May 2025

Summary of Economic Activity

Economic activity in the Seventh District increased slightly over the reporting period, though contacts expected a slight decline in activity over the next year. Consumer spending and employment increased modestly; both business spending and construction and real estate activity were flat; manufacturing declined slightly; and nonbusiness contacts saw a slight decline in activity. Prices and wages rose modestly, and financial conditions loosened slightly. Prospects for 2025 farm income increased some.

Labor Markets

Employment rose modestly over the reporting period, and contacts expected a similar pace of growth over the next 12 months. Some contacts in construction and manufacturing continued to face tight labor market conditions, with several indicating that they were having difficulty finding skilled workers and were using higher wages to attract new employees. Other contacts across industries noted either stable or easing hiring conditions. A staffing agency reported that many businesses had paused hiring due to economic uncertainty. Several contacts noted low attrition, and a furniture manufacturer reported attrition was at a record low. In addition, a restaurant owner indicated that job applications had increased, and a contact in heavy truck manufacturing noted that all OEMs had announced layoffs in the coming months. Wages and benefits costs were up modestly overall.

Prices

Prices rose modestly since the last report, and contacts expected a faster pace of growth over the next 12 months. Producer prices increased modestly. Nonlabor input costs rose moderately, with reports of higher prices for equipment. Several manufacturers noted increased costs for raw materials including steel and electrical components like semiconductors. Consumer prices rose modestly overall. One retail industry analyst reported that price increases from higher tariffs were showing up in prices for some consumer goods like appliances and tools.

Consumer Spending

Consumer spending increased modestly over the reporting period. Nonauto retail sales were up moderately. Contacts noted pull-forward spending for big ticket items such as computers, electronics, and appliances. Consumer staples, such as groceries, posted solid gains. Sales in the lawn and garden and landscaping categories were healthy. However, leisure and hospitality spending continued to be soft. A museum contact indicated that admissions were down, though spending by visitors was strong. Air travel declined, but hotel demand picked up. Light vehicle sales remained robust as consumers looked to get ahead of potential tariff actions. Vehicle parts and service activity strengthened slightly.

Business Spending

Business spending was flat in April and early May. Capital expenditures increased slightly from a low level, and expectations for spending over the coming year were also up slightly. Demand for truck transportation declined. Retail contacts said inventories remained stable, though they expressed concern about receiving inventory in a timely fashion because there was a surge in orders for Chinese imports after tariffs were cut. Auto inventories declined slightly from elevated levels. One consultant for the heavy truck manufacturing industry noted record-high inventories. Manufacturing inventories were comfortable overall. Reports of materials shortages remained low, though some manufacturers had concerns about the potential for shortages of imported goods given rising tariffs.

Construction and Real Estate

Construction and real estate activity was unchanged on balance over the reporting period. Residential construction was flat. Higher tariffs led builders to expect costs to increase significantly in the coming months for new home construction and remodeling projects. Residential real estate activity was also unchanged. Prices increased slightly and rents rose modestly. Nonresidential construction was up slightly, with contacts highlighting growth in demand for data centers and medical offices. Commercial real estate activity was unchanged, though demand for industrial space remained robust. Contacts noted that demand for retail space was increasingly dependent on location. Prices decreased slightly. Contacts said that the gap between buyer and seller property valuations was often significant; for instance, some hospitality property owners postponed selling because they couldn’t find buyers willing to pay what they think the property is worth. Rents and vacancy rates were unchanged.

Manufacturing

Manufacturing activity declined slightly over the reporting period. Demand for chemicals was unchanged overall, though one contact noted growing demand from the medical device industry. Steel orders increased despite softer demand from the heavy machinery industry. Demand for fabricated metals manufacturing was flat, with increases in demand from the aerospace industry offsetting decreases in demand from the automotive industry. Machinery sales fell modestly, led by continued declines in demand from the automotive industry. Auto production fell moderately. A contact in the heavy truck manufacturing industry noted that orders for medium- and heavy-duty trucks fell sharply.

Banking and Finance

Financial conditions loosened slightly in April and early May. Bond values rose slightly and equity values increased sharply over the reporting period. Volatility fell significantly. Business loan demand was up slightly, with one contact noting greater demand for multifamily construction loans. Several contacts reported a further slowdown in acquisition financing. One banking contact noted an increase in credit utilization by businesses and attributed it to a pull-forward of inventory purchasing. Business loan quality decreased slightly, and one contact highlighted defaults on loans for office space. Business loan rates and terms were unchanged. In the consumer sector, loan demand, quality, and terms were flat. Consumer loan rates decreased slightly.

Agriculture

Expectations for 2025 farm income increased slightly on balance over the reporting period despite ongoing uncertainty about agricultural trade. Income expectations rose for livestock operations but were flat for crop producers. That said, there were reports of large crop and hog operators scaling back or ceasing operations. Corn and soybean planting proceeded quickly in much of the District, though the southern portions faced excessive precipitation which could lead to fields needing to be planted after the window for optimal yield. Corn prices decreased while soybean prices increased. Hog, cattle, and dairy prices rose, and egg prices declined. Contacts reported concerns about the loss of access to agricultural financing for heavily leveraged operators or those unable to pay off 2024 loans. There were limited sales of new farm machinery given high prices.

Community Conditions

Community, nonprofit, and other nonbusiness contacts reported a continued decline in economic activity and noted the ongoing negative impact of federal policy uncertainty on activities and planning. State government contacts saw increases in sales tax revenues but declines in payroll withholding. One contact said that while initial unemployment claims had increased in their state, the length of unemployment spells had declined. Small business intermediaries reported that their clients were working to understand the impact of tariffs on their business and pricing models. Leaders of nonprofit and social service organizations noted increased competition for private and philanthropic dollars due to federal funding cuts and fewer federal funding opportunities. Organizations serving low-income communities reported concern about the impact of reduced federal support, in particular on the availability of childcare.