Beige Book Report: Kansas City
April 23, 2025
Summary of Economic Activity
Economic activity in the Tenth District grew slightly, but expectations about business activity and consumer spending weakened considerably compared to the last report. Moreover, businesses' commentary about economic conditions shifted rapidly in recent weeks, as uncertainty rose quickly, concerns about tariffs weighed on decision making, and businesses sought to adapt their plans. The majority of contacts indicated the most likely change to their business plans this year would be to the prices charged for their finished products. Expectations for price growth rose at a robust rate accordingly, though diminished demand at consumer services firms softened current and expected price pressures somewhat. Services firms highlighted changes in hiring plans or headcount as other likely steps to adapt to changing conditions, but employment was generally steady across the District over the past month. Several actions by businesses to improve liquidity and cash positions were highlighted in recent weeks, including seeking larger credit lines, selling inventory at discounts and selling long-term assets.
Labor Markets
Employment levels remained steady across the Tenth District. Job growth was subdued as hiring freezes reportedly became a more common occurrence. One contact stated, "this is not the time to commit to adding labor," citing heightened uncertainty. More generally, when asked what changes in business plans to adapt to current conditions were most likely, services firms identified constraining hiring plans or reducing headcounts as likely, but not the primary steps they will take. Manufacturing firms indicated any changes to their workforce would be more of a last resort. Slowing labor demand reportedly led to weakness in the junior labor market for new grads and new entrants.
Prices
Prices increased moderately in recent weeks on average, but expectations of price growth over the next six months broadly rose at a robust rate. The majority of contacts indicated the most likely change to their business plans to adapt to changes in economic conditions this year would be "prices charged for finished products." Manufacturing and retail sectors (i.e., goods sectors) emphasized their current pricing does not yet fully incorporate the cost pressures associated with tariffs, implemented or expected. Contacts indicated passing rising costs to customers will occur over the next several months and anticipated goods prices will rise broadly as many suppliers are spreading cost increases across their entire product portfolios. The acceleration of price pressures in goods sectors (current and expected) stands in contrast to reported deceleration in consumer service price growth. Travel and lodging prices reportedly softened, and housing prices were stable or even declined in certain parts of the District.
Consumer Spending
Consumer spending grew slightly over the last month, but with mixed activity across categories. Auto sales rose at a robust rate as aggressive pricing intended to garner cash flow and clear inventory facilitated a recent pickup in sales, which was not expected to persist. Household purchases of other durable goods also rose, but growth in spending on services was reportedly much weaker. Recent consumer spending on travel was down modestly, and contacts described future expectations as "a cliff," with a substantial decline in travel bookings through the summer. Healthcare contacts reported a moderate decline in the use of preventative care and non-essential services. Businesses' expectations for growth in consumer spending weakened further in recent weeks, with projected growth in household spending roughly flat on average.
Community Conditions
Food banks and pantries across the Tenth District said they were contending with the combination of rising demand, funding cuts, and substantial uncertainty about funding over the coming year. Most pantries mentioned they expanded services over the last year, but they still struggled to meet demand for food assistance. Funding cuts from the USDA were highlighted as particularly impactful regarding services for seniors. Specifically, one pantry reported cutting back the amount of food they can give from three to five days of shelf stable food to two days of food every 30 days due to funding cuts. Pantries also expressed heightened funding uncertainty across government, corporations, and individuals and uncertainty about food price pressures.
Manufacturing and Other Business Activity
Manufacturing activity in the Tenth District declined modestly, though the pace of contraction slowed. Many firms began reassessing product lines, with some deciding to scale back production of lower-margin, highly competitive goods that lacked proprietary advantages. While some manufacturing businesses reported interest in procuring domestically sourced materials and components, they indicated that interest has not translated into new contracts due to costs and capacity constraints. Business leaders indicated recent strategy discussions shifted away from capital investments aimed at innovation and efficiency toward a focus almost entirely on mitigating tariff-related risks. An aerospace firm shared that the level of competitiveness for key materials including metals have pushed lead times to between 50 to 100 weeks. Although manufacturing firms remained generally optimistic about the broader economy, their confidence was tempered by growing concerns about the stability of economic conditions.
Real Estate and Construction
The delivery of newly constructed multifamily housing units remained elevated, but contacts noted the absorption of new units slowed significantly. With more available units coming online, rent growth stagnated and even declined in certain parts of the District. Sales and transaction activity were rising early in the year, but contacts noted the number of deals that fell apart ticked up in recent weeks and many more deals faced significant or indeterminate delays in closing. A few commercial real estate investors indicated replacement costs are expected to rise, which they anticipated may lead to another increase in insurance premiums next year. These future premium price increases reportedly weighed on the viability of certain projects and transactions, but they were noted as tertiary concerns.
Community and Regional Banking
Loan demand was mostly unchanged on average, though several bankers noted demand for residential mortgage loans was trending up. Some bankers indicated several businesses sought increased funding capacity to shore up their available liquidity. Many contacts reported a modest tightening of credit standards for commercial real estate and commercial and industrial loans due to changes in the economic outlook. Loan quality remained stable except for agriculture lending, where conditions weakened. Most respondents indicated they anticipate some deterioration in credit performance over the next six months due to heightened uncertainty weighing on the overall economic outlook.
Energy
Tenth District oil and gas activity grew modestly. Just over half of contacts reported steady activity, and about a quarter of firms—mostly smaller operators—reported growth. Despite some increases in drilling, firms' revenues, profits, and capital expenditures continued to decline on net. Most oil and gas operators expect activity to remain steady in the near-term, while nearly a third expect a pickup in activity. However, some contacts expect recent trade policy changes will dampen activity or revenues over the next year and many anticipate higher costs for key inputs like steel. Additionally, firms' long-term price expectations are still below the price needed to support a substantial increase in drilling. Accordingly, contacts noted future production growth could remain subdued for the foreseeable future.
Agriculture
Economic conditions in the Tenth District farm economy weakened early in April. Prices for several key commodities declined alongside increased uncertainty surrounding export prospects. Profit opportunities for crop producers remained limited. In the latest survey of agricultural credit conditions, lenders reported gradual deterioration in farm loan repayment rates and notable increases in carryover debt and loan restructuring compared to a year ago. Credit conditions weakened comparatively more in portions of the District most heavily concentrated in crop production while strong cattle prices supported farm finances in other areas. Production costs, elevated living expenses, and further declines in working capital were cited as key concerns, with some contacts noting that more highly leveraged borrowers were selling longer-term assets to improve liquidity.
For more information about District economic conditions visit: https://www.KansasCityFed.org/research/regional-research.