US economic activity increased at a slight to moderate pace across most regions in recent weeks, though a growing number reported flat or declining activity, the Federal Reserve said.
In its Beige Book survey of regional business contacts, released Wednesday, the US central bank reported that in many districts “sales were dampened by economic uncertainty, increased price sensitivity and lower-income consumers pulling back on spending.”
The report noted that employment levels were generally stable, even as firms looked to artificial intelligence to bolster efficiency.
“Firms in some districts and in various sectors looked to AI or other forms of automation to gain efficiencies, with most emphasizing the goal of productivity enhancement rather than worker replacement,” the Beige Book said.
Prices and Wages
Eight of the Fed’s 12 districts reported moderate inflation. Nonetheless, on balance, firms expected prices to rise “at a somewhat slower pace in the near term.” Companies said wages rose at a modest or moderate pace in most regions, with several areas also reporting upward pressure on total compensation due to rising health insurance costs.
After lowering interest rates three times in 2025, Fed officials pivoted to holding borrowing costs steady in January, citing above-target inflation and a recent stabilization in the labor market. Several policymakers have even considered the likelihood that the US central bank may need to raise interest rates if inflation stays elevated, according to minutes from the January gathering. Some officials said they expect rates to remain on hold for some time.
The Labor Department will issue its February jobs report Friday and officials will receive fresh inflation data next week. Policymakers next gather March 17-18 in Washington.
Investors are expecting roughly two quarter-point rate reductions from the Fed this year, according to pricing in futures contracts.
The report was compiled by the Cleveland Fed using information through Feb. 23, before US-Israeli strikes on Iran renewed tensions in the Middle East and spurred a jump in oil prices.
District Highlights
Boston: Increased immigration enforcement was associated with negative impacts on economic activity, especially for small businesses. In one Maine community experiencing an enforcement surge, many businesses noted disruptions in staffing and/or experienced decreased revenues from lower foot traffic.
New York: Despite weak hiring overall, contacts at larger firms with more stable operations continued to hire recent college graduates at steady levels, citing long-term employment needs and the belief that AI will increase productivity and business activity.
Philadelphia: Almost 40% of the firms reported that their customers have become more price sensitive since last quarter—down from 59% in November; 56% reported little change. Several contacts reported no plans to increase prices as a result.
Atlanta: Most firms expect to maintain staffing levels throughout 2026, and several cited plans to implement AI as a productivity enhancement, not head count replacement, at least in the medium term.
Cleveland: Multiple contacts reported leveraging automation and artificial intelligence solutions to gain efficiencies in back-office functions, a situation which one banker anticipated could further reduce head count needs.
Richmond: While still showing weakness compared to last year, consumer spending on travel and tourism improved slightly since last cycle. Notably, the increase in hotel revenue in Virginia was driven by upper-tier accommodations while mid- and lower-end options were little changed.
St. Louis: A mid-sized manufacturer in Memphis reported capital budgets shifting toward automation because persistent hiring frictions make robotics and industrial AI the most reliable way to preserve throughput and quality.
Minneapolis: Firms noted that other challenges dampened the immediate need for labor or the ability to find skilled labor. A North Dakota manufacturer reported that sales were slow, and “we will let attrition take care of any surplus labor we currently have.”
Kansas City: Contacts reported that about half of rural hospitals were operating at a loss, with many distressed hospitals likely to close. In northern Missouri, five hospitals were reported as at-risk of closure, resulting in the potential loss of 1,000 jobs.
Dallas: Despite growing activity, health-care firms reported that spending and investment decisions are on hold until there is more clarity regarding the extension of enhanced Affordable Care Act (ACA) subsidies.
San Francisco: One contact in the financial services sector noted that many job applicants were overqualified but looking to find work, and that the firm had recently hired a candidate with decades of experience for an entry-level role.
Written by: Jonnelle Marte @Bloomberg
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