U.S. economic activity grows despite uncertainty and cost pressures

Economic activity across the United States expanded at a slight to modest pace in most regions in recent weeks, according to the Federal Reserve’s latest survey of regional conditions. Businesses cited geopolitical tensions — especially the conflict between the United States/Israel and Iran — as a key source of uncertainty shaping decisions on hiring, pricing, and investment..Eight of the Fed’s twelve districts reported slow growth, while two saw “little change” and two experienced small declines in activity. Many firms adopted a “wait-and-see” approach amid volatile energy prices and unclear economic outlooks.Across districts, the economic outlook remained mixed. While many businesses expect modest growth in the coming months, uncertainty tied to geopolitical tensions, energy prices, and input costs continued to weigh on confidence. Firms indicated they would remain cautious on hiring and investment until conditions became clearer, according to the Beige Book.Inflation remained moderate, but cost pressures intensified. Rising energy prices — linked to the Middle East conflict — increased transportation, shipping and input costs, including for plastics, fertilizers, and metals. Businesses reported input costs were rising faster than selling prices, compressing profit margins. Additional price pressures came from tariffs on metals, as well as higher technology, insurance, and health care costs.Triggered by the war in Iran, the current national average for a gallon of gas is $4.09 to $4.25, up 25-29 percent from 12 months ago when prices were $3.16 to $3.37. Brent crude is trading at more than $100, up from under $80 before the war. Consumer spending edged up overall, supported by higher-income households, though signs of financial strain increased among lower- and middle-income consumers. Households showed increased price sensitivity, according to the Beige Book, shifting toward essentials and discount options. Demand for food banks and social services rose. Housing activity softened in multiple regions as elevated mortgage rates and uncertainty weighed on demand.Manufacturing activity increased modestly in most districts, while banking conditions remained stable, with loan demand flat to moderately higher. Commercial real estate showed improvement — especially in industrial and data center projects — while office demand remained uneven, with stronger interest in high-quality space.Labor market conditions were stable nationwide. Employment levels were steady to slightly higher, with hiring focused on replacing departing workers. Businesses reported low layoffs and turnover but remained cautious about adding permanent staff, instead increasing reliance on temporary or contract workers. Wage growth continued at a modest to moderate pace, with persistent pressure in sectors such as health care and skilled trades.As of last month, unemployment was 4.3 percent, down from 4.4 percent in February. Regional highlightsIn the Minneapolis District, activity increased slightly, with gains in manufacturing, construction, and energy. Consumer spending remained flat and agricultural conditions were weak. Firms cited rising freight and input costs, along with ongoing economic volatility, as key challenges.In the Chicago Fed’s Seventh District, economic activity rose slightly, with modest gains in manufacturing and consumer spending, according to the Beige Book. Employment and business investment were flat. Contacts reported tightening financial conditions and declining farm income expectations for 2026 due to rising input costs.The St. Louis District reported unchanged economic conditions, with steady employment, moderate wage growth, and flat consumer spending. Contacts noted growing concern over fuel costs and their impact on businesses and household budgets.The Kansas City District also saw slight growth, with modest gains in manufacturing and consumer spending. However, discretionary spending remained soft, and businesses reported declining profit margin expectations amid rising input costs and cautious consumers.