The U.S. economy expanded “at a modest to moderate pace” early this year as a surge in Covid-19 cases temporarily slowed business activity, according to the Federal Reserve’s Beige Book.
Most Fed districts expect economic stability over the next six months, though respondents highlighted an increase of uncertainty. Employment grew modestly, though strong demand for workers remained limited by widespread worker shortages, a trend business leaders expect will continue. According to the Bureau of Labor Statistics, unemployment was at 4 percent in January.
Several businesses in the Kansas City Fed region reported job openings in excess of 20 percent of their current workforce. “Many firms had difficulty maintaining their staffing levels due to high turnover; this challenge was exacerbated by Covid-19 disruptions in January, though workers and firms recovered more quickly than during previous waves,” the Fed stated. To combat the employee shortage, firms, with mixed success, increased compensation and adopted more flexible workplace formats, especially in low-wage positions.
According to the Fed, manufacturing increased “at a modest pace,” but was constrained by supply chain issues and low inventory, especially in the construction sector. Ag reports were “somewhat mixed,” according to the Fed, as some areas experienced challenging growing conditions while others benefited from higher crop prices.
Economic activity in the Upper Midwest mirrored national trends: Farm income increased through the end of last year. In the St. Louis region, economic conditions remained mainly similar to late 2021, but firms reported being able to pass on price increases. In the Minneapolis Fed region, new entrepreneurs reported quitting their outside jobs or reducing their hours. Ag conditions improved, as strong crop prices offset higher input costs.
Commercial real estate conditions varied across the Upper Midwest: In the St. Louis Fed region, CRE remained strong, especially for industrial real estate, despite materials shortages. It grew slightly in the Chicago region, but was flat for the Minneapolis Fed. Though industrial space continued to be in high demand, office and retail vacancy rates continued to climb in many markets, including Minneapolis-St. Paul.
In the Kansas City Fed region, burgeoning CRE construction brought project bookings to their highest levels in several years. Loan demand for community and regional banks remained mainly stable, though some contacts noted slightly less demand for commercial and industrial loans and residential mortgage loans. Despite growing concerns about supply chain complications limiting shipping activity, ag exports in the Kansas City Fed region remained strong and supported demand.