Beige Book Report: Cleveland
September 3, 2025
Summary of Economic Activity
Fourth District contacts reported a slight increase in overall business activity in recent weeks and expected activity to rise modestly in the months ahead. Consumer spending was flat, with retailers noting continued affordability concerns among consumers. Manufacturers also reported flat demand for goods, citing trade policy uncertainty as the main driver. Demand for professional and business services grew moderately, albeit at a slower pace than in the past three reporting periods. Contacts generally reported flat employment levels and modest wage pressures. Nonlabor cost pressures remained robust, and selling prices continued to grow modestly.
Labor Markets
Overall, contact reports suggested flat employment levels in recent weeks. Many contacts noted decreased demand for labor in response to flattening demand. Multiple contacts across industries reported reducing costs by not replacing departing staff, and some manufacturers noted that they were decreasing hours. Some retailers said they were fully staffed, with one noting that they were "not actively hiring, not actively firing." Still, some contacts noted hiring for growth in areas of increased demand such as cybersecurity, and others said they were taking advantage of increased labor availability to acquire talent with higher skill sets.
On balance, contacts noted that wage pressures grew modestly in recent weeks. However, an unusually high share of contacts, nearly 80 percent, reported holding wages steady. Across industries, many contacts who noted raising wages cited a still-competitive job market. One real estate agent reported offering higher wages to attract experienced workers, and one law firm said attracting talent "hinged largely on compensation." Among those holding wages steady, multiple manufacturers said they were increasing wages only during scheduled annual adjustments, while several restaurateurs said they were not raising wages because of lack of profitability and increased nonlabor costs.
Prices
Overall, nonlabor input costs continued to rise at a robust pace in recent weeks. Across sectors, many contacts cited tariff-related cost increases. Many manufacturers reported that tariffs had increased the costs of electronic components, tools, metals, and other raw materials, with multiple contacts noting a lack of domestic suppliers for some items. Retail contacts cited higher costs related to tariffs on vehicles, beef, and other commodities. One healthcare contact said tariffs had affected hospital drug pricing, pushing up the cost per unit of service. Moreover, elevated costs for technology such as software and AI continued to impact banking and professional and business services contacts. Contacts generally expected costs to grow at a strong pace in the coming months.
On balance, contacts reported that selling prices grew modestly in recent weeks, continuing the trend since the start of 2025. Across industries, contacts continued to report raising prices to offset higher materials costs. Some manufacturers and auto dealers reported passing along 100 percent of tariff increases to customers, while others said they were slowly raising prices in response to higher tariffs. Pricing power diminished for some contacts, including some metal manufacturers, who were reducing prices to remain competitive. Several contacts in manufacturing and professional and business services reported waiting to see "how things settle" before increasing prices but anticipated doing so in the near term.
Consumer Spending
On balance, contacts reported flat consumer spending in recent weeks, with several citing affordability concerns, especially for low- and middle-income consumers. One auto dealership believed increased prices caused buyers to postpone purchases, while another thought customers were making purchases ahead of further tariff increases. Overall, contacts expected consumer spending to be unchanged in the coming months. Two auto dealers who expected sales to decline cited affordability concerns and increased strain on household budgets. Two retail store contacts who expected no change in sales cited concerns over the still-unclear impact of tariffs on consumer confidence and spending.
Manufacturing
On balance, contacts reported little change in demand for manufactured goods in recent weeks. Many firms continued to cite uncertainty about import tariffs as a primary reason for flat or lower orders, and a few contacts added that they or their customers were concerned about a possible weakening of overall economic conditions. Producers that reported higher demand attributed it to customers seeking domestic sources of imported products or moving forward with previously postponed purchases. By contrast, metal producers and others selling into heavy industry reported a softening of demand. Manufacturers generally expected demand to increase modestly in the coming months.
Real Estate and Construction
Overall, residential construction and real estate contacts noted increased demand in recent weeks, though individual reports were mixed. Some homebuilders saw increased demand. However, one real estate contact said higher mortgage rates were deterring current homeowners from moving. Another said potential buyers were delaying purchases in anticipation of mortgage rates falling toward the end of the year. Contacts expected continued demand growth in the near term.
Nonresidential construction contacts saw flat demand over the last two months. Two commercial builders reported decreased demand, which they attributed to tariffs and broader uncertainty, and one real estate developer saw softening demand for retail space as consumers pulled back on spending. Conversely, a few contacts reported increased demand for some industrial projects including data center construction and upgrades to existing facilities. On balance, contacts expected demand to rise slightly in the coming months.
Financial Services
Overall, bankers reported that loan demand increased modestly in recent weeks. One commercial banker mentioned that clients had recently adjusted to changes in trade policy and moved forward with expansion plans. On the consumer side, one banker said clients continued to make large purchases ahead of anticipated tariffs, but the banker expected demand to decline in the near term as tariffs take effect. In the coming weeks, bankers expected lending activity to increase modestly overall, as some anticipated that clients would adapt to changes in trade policy.
Nonfinancial Services
Demand for professional and business services rose moderately in recent weeks, and contacts expected a robust increase in demand over the coming months. Accounting firms attributed increased demand for services to changes in tax policy. One law firm said it expects demand growth under two scenarios: (1) If tariffs have a modest impact and interest rates decline, it anticipates increased demand for transactional services, and (2) If tariffs have a large impact and interest rates do not decline, it expects increased demand for restructuring and bankruptcy services. On balance, freight and transportation contacts reported a slight decrease in demand in recent weeks. They generally expected modest demand growth in the coming months amid the resolution of tariff-related uncertainty.
Community Conditions
In a recent survey of Ohio's Federally Qualified Health Centers, which provide services to underserved populations and areas, most respondents indicated that potential Medicaid cuts would significantly impact their budgets. Several reported that cuts would negatively affect their staffing levels, patient access to care, and recruitment and retention of providers. Some mentioned developing strategies to mitigate these effects, including increasing revenue from non-Medicaid sources. One respondent planned to shift more to value-based care, a model through which providers are paid for quality of care over quantity of patients. Another mentioned that credentialing with commercial plans allowed them to receive reimbursement from health insurance companies. Others suggested scaling back or cutting services and staff hours.
For more information about District economic conditions visit: https://www.clevelandfed.org/en/region/regional-analysis.