Economic activity expanded at a modest pace, on balance, since mid-May; however, several Districts reported growing signs of a slowdown in demand, and contacts in five Districts noted concerns over an increased risk of a recession. Most Districts reported that consumer spending moderated as higher food and gas prices diminished households' discretionary income. Due to continued low inventory levels, new auto sales remained sluggish across most Districts. Hospitality and tourism contacts cited healthy leisure travel activity with some noting an uptick in business and group travel. Manufacturing activity was mixed, and many Districts reported that supply chain disruptions and labor shortages continued to hamper production. Non-financial services firms experienced stable to slightly higher demand, and some firms reported that revenues exceeded expectations. Housing demand weakened noticeably as growing concerns about affordability contributed to non-seasonal declines in sales, resulting in a slight increase in inventory and more moderate price appreciation. Commercial real estate conditions slowed. Loan demand was mixed across most Districts; some financial institutions reported increased customer usage of revolving credit lines, while others reported weakening residential loan demand amid higher mortgage interest rates. Demand for transportation services was mixed and reports on agriculture conditions across reporting Districts varied. While demand for energy products was robust and oil and gas drilling activity picked up, production remained constrained by labor availability and supply chain bottlenecks for critical components. Similar to the previous report, the outlook for future economic growth was mostly negative among reporting Districts, with contacts noting expectations for further weakening of demand over the next six to twelve months.

Labor Markets
Most Districts continued to report that employment rose at a modest to moderate pace and conditions remained tight overall. However, nearly all Districts noted modest improvements in labor availability amid weaker demand for workers, particularly among manufacturing and construction contacts. Most Districts continued to report wage growth. One third of Districts indicated that employers were considering or had given employees bonuses to offset inflation related costs while in two Districts, workers requested raises to offset higher costs. A quarter of Districts indicated wage growth will remain elevated for the next six months, while a few noted that wage pressures are expected to subside later this year.

Prices
Substantial price increases were reported across all Districts, at all stages of consumption, though three quarters noted moderation in prices for construction inputs such as lumber and steel. Increases in food, commodities, and energy (particularly fuel) costs remained significant, though there were several reports that price inflation for these categories had slowed compared with recent months but remained historically elevated. While several Districts noted concerns about cooling future demand, on balance, pricing power was steady, and in some sectors, such as travel and hospitality, firms were successful in passing through sizable price increases to customers with little to no pushback. Most contacts expect pricing pressures to persist at least through the end of the year.

Highlights by Federal Reserve District

Boston
Business activity expanded at a modest pace. Employment was flat as turnover remained high and wages grew at an above-average rate. Prices increased at an above-average pace. The outlook turned more cautious or even pessimistic in cases. Most saw ongoing inflation (and efforts to control it) as posing significant threats to activity moving forward.

New York
Economic growth slowed to a crawl in the latest reporting period, as demand from households and businesses weakened amidst ongoing labor shortages, supply back-logs, and elevated Covid levels. Tourism continued to strengthen, while consumer spending and manufacturing activity were flat. Businesses continued to report wide-spread increases in selling prices, input prices, and wages. Optimism about the near-term outlook has eroded further.

Philadelphia
Business activity continued to grow slightly. Manufacturing, among other sectors, appeared to decline, even as activity in a few sectors remains below pre-pandemic levels. Increased chatter about a future recession has caused growth in employment, wages, and prices to subside a bit. However, each of these measures is still best described by its pace in the prior period of modest, moderate, and strong, respectively.

Cleveland
Business activity declined slightly as households and firms grappled with higher costs and rising interest rates. Contacts expected further weakening in the near term. Labor market conditions remained tight, although the share of firms that increased staff levels or raised wages has eased since the start of 2022. Reports of higher nonlabor costs were widespread, and most firms raised prices.

Richmond
The regional economy grew modestly over the last several weeks, although there were some emerging signs of slowing demand. Consumer spending remained generally solid, while manufacturers and service providers reported slowing to modest growth. Commercial and residential mortgage lending was hindered by rising interest rates. Labor markets were tight and price growth remained elevated.

Atlanta
Economic activity grew modestly. Labor markets were tight, and wage pressures continued. Nonlabor costs rose. Retail sales were solid. Leisure travel activity remained robust. Housing demand weakened. Commercial real estate conditions were mixed. Manufacturing activity was strong. Demand for transportation services was mixed. Banking activity slowed.

Chicago
Economic activity increased slightly. Employment in-creased moderately, business spending was up modestly, consumer spending rose slightly, and manufacturing and construction and real estate declined slightly. Wages and prices rose rapidly, while financial conditions tightened some. Agriculture income expectations for 2022 were little changed.

St. Louis
Economic conditions have improved at a modest pace since our previous report. Labor shortages eased slightly but continued to place upward pressure on wages. Prices for energy and intermediate goods rose, but in-creases were passed through at a lower rate than in previous months. Homebuying slowed and consumer demand for services rose.

Minneapolis
The region's economy grew modestly since mid-May. Labor demand weakened but remained at a high level, while wage and price pressures remained strong. Manufacturing and services activity grew. Construction contacts reported little change and real estate contacts reported modest declines. Minority and woman entrepreneurs expected flat to increased sales in the next month but have lowered their profit expectations.

Kansas City
Growth in the Tenth District slowed to a modest pace, with mixed performance across segments of the regional economy. Job growth was strong, but consumer spending softened. Several businesses indicated they began to offer pre-paid gas cards or direct payments to offset rising gas prices for workers. Rising interest rates deterred new growth in residential real estate and put some initial pressure on community banks' liquidity positions.

Dallas
Economic growth in the District slowed to a modest pace partly due to elevated prices, rising interest rates, and higher uncertainty hampering demand in manufacturing, housing, and services. Input costs rose at a rapid clip, though pass through was becoming more difficult for firms. Outlooks were mostly negative and highly uncertain owing to concerns about a further slowdown in demand.

San Francisco
Economic activity strengthened modestly over the reporting period. Overall labor market conditions remained tight. Wages and price levels increased further. Retail sales moderated somewhat while demand for discretionary services fell. Conditions in the agriculture and manufacturing sectors were mixed. Residential real estate activity eased, and lending activity was unchanged on balance.