U.S. economic activity was stagnant in recent weeks as the economic outlook remained uncertain, according to the Federal Reserve’s Beige Book.
According to the report, economic activity stalled in nine of the Fed’s 12 districts. Three reported modest growth. In the Chicago region, consumer spending, business spending and the construction and real estate sectors were flat. Total economic activity fell in the Kansas City region in March and April, but nearly every business contact reported no decrease in planned capital expenditures, hiring plans or expected wage increases.
Agricultural conditions were mostly unchanged in recent weeks as ag incomes are expected to fall this year. Farm conditions remained strong in the Minneapolis area as the prices farmers received for wheat, milk, hogs, chickens and other commodities increased. Persistent winter weather delayed preparation for spring planting in many areas. “Most contacts reported that farm incomes continued to increase from a year earlier, while capital spending was steady,” the Fed stated.
Farm loan repayment rates improved in the Kansas City region as indicators of credit challenges were limited. The impact of higher interest rates on farmland markets and borrower finances was of growing concern. Drought and elevated production costs continued to impact a broad swath of the region.
Banking conditions were mixed. Several districts reported that banks had tightened lending standards amid increased uncertainty and liquidity concerns. “Nonresidential construction was little changed while sales and leasing activity was generally flat to down,” the Fed stated. “Lending volumes and loan demand generally declined across consumer and business loan types
In the Chicago region, financial conditions tightened as bond and stock markets saw little change in asset values. In the St. Louis area, banks reported slowed loan growth and falling deposits but remained confident in their overall position. “Loan growth in the commercial, industrial and consumer lending sectors all declined slightly — a continuation of the cooldown in loan demand,” the Fed stated. “Real estate loan growth, on the other hand, saw an uptick.”
Deposit outflows at community and regional banks posed funding challenges in recent weeks. Ag lenders reported stable liquidity to support lending over the medium run, but expect labor standards and credit risk pricing to tighten in the coming months.
Community development financial institutions in the Kansas City region reported no impacts from the recent failures of Silicon Valley Bank and Signature Bank. However, most contacts said lending for CRE development was “almost completely unavailable” following the recent market volatility. Credit quality remained stable in the region, but contacts expected loan quality to deteriorate over the next six months.
Residential real estate sales and new construction weakened amid interest rate hikes. In the Minneapolis region, the number of single-family units permitted last month was down by more than 40 percent in the Twin Cities region. Steeper drops were seen in Rochester, Minn.; Bismarck and Fargo, N.D.; and Sioux Falls, S.D.
Modest employment gains were reported in the Minneapolis region. “Firms benefited from better employee retention, which allowed them to hire for open roles while not constantly trying to back-fill positions,” the Fed stated. “Wages have shown some moderation but remain elevated.”
Consumer spending was reported as flat to slightly down amid continued inflation. Households pulled back on spending in the Kansas City region, especially on more expensive purchases such as cars or home construction projects.