Economic activity increased in recent weeks

The U.S. economy has expanded since late February, according to the Federal Reserve Beige BookTen of 12 Federal Reserve districts reported either slight or modest economic growth, according to the April 17 report, up from eight in the previous report. Consumer spending increased, but reports were mixed across spending categories. 

Ag economic conditions were less favorable. Minneapolis-area firms expect regional farm income to fall for the spring growing season as warm weather and widespread drought have led to a mixed outlook. Prospects for farm income this year were unchanged in the Chicago region with expectations for income continuing to fall below last year. Field work was well ahead of schedule amid unseasonably warm temperatures. 

“Precipitation across the district improved water levels, though some areas remained in drought,” according to the report. “Corn and soybean prices increased slightly amid expectations that farmers would plant fewer of these crops than earlier anticipated.”

The Kansas City regional ag economy continued to moderate through the end of last month, according to the report. Ag bankers saw some deterioration in farm borrower liquidity and a consistent softening in farm loan repayment rates. 

Net farm income is expected to fall 25.5 percent this year to $116.1 billion from $155.9 billion in 2023 amid rising population costs and falling commodities prices, according to the U.S. Department of Agriculture. Direct government farm payments are expected to fall 16 percent amid lower supplemental and ad hoc disaster assistance to ranchers and farmers. 

Bank lending was flat nationwide as contacts reported slight increases in non-financial services. “Residential construction increased a little, on average, and home sales strengthened in most districts,” according to the Beige Book. “In contrast, nonresidential construction was flat, and commercial real estate leasing fell slightly. The economic outlook among contacts was cautiously optimistic, on balance.”

 Construction starts increased in the Minneapolis region on a year-over-year basis. Residential construction increased but was region-specific. Although Minneapolis-St. Paul and Sioux Falls areas saw significant increases, other markets were flat. “CRE improved slightly,” according to the report. “Industrial vacancy rose slightly in the first quarter, but sources suggested that demand remained healthy, particularly in light of an expected slowdown in new construction.” 

Employment increased at a slight pace nationwide, with nine districts seeing “very slow to modest increases,” according to the report. The remaining three reported no changes in employment. Most districts saw increases in labor supply and in the quality of job applicants but still reported shortages in qualified machinists, trade workers and hospitality staff.

Businesses in the St. Louis region reported compressing profit margins amid higher expenses. Wage disparities between national firms and smaller businesses in rural areas posed challenges as smaller companies tried to match the higher wages. Business activity picked up across sectors in the Kansas City region, even as high credit costs and staffing problems limited hiring and capital reinvestment plans for small, minority and women-owned businesses. There were reports of increasing small-business owner burnout from making up for staffing and revenue shortages. 

Price pressures increased in the Minneapolis region, while wage pressures were relatively moderate and continued to ease. Prices also increased in the St. Louis region as contacts were pressured from increases in both labor and non-labor expenses.

The Beige Book was compiled by the Federal Reserve Bank of Boston with information gathered up to April 8.