The U.S. economy slowed in recent weeks, according to the Federal Reserve’s Beige Book.
Regional economic activity fell in Minneapolis, Kansas City and St. Louis regions. In the Minneapolis region, wage pressures were stable but remained above average. Consumer spending was stagnant as shoppers desired low-priced options, and challenging conditions were reported in construction and manufacturing.
Most Kansas City-area firms plan to raise prices in coming months and cited heightened uncertainty about the outlook for commodity prices. Renewable energy activity continued to rise at a moderate pace. In the St. Louis area, retailers and freight transport companies experienced a drop in consumer demand for high-end goods. Construction activity fell, with multifamily projects either being delayed or canceled due to higher interest rates.
In the Chicago region, economic activity, employment and business spending grew as consumer spending, real estate activity and manufacturing fell. New vehicle sales also dropped but were still higher than expected in lieu of the recent United Auto Workers strike.
Weak but stable financial conditions were reported. Conditions tightened in the Chicago region, while credit card activity along with commercial and industrial lending fell in recent weeks in the St. Louis region. Loan demand remained limited in the Kansas City region as lenders continued to prioritize keeping strong credit quality. Higher rates caused pressure on customer credit demand.
Several contacts expect further weakening in consumer and CRE credit quality over the next six months. Consumer credit remained strong, but some banks reportedly saw a slight increase in consumer delinquencies.
“Consumer delinquencies continue to rise and are being closely monitored by banking contacts, who report they are returning to and in some cases exceeding pre-pandemic levels,” according to the report. “Overall, banks continue to report stable conditions due to low credit risk and high asset quality.”
Mixed agricultural conditions were reported. There were reports of record yields in multiple states and crop types across the Chicago region despite widespread drought. Corn and soybean prices fell to their lowest levels in more than two years, while wheat prices were stagnant. Prices fell for fuel and fertilizer, cattle and hogs.
Ag conditions improved in the St. Louis region as yields for the district’s main commodity crops either matched or were below previous-year figures. Total corn and rice production increased from 2022. Expectations for farm income were unchanged in the Chicago region, while farm incomes fell in the Minneapolis area despite better-than-expected crop production. The ag economy softened in the Kansas City region, especially in drought-stricken areas with more corn and wheat production.
According to the Beige Book, the overall U.S. economic outlook for the next 12 months weakened in recent weeks. Sales of retail goods such as automobiles were mixed, while sales of discretionary items and durable goods such as furniture and appliances dropped as consumers expressed more price sensitivity amid continued inflation.
Demand for transportation services was reportedly sluggish, and manufacturing activity was mixed as manufacturers’ outlooks weakened. Business loan demand fell slightly, especially real estate loans.
Labor demand continued to normalize as most districts reported stagnant to modest employment growth. Most districts reported that more applicants were available, with several seeing improved employee retention. Wage pressures continued, with reports of continued challenges in hiring and retaining talented workers with specialized skills.
“Reductions in headcounts through layoffs or attrition were reported, and some employers felt comfortable letting go of low performers,” according to the report. “However, several districts continued to describe labor markets as tight with skilled workers in short supply.”