moreover, demand for manufactured goods generally softened. Commercial lending activity increased slightly, with some real estate investors moving forward on new projects. Also, some business services firms saw an uptick in demand driven by consultation requests amid government policy changes. Employment levels remained flat in recent weeks, and wage pressures were moderate. Nonlabor input costs edged up to a strong pace of growth, while reported price increases continued to be modest. 

Labor Markets

Contacts reported that employment levels remained flat overall in recent weeks, a trend that has now spanned several reporting periods. Among the firms that were holding staff levels steady, several contacts said that they were reducing staff in areas of declining demand and hiring in areas of growth such as AI, while others were replacing underperforming workers. Some freight and manufacturing contacts reported not replacing staff who leave, slowing hiring, or laying off some workers because of slower demand or elevated costs. Still, many business and financial services contacts noted that they were hiring to meet increased demand related to mergers and acquisitions, immigration legal services, and data analytics. Contacts generally expected employment to increase slightly in the near term.

Wage pressures were moderate in recent weeks, and the share of contacts reporting increased pay was one of the highest in the past 12 months. Many firms across industries noted implementing standard annual cost-of-living and merit raises after larger-than-normal increases over the past few years. Still, some workers with specialized skills continued to see stronger wage growth. Additionally, some firms offered higher starting wages for warehousing, manufacturing, and construction roles to attract qualified candidates and keep pace with competitors.

Prices

Contact reports suggest that nonlabor input costs edged up to a strong pace of growth in recent weeks after a long period of moderate growth. Firms across industries continued to note rising costs of healthcare and other insurance. Both restaurateurs and food manufacturers reported still-higher egg prices, and multiple contacts noted cost increases for other proteins. Contacts generally expected costs to grow at a strong pace in the coming months, a circumstance which several attributed to the impact of evolving trade policy.

Reported selling price increases remained modest on balance, and the majority of contacts continued to report keeping prices stable in recent weeks. Among firms that raised prices, many said that they did so on a normal, annual basis. However, a few contacts reported unplanned price increases to offset higher compensation or materials costs. The majority of retailers and restaurateurs reported holding prices steady, with one citing competitive pressure as a reason for resisting price increases despite higher costs.

Consumer Spending

Consumer spending declined modestly after a period of moderate growth. Several food and hospitality contacts attributed sluggish demand to unusually harsh winter weather. An auto dealer suggested that policy uncertainty eroded consumer confidence and decreased demand despite increased inventory and manufacturer incentives. Meanwhile, a large retailer reported a continuing divergence between the weak mid-price retail and strong luxury retail sectors. On balance, retailers expected consumer spending to be flat in the coming months as affordability concerns hamper demand.

Manufacturing

Demand for manufactured goods declined slightly after a brief period of stability, though reports varied by industry segment. Firms selling into data center construction and adjacent projects, including chip manufacturing and electricity generation, continued to report strong demand. By contrast, producers from multiple industry segments reported flat or softer orders because of uncertainty about trade and energy policy. One manufacturer of metal products noted an increase in the number of firms seeking domestic sources of components normally imported from China. On balance, manufacturers expected demand to increase modestly in the coming months.

Real Estate and Construction

Residential construction and real estate demand declined modestly in recent weeks. One homebuilder continued to report that relatively high interest rates dissuaded some potential buyers, while another noted that unusually harsh winter weather had put a damper on business activity over the last two months. On balance, contacts expected a slight decline in demand in the coming months. One residential builder pointed to interest rates, inflation, and tariffs as factors keeping prospective homebuyers out of the market.

Commercial and industrial construction activity was flat in recent weeks. On one hand, two builders were optimistic about demand because of more bidding opportunities, and firms’ return-to-office plans boosted demand for two real estate brokers. On the other hand, some contacts reported firms putting planned investments on hold until tariff policies and the direction of interest rates become clearer. Contacts anticipated slightly higher demand in the coming months.

Financial Services

Overall, bankers reported a slight increase in loan demand in recent weeks, with many citing increases in commercial lending, whereas consumer lending remained flat. One lender said that commercial demand increased as real estate investors started moving forward on new projects, and another added that outlooks improved as firms anticipated a more “business-friendly” administration. Conversely, some consumer lenders said that loan demand stalled amid a decline in consumer confidence related to continued inflation for essentials such as groceries. Looking ahead, bankers expected loan demand to grow moderately, with some citing growing commercial pipelines, an uptick in mergers and acquisitions, and reduced rates on auto loans.

Nonfinancial Services

Professional and business services firms reported moderate growth in recent weeks and expected a similar pace of growth over the coming months. One accountant attributed increased demand to policy changes and natural disasters. Several law firms reported that demand for their services remained steady, with one noting that it was increasingly providing general business counseling and corporate finance services to clients preparing for anticipated tariffs. By contrast, freight and transportation contacts reported no change in growth after a period of increased activity, and they expected modest growth in the coming months.

Community Conditions

Demand for food assistance increased over the past three months, particularly for households with children, according to the majority of food bank and pantry respondents in a recent survey. Several respondents had difficulty meeting increased demand and had to limit the amount of food provided and the frequency of visits per family. Declining in-kind donations for items such as eggs, meat, and produce led some respondents to purchase food to meet increased demand. Nearly all organizations expected demand for food assistance to rise over the next six months because of elevated prices and the impact of potential funding cuts on low-income households.