The latest findings from the March Federal Reserve Beige Book reveal Wednesday that while the economy has seen a slight overall increase in activity since the beginning of the year, consumer spending has experienced a downturn, particularly in the retail sector.

This decline is attributed to increased price sensitivity among consumers, who are now more inclined to “trade down or shift their spending away from discretionary goods,” according to the Fed.

The Beige Book is a qualitative report about economic conditions across Federal Reserve districts, gathering insights through interviews with business contacts, economists and market experts.

Overall, eight districts (Boston, Cleveland, Chicago, Richmond, St. Louis, Minneapolis, Dallas, San Francisco) reported “slight to modest growth in activity”; three (New York , Kansas City, Atlanta) no change; and one (Philadelphia) saw a worsening in conditions.

Labor Market Conditions Improve , Leisure Down, Residential Real Estate Rebounds

Labor market conditions further improved, with employment continuing to rise at a slight to modest pace across most districts, and the degree of tightness eased.

The leisure and hospitality sector, including restaurants and hotels, has felt the pinch of reduced consumer spending. Despite the robust performance of air travel, these businesses have struggled with softening demand, a situation exacerbated by elevated prices and adverse weather conditions in some areas.

The real estate market is witnessing a resurgence in interest, particularly in the residential sector, driven by a recent easing of mortgage rates. Yet this renewed interest is hampered by low inventory levels, limiting actual sales.

The commercial real estate sector, especially office space, remains weak, although there is notable demand for data centers, industrial spaces and large infrastructure projects. The loan demand has been stable to declining, but overall, credit quality remains healthy, with only isolated concerns about rising delinquencies.

Cautious Optimism For Economic Growth

Despite the mixed signals from various sectors of the economy, the outlook for future growth remains generally positive. Business contacts across the board anticipate stronger demand and less restrictive financial conditions in the next six to 12 months, the Fed said.

Read now: Powell Stresses Need For ‘More Data’ Before Considering Rate Cuts, Downplays Recession, Commercial Real Estate Risks