The outlook for future activity is slightly optimistic, with the vast majority of regions experiencing moderate price increases.

Among the 12 Federal Reserve districts, overall economic activity grew at a modest to moderate pace in 8 districts, remained unchanged in 3 districts, and experienced a slight decline in 1 district. This represents an improvement compared to the past three reporting cycles, during which most districts reported little change. Most banks reported weak to moderate growth in consumer spending this cycle, primarily driven by the holiday shopping season. Several districts noted stronger spending by high-income consumers, with increased expenditures on luxury goods, travel, tourism, and experiential activities; whereas middle- and low-income consumers became more price-sensitive, unwilling to spend on non-essential goods and services. Car sales were largely flat or declined in most districts. Manufacturing activity was mixed, with 5 districts reporting growth and 6 districts reporting contraction. Demand for non-financial services remained generally stable or saw a slight increase. Banking conditions were broadly stable or improved, with increased demand for credit cards, home equity loans, and commercial loans. In most reporting regions, residential real estate sales, construction, and lending activities weakened. Agricultural conditions remained largely unchanged, except for a slight decline reported in the Atlanta district due to weak export demand. Energy demand and production were flat or slightly decreased. The outlook for future economic activity was mildly optimistic, with most expecting weak to moderate growth over the coming months.

Labor Market

Recent employment conditions showed little change, with 8 out of 12 districts reporting no variation in hiring activity. Several districts noted an increase in the use of temporary workers, with one respondent stating that it allowed businesses ‘to maintain flexibility during uncertain times.’ Hiring efforts were predominantly focused on filling vacancies rather than creating new positions. Businesses continued to face shortages of skilled labor, particularly in engineering, healthcare, and other sectors. Multiple reports mentioned a decrease in job-switching among workers. Several respondents indicated they were exploring the application of artificial intelligence, primarily to enhance productivity and manage future workforce needs. The impact of AI on employment remains limited for now, with more significant effects expected to emerge over the coming years rather than immediately. Wage growth remained moderate, with several respondents noting that wage increases had returned to ‘normal’ levels.

Prices

The majority of districts reported prices rising at a moderate pace, with only 2 districts noting slight increases. Cost pressures from tariffs were a common issue across all regions. Some respondents who initially absorbed tariff-related costs began passing these costs onto consumers as pre-tariff inventory depleted or pressure to maintain profit margins intensified. However, respondents in sectors such as retail and dining hesitated to pass on costs due to heightened consumer price sensitivity. Energy and insurance costs remained significant pressures on profit margins. Looking ahead, businesses expect the pace of price increases to slow, but prices will remain elevated as firms continue to absorb previously incurred costs.

Highlights from Each Federal Reserve DistrictBoston

Despite a slight decline in housing sales, economic activity saw a small increase. Consumer spending rose marginally overall, with robust growth in demand for premium goods and services. Employment and wages remained flat, with only selective layoffs occurring. Prices continued to rise moderately overall, with some goods and services still facing cost pressures. The outlook turned slightly more optimistic.

New York

Economic activity continued to decline moderately. Employment fell slightly, while wage growth remained moderate, with ongoing layoffs reported by major employers in the region. Price increases accelerated further but remained at a moderate level. Holiday season consumer spending rose slightly, driven by strong spending from high-income consumers. Businesses generally anticipated limited improvements in the coming months, though manufacturers were more optimistic.

Philadelphia

Economic activity in the third district rebounded from a modest decline in the previous period to slight growth. Employment levels also appear to have risen slightly. Wage increases slowed and failed to keep pace with rising prices, placing pressure on middle- and low-income households.

Cleveland

Business activity in the fourth district experienced a small increase recently and is expected to continue growing modestly in the coming months. Despite lingering uncertainty, respondents from multiple manufacturing and construction sectors reported improved business confidence. Meanwhile, consumer spending saw a moderate decline. Non-labor cost pressures remained significant, while selling prices continued to rise moderately.

Richmond

The region’s economy continued to grow moderately in recent periods. Consumer spending in retail, travel, and tourism grew modestly, but vehicle sales declined. Manufacturing activity fell slightly during this period. Residential real estate activity moderated, while commercial real estate activity saw a small uptick. Employment remained unchanged, and wages grew moderately. Overall, prices continued to increase at a moderate pace.

Atlanta

The sixth district’s economy experienced slight growth. Employment levels were flat or declined marginally. Prices increased modestly. Retail sales improved, and travel demand rose moderately. Housing sales showed improvement, but commercial real estate activity declined. Transportation activity was flat or slightly down, while manufacturing activity was flat or slightly up. Energy demand remained unchanged.

Chicago

Economic activity in the seventh district remained largely unchanged during this reporting period. Consumer spending, construction, and real estate demand rose slightly; employment stayed flat; non-business respondents indicated no changes in economic activity; business spending declined modestly; and manufacturing activity contracted moderately. Prices increased moderately, wages rose slightly, and financial conditions eased somewhat. Net agricultural income for 2025 is expected to be similar to that of 2024.

St. Louis

Since the last report, economic activity has grown moderately, supported by the end of the government shutdown and strong year-end holiday sales. Employment levels remained unchanged. Prices continued to rise at a moderate pace.

Minneapolis

Economic activity in the region remained flat. Employment declined slightly, with more companies conducting layoffs than expanding their workforce, particularly among large enterprises. Prices rose modestly, though some firms plan to raise prices next year. Despite adverse weather conditions, holiday spending remained robust, benefiting the winter tourism industry. Manufacturing activity contracted.

Kansas City

Economic activity experienced slight growth, reflecting increased service sector sales and manufacturing orders. The labor market remained stable and balanced, while prices rose moderately due to pressures from input costs and labor expenses. Energy activity declined as oil prices remained below profitable levels. Agricultural conditions were mixed, with weak crop profitability offset by strong cattle prices.

Dallas

Economic activity in the eleventh district remained stable during this reporting period. Sectors such as manufacturing, retail, non-financial services, and real estate saw little change. Banking was a bright spot, with loan volumes increasing over the past six weeks. Employment remained largely unchanged, and prices rose moderately. Outlook remains cautious due to concerns about demand levels and tariff-driven inflation.

San Francisco

Economic activity expanded moderately. Employment levels remained largely stable, with wages showing growth. The pace of price increases accelerated, shifting from moderate to a slightly higher level. Retail sales grew moderately, driven by strong holiday shopping demand among high-income households. Service sector, real estate, and agricultural activities remained generally stable. Manufacturing activity weakened slightly, while lending activity increased modestly.

Note: This report was compiled by the Federal Reserve Bank of Richmond based on information collected as of January 5, 2026, summarizing the opinions of external respondents to the Federal Reserve System and does not represent the views of the Federal Reserve Board officials.