The economy expanded in recent weeks, according to the Federal Reserve Beige Book..Activity increased in seven of the 12 Federal Reserve districts. Five districts reported flat or declining activity, up from four in the prior period. Most expect slight to moderate growth in the coming months. Activity weakened in the Minneapolis region, according to the report, with weakness in consumer spending, construction and manufacturing. Retailers cited economic uncertainty, price sensitivity and pullbacks by lower-income shoppers. Winter storms reduced store traffic in some areas, and one district said immigration enforcement activity hurt demand in urban areas. Auto sales were mostly down, with affordability a key issue.Economic activity increased in the Chicago region. Manufacturing, consumer spending, and construction rose, while employment and business spending were flat. Prices and wages rose moderately. Consumer spending rose slightly overall, but two districts reported continued declines. Consumer spending and manufacturing fell in the Minneapolis region and construction declined, particularly nonresidential building. Employment softened, though labor demand was steady. Agricultural conditions remained weak in the Minneapolis region, with two-thirds of ag lenders seeing lower farm income late last year than a year earlier. Livestock producers were in a better position than crop farmers. Farm income is expected to be similar this year to 2025 across the Chicago region, according to the report, as high input costs remain an issue, especially fertilizer. Crop prices increased, with rises in soybean and wheat prices making up for lower corn prices. Government trade payments supported regional farm income. Conditions were unchanged in the St. Louis region, despite input costs and weather uncertainty limiting some producers. “Despite those challenges, most lenders reported limited forced asset sales, suggesting resilience across the agricultural sector,” according to the Beige Book. Ag conditions were mixed in the Kansas City region as crop producers faced limited profit margins. Areas dependent on crop revenue saw faster deterioration in farm finances, according to the Beige Book, though the pace of deteriorating loan repayment rates eased. Increasing oil prices sparked additional drilling in Colorado and Wyoming, according to the Beige Book, while rising natural gas prices boosted the number of rigs in Oklahoma. Coal production in Wyoming was lower than earlier highs despite relatively elevated prices.Activity in the financial services industry was stable, with commercial lending cited as the main area of strength. Loan demand is expected to increase next quarter in the St. Louis region, according to the Federal Reserve. Bankers saw steady interest rates, stable credit conditions and healthy loan quality.Loan quality at Kansas City regional banks was stable, according to the report. “Loan demand increased slightly, led by agricultural and residential mortgage lending,” according to the Beige Book. “Credit standards were largely unchanged, though agricultural lending tightened somewhat. Deposits rose moderately, and some bankers said regulatory relief efforts could support lending growth later this year.” Employment was also stable, with seven districts reporting no change in hiring. Recruiting challenges continued for specialized positions and skilled trades in the St. Louis region. Some companies invested in automation, robotics and industrial artificial intelligence to address labor shortages and keep up production. Employment levels were stable in the Kansas City region. Twenty five percent of companies said labor supplies remained their No. 1 concern heading into this year, as regional contacts cited slowed population growth and reduced migration. More firms reduced than expanded headcounts in the Minneapolis region, according to the report, with employers citing lackluster sales or challenges finding skilled workers. Immigration enforcement in Minnesota disrupted landscaping and hospitality sectors, as some employees reportedly left jobs or stayed home. “Employers said replacements were difficult to find,” according to the Beige Book. Some firms did not add staff due to rising costs, softer demand and economic uncertainty. Businesses in several districts reported using AI and automation to improve productivity rather than replace workers. Wage growth remained modest to moderate, with continued pressure from higher health insurance costs.Prices rose moderately in most districts. Businesses reported higher costs for insurance, utilities, energy, metals and other raw materials. Nine districts cited tariffs as contributing to higher costs. Some companies passed those costs on to customers, while others kept prices steady due to consumer resistance. Overall, firms expect price increases to slow somewhat in the near term.Other report findings included:Manufacturing improved, with eight districts reporting growth and two reporting declines. Many manufacturers saw higher new orders, including increased demand tied to data centers and related energy infrastructure. Transportation activity was mixed.Residential sales and construction slipped slightly in most reporting districts, with low inventory and affordability constraints continuing. Nonresidential construction was mixed but edged up overall.
