Fed's Beige Book: Overall economic activity increased at a slight to modest pace in eight of the twelve Federal Reserve Districts, with three Districts reporting no change and one reporting a modest decline

Overall Economic Activity 

• Overall economic activity increased at a slight to modest pace in eight of the twelve Federal Reserve Districts, with three Districts reporting no change and one reporting a modest decline. This marks an improvement over the last three report cycles where a majority of Districts reported little change. 
• Most banks reported slight to modest growth in consumer spending this cycle, largely attributed to the holiday shopping season. 
• Several Districts also noted that spending was stronger among higher-income consumers with increased spending on luxury goods, travel, tourism, and experiential activities. 
• Low to moderate-income consumers were seen to be increasingly price sensitive and hesitant to spend on nonessential goods and services. 
• Auto sales were little changed to down across most Districts. 
• Manufacturing activity varied with five Districts reporting growth and six reporting contraction. 
• Nonfinancial services demand was generally seen as steady to increasing somewhat. 
• Banking conditions were generally reported as stable or improving, with some increased demand coming from credit cards, home equity loans, and commercial lending. 
• Residential real estate sales, construction, and lending activity softened in the majority of Districts that report on the sector. 
• Agriculture conditions were largely unchanged with only Atlanta reporting a modest decline due to weaker demand for exported commodities. 
• Energy demand and production was flat to down slightly. 
• Outlooks for future activity were mildly optimistic with most expecting slight to modest growth in coming months.

Labor Markets

• Employment was mostly unchanged in the most recent period, with eight of the twelve Districts reporting no changes in hiring. 
• Multiple Districts reported an increase in the usage of temporary workers, with one contact reporting this allows them “to stay flexible in uncertain times.” 
• When firms were hiring, it was mostly to backfill vacancies rather than create new positions. 
• Firms reported continued challenges finding skilled labor, particularly in engineering, health care, and other trades. 
• Several reports mentioned that fewer workers were switching jobs. 
• Multiple contacts reported exploring AI implementation primarily for productivity enhancement and potential future workforce management. 
• AI’s current impact on employment was limited, with more significant effects anticipated in the coming years rather than immediately. 
• Wages grew at a moderate pace, with multiple contacts reporting that wage growth had returned to “normal” levels. 

Prices

• Prices grew at a moderate rate across a large majority of Districts, with only two Districts reporting slight price growth. 
• Cost pressures due to tariffs were a consistent theme across all Districts. 
• Several contacts that initially absorbed tariff-related costs were beginning to pass them on to customers as pre-tariff inventories became depleted or as pressures to preserve margins grew more acute. But contacts in a few industries—like retail and restaurants—were reluctant to pass costs along to price-sensitive customers. 
• Energy and insurance costs continued to be a significant strain on margins. Looking ahead, firms expect some moderation in price growth, but anticipated prices to remain elevated as they work through increased costs.