Tenth District Beige Book

Summary of Economic Activity

Economic growth in the Tenth District slowed slightly, reflecting softer labor conditions, cooling consumer activity, and uneven business performance across sectors. Employment edged down through attrition, with service firms reporting the most notable moderation. Wage increases were in line with cost-of-living adjustments, as competition for labor remains soft. Prices continued to rise modestly, primarily for both discretionary and non-discretionary services, though most firms expect to pass through only a small share of input cost increases. Consumer spending weakened as foot traffic and leisure activity slowed. Oil and gas activity declined slightly as active rigs fell in response to oil prices dipping below profitable levels amid reports of global supply surplus. The agriculture economy remained subdued despite earlier gains in crop prices.

Employment declined slightly across the region over the past month, reflecting a modest cooling in labor activity. Demand for workers eased at a pace broadly aligned with the softening in labor supply, and much of this moderation is concentrated in service-sector firms. Reductions in headcount continue to occur primarily through attrition rather than layoffs, suggesting businesses are still cautious about losing talent. Manufacturers noted a recent hiring uptick, driven by overworked staff, incremental increases in orders, and reduced uncertainty around tariffs, rather than a broad expansion in capacity. Most firms also indicated that the composition of their workforce remains stable, with no need to raise wages beyond standard cost-of-living adjustments for either new or existing employees. Business leaders broadly expect employment to hold steady and expect hiring to pick up in 2026.

Input prices have moderately increased over the last month, with most of the upward pressure coming from both discretionary and nondiscretionary consumer service categories. Business services have experienced only minimal changes. The price increases have shifted to final goods in discretionary segments like retail. Firms in both services and manufacturing reported that only about 20 percent of input cost increases will be passed through to customers.

Consumer spending has declined moderately over the past month, reflecting softer household activity across several categories. Contacts reported that the government shutdown placed additional pressure on retail and food service firms, with many noting a visible slowdown in foot traffic. Some discretionary businesses echoed this pattern. One firm remarked that now was the best time to get a tattoo, as even top artists have more open appointments than usual. Leisure and hospitality activity continues to soften slightly, with several contacts citing weakened consumer expectations tied to the shutdown, though business travel has shown a modest pickup. The outlook for 2026 has deteriorated slightly, as a growing share of firms now anticipate slower sales over the next six months compared with what they previously anticipated the month prior.

Community contacts in the Tenth District reported a softening and more risk averse labor market for low- and moderate-income workers. Contacts reported private and government sector layoffs contributed to more overqualified applicants for any open positions, as the ability of workers to find equivalent employment to their prior job was increasingly difficult. Employers were reportedly investing more in upskilling current workers in lieu of hiring more workers; however, that training was not always translating into advancement or wage gains. Workers, meanwhile, were hesitant to pursue non-employer-provided training without certainty of correlated wage gains. Contacts also said workers were less likely to leave current jobs due to the tighter job market.

Business activity slowed over the last month, with most of the softening concentrated in consumer facing service industries that reported clear declines in sales. Contacts noted the pullback in demand was broader across income groups than in prior months, reinforcing the sense of a more generalized slowdown in household demand. In contrast, manufacturing activity strengthened slightly, driven primarily by durable goods producers in primary metals, fabricated metals, machinery, and transportation equipment, where orders, shipments, and production all improved. Inventory levels were mostly stable for manufacturers, while service sector firms experienced a slight drawdown. Capital investment expectations for 2026 improved, and one contact shared firms are beginning to dust off expansion and equipment upgrade plans that were paused in 2025. Durable goods manufacturers anticipate stronger demand heading into next year.

Contacts noted significantly more homeowners refinanced their homes in recent months (albeit from very low levels previously), with nearly all transactions involving some amount of equity extraction. Contacts also reported the fast pace of growth in the opening of home equity lines of credit continued, though drawn balances on those lines remained unchanged. For renters, contacts indicated that rent growth declined modestly. However, the concessions offered to renters have become significantly more generous recently. For example, reports of three months or more of free rent for new tenants and longer leases at constant rents for existing tenants were common in many markets. Still, absorption of new multifamily housing units softened substantially. One exception was the market for affordable housing serving 50 percent of area median income and below, where lease-up rates remained firm and wait lists remained long.

Loan demand and underwriting standards were mostly unchanged across lending categories, and overall loan quality remained relatively stable for District banks. The outlook for credit quality over the next six months is largely unchanged, though some respondents anticipate marginal deterioration in agricultural loans. M&A activity over the next twelve months is expected to increase modestly as firms seek to gain efficiency and market share amid a favorable regulatory environment. Deposit levels were relatively stable though several bankers indicated they experienced moderate growth in the past month. Growth was broad-based across deposit account types, with some respondents stating customers locked interest rates on certificate of deposit accounts prior to market rate decreases.

Tenth District oil and gas activity fell slightly in recent weeks. Active oil rigs in the District decreased moderately as oil prices fell below profitable levels amid news of a global supply surplus. Contacts reported that well costs decreased modestly but are still less optimistic in the near term as they expect oil prices to fall further. Natural gas rig counts stayed steady as prices rose slightly to meet District firms' breakeven rates. Contacts noted natural gas prices have been slow to respond to projected data center and AI demand for electricity, as turbine manufacturing bottlenecks limit producers' capacity to fulfill this demand in the near and medium term. Additionally, coal production in Wyoming ticked up in recent weeks in response to increased spot prices.

The Tenth District agricultural economy remained subdued despite increases in crop prices during early November. Corn prices increased about five percent from mid-October while soybean and wheat prices increased over ten percent alongside optimism surrounding increased export activity in the coming months. The increase in prices could support revenues; however, profit opportunities are likely to remain narrow and continue weighing on farm finances in many portions of the region. Lenders reported a modest increase in ranchland values as strong cattle prices continued to support conditions in some areas of the District, and despite ongoing weakness among crop producers, cropland values remained steady.