Economic activity flat as labor, consumer spending ease

Economic activity was mixed in recent weeks as consumer spending, hiring demand and business investment remained subdued amid rising input costs, according to the Federal Reserve Beige Book..Ongoing tariff-fueled uncertainty and the federal government shutdown also weakened economic conditions, according to the Nov. 26 report. Most districts expect modest or flat short-term economic growth. While manufacturers and lenders are optimistic about next year, contacts warned that slower consumer activity, higher costs and policy uncertainty could weigh on economic momentum in the months ahead.In the Chicago region, economic activity increased in recent weeks even as contacts expect a drop in activity over the next 12 months, according to the Federal Reserve. “Employment, consumer spending, business spending, construction and real estate, and manufacturing all increased,” according to the Beige Book. “Prices rose moderately, wages were up modestly, and financial conditions loosened.” Economic activity was unchanged in the St. Louis and Minneapolis districts, as businesses in the St. Louis region reported slowing demand and rising uncertainty tied to inflation risks and the recent federal government shutdown. “The outlook in the St. Louis region has grown more pessimistic, with contacts citing rising inflation, softer economic activity and ongoing uncertainty as key concerns heading into the next quarter,” according to the report. Banking conditions loosened modestly, with business lending ticking up while consumer loan demand softened. Delinquency rates edged higher in several districts, prompting banks to tighten underwriting standards. Financial conditions loosened in the Chicago region. While equity values increased, bond values and volatility were flat, according to the report. Business loan volume increased. Banking conditions were stable in the St. Louis region, even as loan demand slipped. Bankers expect demand to improve next quarter, according to the report, especially in commercial real estate. However, consumer delinquencies have increased, putting pressure on lenders to tighten underwriting standards.Banking activity was stable in the Kansas City region, with unchanged loan demand and underwriting standards. Deposit levels were steady, with institutions seeing moderate growth as customers locked in rates on certificates of deposit ahead of expected interest rate declines. Bankers in the region expect higher merger and acquisition activity over the next year to pursue efficiency and market share.Agricultural conditions improved in some areas as crop prices rose and export demand increased, including renewed soybean purchases by China. Farmers remained under financial strain due to tight margins and high input costs, delaying capital investments despite stable farmland values. Ag conditions were weak in the Minneapolis region despite strong harvests, with most farm lenders reporting lower incomes and reduced capital spending. Energy activity was unchanged across the district. Net farm income prospects increased in the Chicago region in recent weeks, according to the report, as corn and soybean harvesting was relatively quick.Drought hurt yields in some areas of the region. “District corn and soybean production was strong despite some disease pressures, and crop quality varied widely,” according to the Beige Book. “Applying fungicides helped avoid some crop losses but also boosted costs.” Agricultural conditions were subdued in the Kansas City region in recent weeks despite increases in prices for corn, soybeans and wheat in early November, according to the report. “While higher prices could support revenues, profit margins for many producers are expected to remain tight,” according to the Beige Book. “Ranchland values increased due to strong cattle prices, while cropland values held steady despite ongoing pressure on crop producers.” Consumer spending declined in many areas, particularly among middle- and lower-income households, while higher-end retail and certain value-oriented segments remained more resilient. Auto sales weakened, especially for electric vehicles following the expiration of federal tax credits, according to the report. Travel, leisure and hospitality spending slowed, with restaurants reporting softer demand and rising food costs that were difficult to pass on to customers.Labor markets softened. Employment edged down or remained flat in several districts, with many businesses limiting headcount through hiring freezes, attrition and reduced hours rather than layoffs, according to the report. Employers reported slightly easier hiring conditions, though shortages persisted in some skilled roles. Wage growth was generally modest, but higher health insurance premiums continued to pressure labor costs.Employment declined slightly in the Minneapolis region as labor demand continued to cool. A growing number of employers were not actively hiring, with regional retailers saying seasonal hiring for the holidays would be weaker than in recent years.Prices increased moderately across regions, driven largely by higher costs for raw materials, insurance, utilities and tariff-related inputs. While some firms have passed on these costs to customers, many are absorbing them due to weak demand and competitive pressures, resulting in margin compression in certain industries. Contacts broadly expect cost pressures to persist into next year.Manufacturing ticked up slightly in several districts, led by gains in fabricated metals, machinery and defense-related production. However, supply chain disruptions, including fallout from an aluminum plant fire and uncertainty around tariffs, limited stronger growth, according to the report. Heavy truck production declined and some manufacturers delayed expansion plans.Residential construction and real estate activity were mixed. Lower mortgage rates spurred modest increases in home showings and starter home demand in some markets, while overall housing supply remained limited. Commercial real estate was largely flat, with demand strongest for warehouse and data center space. Office vacancies remained elevated, though some regions reported gradual recovery through renovations and adaptive reuse.