How much longer can the U.S. economy sustain growth? The Federal Reserve’s latest survey indicates that the majority of regions continue to experience economic expansion, but high fuel costs, tariffs, and ongoing tensions in the Middle East are persistently driving up business expenses, prompting consumers to cut back on non-essential spending. Most respondents expect the economy to keep growing, though uncertainty surrounding future inflation and energy prices has risen markedly.
From late May through June, economic activity expanded at a modest to moderate pace in 11 of the 12 Federal Reserve districts, while one district reported unchanged conditions. The overall pace of growth was broadly similar to the previous reporting period, when 10 districts reported expansion, one reported no change, and one reported a decline.
Consumer spending increased slightly, but rising prices—particularly for fuel—curtailed sales in other categories. Several districts noted declines in discretionary spending or a shift by consumers toward lower-priced alternatives.
Tourism continued to grow, with some districts benefiting from increased visitor numbers linked to the World Cup. Auto dealers reported little change in vehicle sales, but spending on vehicle maintenance rose as consumers held onto their cars longer.
Agricultural conditions deteriorated due to falling commodity prices, higher input costs, and tighter credit conditions. In the energy sector, oil and natural gas drilling activity increased.
Manufacturing output rose modestly to moderately in most districts, driven primarily by stronger orders for data centers, machinery and equipment, and defense-related goods. Manufacturers in several districts reported that supply chain disruptions have become more widespread.
Construction and real estate activity posted slight overall gains, with multiple districts citing continued growth in data center construction.
Financial conditions remained generally stable, with both commercial and consumer loan volumes growing modestly. Asset quality for commercial loans held steady, while asset quality for consumer loans showed a slight deterioration.
Transportation activity expanded modestly, influenced by higher tariffs and ongoing supply chain adjustments stemming from the conflict in the Middle East. Overall, activity in other service sectors also grew modestly, with health care and professional services performing relatively well.
Social service providers are adjusting to reduced funding, while demand for essential support—including housing, food, and health care—remains elevated.
Respondents generally expect the U.S. economy to continue expanding over the coming months, although several districts highlighted significant uncertainty surrounding the outlook for fuel costs.
Labor Market
Employment increased overall, with five districts reporting slight, moderate, or strong employment growth, and seven districts reporting little change in employment. In contrast, only one district reported slight, moderate, or strong employment growth in the previous period.
Employment rose across multiple sectors, including manufacturing, construction, and retail. Skilled labor shortages persisted across several industries, particularly among technical staff and skilled trades.
Although a few districts reported declines in employment, the decreases were modest.
Wage growth remained slight to moderate in most districts, with only two districts reporting minimal wage increases. Some of the wage gains were attributed to heightened competition among businesses for skilled workers.
A few districts noted that businesses have increased their use of artificial intelligence (AI), both for recruiting and screening job applicants and for enhancing employee productivity.
Prices
Prices rose moderately overall. Nine districts reported moderate price increases, two reported strong price growth, and one reported only a slight increase. Compared with the previous reporting period, price gains either held steady or moderated across all districts.
Non-labor input costs continued to rise across multiple sectors, including services, construction, and manufacturing, partly due to higher energy, transportation, and raw material costs.
Some respondents attributed rising costs to the conflict in the Middle East, while others cited tariffs as a contributing factor.
Consumer prices continued to rise, and a few districts indicated that consumers have become more price-sensitive.
Two districts noted that the increase in product selling prices during the current period was lower than the rise in input costs, squeezing profit margins.
Districts held divergent views on price trends over the coming months. Some respondents expected inflation to remain at current levels, while others anticipated a moderation in inflation as fuel prices decline.
Summary of Federal Reserve Districts
Boston
Economic activity expanded slightly. Employment was flat, with scattered layoffs reported in some sectors and modest wage gains. Cost pressures remained elevated, but product prices rose only modestly. Consumer spending grew moderately overall, supported by the World Cup, though discretionary spending by middle- and lower-income households weakened somewhat. The overall economic outlook improved.
New York
Economic activity grew moderately, with services beginning to recover after an extended period of weakness. Employment increased modestly, as large firms resumed hiring to support business expansion. Input costs surged due to tariffs and energy expenses, yet sales price increases remained moderate. Business sentiment improved somewhat.
Philadelphia
Economic activity posted slight growth this period, improving from the mild contraction reported previously. Non-manufacturing activity rebounded, while manufacturing continued to expand moderately. Employment declined slightly once again. Wage inflation remained moderate, and prices continued to rise modestly. Manufacturers expressed more widespread expectations for future growth compared to non-manufacturing firms.
Cleveland
Business activity in the Fourth Federal Reserve District expanded modestly, with further acceleration expected over the coming months. Manufacturing demand rose moderately, while retailers continued to face weak demand due to rising fuel prices. Higher fuel costs pushed up selling prices and added to wage pressures, resulting in strong increases in sales prices.
Richmond
During this survey period, the regional economy expanded modestly. Consumer spending continued to grow despite shifts in consumer behavior, including among higher-income households. Overall business activity increased moderately, and employment also grew at a moderate pace. Manufacturing output rose modestly; although input costs increased, producer prices remained largely unchanged. Overall price increases remained moderate.
Atlanta
Economic activity expanded modestly. Employment was essentially flat. Wages rose moderately, and prices increased at a moderate pace. Consumer spending grew modestly. Residential and commercial real estate markets saw little change. Transportation and manufacturing sectors expanded modestly. The energy sector remained stable, but agricultural conditions deteriorated. Loan volumes grew modestly.
Chicago
Economic activity in the Seventh Federal Reserve District expanded modestly. Manufacturing demand rose moderately; employment increased modestly; consumer spending, business expenditures, and construction and real estate activity all edged up slightly; non-business respondents, including nonprofit organizations, also reported a slight increase in economic activity. Prices rose moderately, wages increased modestly, and financial conditions tightened slightly. The outlook for agricultural income in 2026 was revised down slightly.
St. Louis
Economic activity increased slightly. Employment was flat, while wages rose moderately. Prices rose strongly, with widespread price increases reported. The economic outlook remained unchanged, as respondents indicated that persistent uncertainty and elevated fuel costs continue to weigh on the overall economy.
Minneapolis
Regional economic activity expanded slightly. Employment grew modestly, and labor supply conditions improved somewhat. Wages continued to rise mildly to moderately. Prices increased moderately, though input cost pressures remained elevated. Retailers reported that consumers are shopping more cautiously. Activity in services, construction, commercial real estate, and manufacturing all expanded. Agricultural conditions deteriorated.
Kansas City
Economic activity in the Tenth Federal Reserve District expanded slightly, supported by growth in manufacturing. Persistent inflationary pressures continued to compress business profit margins, prompting firms to adjust pricing and investment strategies. Respondents expect the economy to continue growing modestly over the next six months.
Dallas
Economic activity in the Eleventh Federal Reserve District grew at a moderate pace. Growth accelerated in banking, energy, and services, while manufacturing growth slowed. Retail sales improved, and the real estate market showed mixed performance. Employment strengthened, and wage pressures increased. The overall outlook remains stable to optimistic, though inflation, demand levels, and uncertainties related to geopolitical and domestic policy developments remain key concerns.
San Francisco
Economic activity remained stable but generally weak. Firms maintained steady employment levels and further increased investments in artificial intelligence (AI). Prices rose moderately, and wages increased slightly. Retail sales and demand for services declined modestly. Manufacturing activity expanded moderately, while agricultural activity was flat but remained weak. The real estate and financial services sectors remained stable.
Editor/melody