Economic Activity Expands Modestly, Consumers Face Price Pressures

Financial conditions remained largely stable, with modest increases observed in both commercial and consumer loan volumes. While commercial loan quality was stable, consumer loan quality saw a slight decline. Respondents across various districts generally anticipate continued economic expansion, though elevated uncertainty surrounding future fuel costs was a recurring concern.

Employment gains were more widespread than in the prior period, with five districts reporting modest to solid increases, compared to only one district previously. Hiring occurred across manufacturing, construction, and retail sectors. However, a shortage of skilled labor, particularly in technical and trade positions, persisted. Wage growth was generally modest to moderate, reflecting competition for skilled workers. Some firms are increasing their use of artificial intelligence in hiring and productivity enhancement.

Price increases were moderate overall, with nine districts reporting moderate growth, two robust growth, and one slight growth. Compared to the previous period, price growth was either the same or slower in all districts. Non-labor input costs rose in services, construction, and manufacturing, driven by higher energy, transportation, and raw material expenses, with some contacts attributing these increases to the Middle East conflict or tariffs. Consumer prices continued to climb, and some districts noted increased price sensitivity among customers, leading to margin compression in a few instances where selling prices grew less than input costs. Expectations for future price growth varied, with some anticipating continued inflation and others a slowdown, partly due to anticipated falling fuel prices.