CLEVELAND, Ohio – Overall business activity has been flat in recent weeks, according to businesses contacted by the Federal Reserve Bank of Cleveland, but they expect it to increase slightly in the months ahead.
According to the Cleveland Fed’s latest Survey of Regional Conditions and Expectations Indexes, nonlabor costs are climbing and total business conditions are on the rise slightly, while total employment and total prices are falling.
The survey was conducted from June 19-26 among companies in the Cleveland Fed’s district, which includes all of Ohio, western Pennsylvania, eastern Kentucky and the northern panhandle of West Virginia.
Retailers noted a pullback in consumer spending, and new vehicle purchases, once boosted by the threat of tariffs, are declining.
The survey shows that demand for professional and business services remain robust, with some businesses moving forward with projects that had been on hold due to uncertainty.
Though some businesses have been holding off on hiring or even reducing staff, most reported slight increases in employment levels. Some sectors reported a softening in labor demand, but wage pressures remained moderate in most sectors.
Manufacturers reported that demand for labor was mixed – some were anticipating growth and others were cutting costs. Wage pressures were reported on the rise by some in banking, professional and business services and health care, while wage pressure fell in construction and retail.
Nonlabor input costs continue to rise robustly, according to the survey. The cost stabilization from 2024 has dissipated. Many manufacturers reported tariffs had increased the costs of materials imported, and some retailers reported similar tariff-related increases.
Other increases include insurance and technology.
Consumer spending declined slightly in recent weeks, and a 20% to 30% decline was reported by one hospitality contact. Overall, retailers reported flat sales and predicted no change in demand in coming months.
One manufacturer reported an order backlog at the lowest level since 2018, and another reported that shipments were at their lowest level in decades. Housing, automotive and nondurable goods reported softer sales.
Demand increased in residential construction and real estate. Despite one broker observing more buyers in the market, frequent reductions in listing prices and a reluctance to sell and give up a good mortgage rate were noted. Homebuilders expect economic uncertainty to harm the market in coming months.
Commercial bankers reported slower borrowing. Transportation services reported weak economic conditions, causing a steep decline in demand.
Professional and business services reported robust activity, but one law firm reported that its clients were seeking consultations on downsizing options.
Nonprofit organizations reported concerns that federal funding reductions will create a challenge for supporting small businesses with federal and state grants. At the same time, small businesses are seeing an increase in the cost of services, which are needed to assist them in managing higher expenses, modifying supply chains and obtaining credit.