Economic activity stagnant as ag conditions improve

Economic activity was largely unchanged in April and early May, according to the Federal Reserve’s Beige Book

According to the May 31 report, ag conditions were strong in the Minneapolis region as planting began. Lenders reported improvements in liquidity and the financial condition of ag producers, but were concerned about commodity price volatility and increased interest rates. 

In the Chicago region, expectations for farm incomes fell for this year as corn and soybean prices dropped. Prices for farmland increased yet again as demand remained strong and inventories of farms for sale were limited. “Outlooks for farm income fell in most districts, and energy activity was flat to down amidst lower natural gas prices,” the Fed stated.

In the Kansas City region, corn and soybean prices fell slightly since April based on reports of solid planting conditions in most states and amid early estimates that production could hit record levels this year due to unusually strong yields. 

Financial conditions were stable or slightly tightened in most districts, with contacts in several regions seeing a rise in consumer loan delinquencies as they came closer to pre-pandemic levels. Consumer expenditures were unchanged or higher in most districts, according to the Fed, with many seeing growth on leisure and hospitality spending. Manufacturing was flat as supply chain bottlenecks continued to improve. Prices increased moderately over the last two months, though the rate slowed in many districts. Contacts in a majority of districts expect prices to rise at a similar rate in the coming months.

Employment increased in most districts, albeit at a slower pace than in previous reports. Many contacts reported being fully staffed. “The labor market continued to be strong, with contacts reporting difficulty finding workers across a wide range of skill levels and industries,” the Fed stated. “That said, contacts across districts also noted that the labor market had cooled some, highlighting easier hiring in construction, transportation and finance.” 

The Minneapolis regional economy grew slightly even amid high wage pressures and significant layoffs. “Price increases were generally modest, but levels remained high,” the Fed stated. “Some manufacturers said input costs decreased, but most reported no change. Consumer spending rose modestly, and travel was strong. Minority- and women-owned firms saw a slight decrease in activity.”  

In the Chicago region, economic activity was stagnant while employment increased moderately as consumer and business spending were flat. Activity fell for manufacturing, construction and real estate. “Prices and wages rose moderately, while financial conditions tightened modestly,” the Fed stated.

In the Chicago region, CRE activity fell amid high interest rates. Prices and rents were lower, and the availability of sublease space increased. Financial conditions tightened as business loan demand was flat. “Loan quality deteriorated some, but a few contacts noted that delinquencies remained below pre-pandemic levels,” the Fed stated. “Business lenders reported slightly tighter standards, while borrowers said that credit conditions had tightened moderately.” 

Residential real estate activity increased in most districts amid continued low inventories of homes for sale. However, single-family permitting in the Minneapolis-St. Paul region fell more than 40 percent on an annual basis. Other large markets saw even steeper declines.

St. Louis regional firms reported margin compression due to being unable to pass on input price increases. “Residential real estate was largely unchanged, but demand for commercial properties weakened,” the Fed stated. “The outlook worsened slightly due to concerns about weakening demand and macro uncertainty.”