Economy stalls as consumer spending, manufacturing weaken

Economic activity was stagnant in recent weeks, with most Federal Reserve districts seeing flat to slightly weaker conditions, according to the Oct. 15 Beige Book..AgricultureAgricultural conditions weakened in the Minneapolis region as producers had strong harvests but lower prices for corn and soybeans. Farmers were concerned about the financial impact of China stopping soybean orders from U.S. producers. Ag conditions were stable in the Chicago region, despite producers seeing uncertainty over future input expenses. Corn and soybean yields were uneven, with lower prices for both commodities. Cattle and hog prices reached record highs, as milk and egg prices fell. “Rising fertilizer costs and limited ability to cut expenses further weighed on farmer sentiment,” according to the report. Ag conditions deteriorated in the St. Louis region amid high input costs, low commodity prices and extreme weather, according to the report. Farmers reported poor yields, especially in non-irrigated areas, with some predicting up to one-third of Arkansas farmers could face bankruptcy or exit the industry. According to the Beige Book, energy activity declined in the Kansas City region amid limited drilling expansion and mixed trends across the oil and gas sector. Crop producers faced lackluster profits, according to the report, while cattle operations were strong. Economic activity, outlookThree of 12 Federal Reserve districts reported slight to modest growth, five noted no change and four cited a slight softening in overall activity. Consumer spending edged down, particularly for retail goods, though some regions experienced stronger auto sales as buyers rushed to purchase electric vehicles ahead of an expiring federal tax credit.Economic activity in the Minneapolis region — Minnesota, Montana, the Dakotas, northwestern Wisconsin and Michigan’s Upper Peninsula — edged down in recent weeks amid softening labor demand, weaker consumer spending and declining activity in construction, real estate and agriculture. Economic outlooks for the coming months varied by region and sector. While some contacts expressed cautious optimism for stronger demand in 2026, many remained wary of persistent uncertainty, high costs and the potential economic fallout from a prolonged government shutdown. In the Chicago region — Illinois, Indiana, Iowa, Michigan and Wisconsin — businesses expected economic activity to decrease over the next 12 months as manufacturing demand drops and consumer spending growth slows. Spending by higher-income consumers on luxury travel remained strong, but demand from international visitors declined, and lower- and middle-income households continued to hunt for discounts amid ongoing price pressures and economic uncertainty. Consumer spending increased in the Chicago region, fueled by strong back-to-school sales and demand for appliances, computers and landscaping services. EmploymentLabor market conditions were stable, though more employers reported trimming staff through layoffs or attrition. Weaker demand, uncertainty and rising investment in artificial intelligence were among the reasons cited. Labor shortages continued in hospitality, agriculture, construction and manufacturing due to recent immigration policy changes. Wage growth continued at a modest to moderate pace, with employers facing rising costs for health insurance. Job turnover remained low in the Chicago region, and several manufacturers and retailers saw weaker hiring demand. Employers across the Minneapolis region reported weaker hiring demand, with several companies trying to hire temporary or temp-to-hire positions rather than full-time roles, according to the report.Employment fell in the Kansas City region, especially among consumer and business service companies, while bankers experienced deteriorating consumer loan portfolios. Wage growth was subdued amid softer labor demand, and businesses indicated any layoffs were modest and aimed at aligning staffing with current demand.“Despite the recent slowdown, many firms expressed optimism, expecting higher sales and employment levels by the end of 2026,” according to the Federal Reserve. ManufacturingManufacturing conditions varied by region but were challenged by higher tariffs and slowing demand, according to the report. Some firms in the St. Louis region offshored production to lower-cost regions or restructured supply chains to address tariffs and labor challenges. Manufacturing was flat in the Minneapolis region. Manufacturing orders fell in Minnesota and South Dakota but increased in North Dakota. Prices continued to rise, driven by higher import costs and expenses for insurance, health care, and technology. Tariffs have boosted input costs for many firms, though some businesses absorbed the increases to maintain market share, while others—particularly in manufacturing and retail—passed the costs on to consumers.Prices, financesContacts in the St. Louis region — Missouri, Illinois, Indiana, Kentucky, Tennessee, Mississippi and Arkansas — said inflation is continuing to weaken purchasing power. Modest price increases were also reported in the Minneapolis region, though firms continued to encounter higher input and insurance costs. Financial conditions loosened in the Chicago region as equity and bond markets improved, according to the report. Business loan demand fell, especially in the auto supply sector, while consumer loan demand slightly increased amid a rise in mortgage refinancing. Banking conditions were stable in the St. Louis and Kansas City regions, with strong credit quality and moderate loan demand, according to the report. Describing the St. Louis region, the Beige Book described strong commercial lending, with bankers seeing rising consumer delinquencies and tighter credit standards for smaller borrowers. ConstructionConstruction and real estate activity increased in the Chicago region. “Residential construction edged up while home prices were flat and rents rose modestly,” according to the Federal Reserve. “The multifamily sector saw more rent concessions, and commercial real estate activity improved slightly, with steady demand for data centers and health care facilities. “Office leasing picked up as sellers lowered asking prices.” In the Minneapolis region, infrastructure spending and large proposed data centers supported improved sentiments. CRE was steady even as new construction was limited.