U.S. economy grows amid interest rate, inflation concerns

The U.S. economy grew modestly in recent weeks but remained stunted by rising interest rates and high inflation, according to the Federal Reserve’s Beige Book.

The Beige Book, released Oct. 19, revealed mixed conditions across the Midwest. “Manufacturing growth continued, though some firms reported a softening in incoming orders,” the Fed stated. “Consumer spending increased, but saw some weak spots. Home construction and sales remained soft, while commercial building and leasing activity improved slightly.” 

In the St. Louis region, economic conditions slightly declined as firms reported less demand and increased price sensitivity. Rising interest rates slowed home buying and new construction.

In the Kansas City Fed region, contacts reported an increase in gig work to supplement household income due to rapidly increasing prices. Drought conditions negatively impacted crop harvests in some states, but farmers’ financial conditions reportedly remained strong. 

Across the U.S., economic conditions varied by district and industry, according to the Fed. “Retail spending was relatively flat, reflecting lower discretionary spending, and auto dealers noted sustained sluggishness in sales stemming from limited inventories, high vehicle prices, and rising interest rates,” the Fed stated.

Year-over-year inflation was measured at 8.2 percent in September as the Federal Reserve Open Market Committee increased interest rates by 0.75 basis points for the third straight time in September. More interest rate hikes are expected. 

Commercial real estate activity slowed in construction and sales amid supply shortages and high borrowing costs. While industrial leasing remained strong, office demand was weak. “Bankers in most reporting districts cited declines in loan volumes, partly a result of shrinking residential real estate lending,” the Fed stated. “Energy activity expanded moderately, whereas agriculture reports were mixed, as drought conditions and high input costs remained a challenge. Outlooks grew more pessimistic amidst growing concerns about weakening demand.”

Prices continued to increase at a rapid pace across the country, though several districts reported price drops in commodities, fuels and freight. Though some businesses reported solid pricing power over the last six weeks, others said cost pass-thrus were becoming more challenging as customers pushed back. 

Labor market conditions remained constrained, and employment continued to increase “at a modest to moderate pace in most districts,” the Fed stated. Some districts experienced less labor demand, with some businesses reporting hesitancy to increase payrolls amid concerns of an economic downturn. “Competition for workers has led to some labor poaching by competitors or competing industries able to offer higher pay,” the Fed stated. “Wage growth remains widespread, though an easing was reported in several districts.”