Beige Book Report: Kansas City
September 3, 2025
Summary of Economic Activity
Economic activity was generally flat across most sectors of the Tenth District economy. Employment levels fell modestly, and wage pressures remained subdued on softer hiring conditions. Total labor costs were still expected to rise as costs for non-wage benefits rose faster than wages. Prices grew moderately, with many businesses citing cost pressures coming from tariffs. Several contacts suggested input cost growth was more broad-based than the incidence of tariffs, citing both the rise in prices on non-tariffed items and the unwillingness of suppliers to reduce prices after applicable tariff rates were reduced over the summer. Higher input costs broadly led to compression in profit margins, which some bankers reported had a mild effect on credit quality. However, bankers indicated higher tariff rates and declining profit margins have not adversely affected their willingness to lend as overall loan quality remained sound. Consumer spending was steady but reportedly more oriented towards low-cost goods and services.
Labor Markets
Employment levels contracted modestly in the District, driven by declines in both services and manufacturing employment over the past month. Businesses anticipated slightly weaker hiring activity in coming quarters. Wages grew at a modest pace, and businesses expected similarly subdued wage pressures throughout the remainder of the year. However, contacts noted the costs for non-wage benefits will continue to increase faster than wages in the near term, adding to overall labor costs. Contacts in higher education reported strong enrollments for the fall term. Job placements for recent graduates were decidedly mixed across the District—most contacts reported a weaker job market for recent college graduates, including those graduating in STEM fields. However, some universities and many community colleges reported strong placements and starting salaries for their recent graduates.
Prices
Prices continued to grow moderately over the past month, with input prices outpacing growth in prices for finished goods and in retail. Several business contacts reported broad-based input price increases associated with, if not driven directly by, tariffs; several contacts suggested suppliers opportunistically raised prices beyond what is due to tariffs alone. Furthermore, contacts indicated their suppliers were reluctant to lower prices even when tariff rates fell, resulting in some stickiness in input costs. Overall expectations were for a moderate increase in both input and output prices in the coming quarters.
Consumer Spending
Consumer spending over the last several weeks was flat on average, though businesses reported notable shifts in consumers' purchasing behavior. The clearest changes were in discretionary spending, where households were trading down to lower-cost alternatives. These adjustments reportedly reflected a combination of financial strain among lower-income households and cautious sentiment tied to expectations for the remainder of the year. Firms shared that households are not necessarily reducing overall consumption but reallocating it toward more affordable or "inferior" goods and services. Anecdotal reports include families opting for staycations in place of extended travel and some households returning vehicles within a year to avoid the burden of loan payments. As one pharmacy shared, shoppers are buying less retail merchandise but maintaining consumption for the more essential items. Firms anticipate this pattern to persist, with consumers prioritizing cost over quality.
Community Conditions
The housing market for lower-income homebuyers remains tight overall, but contacts reported slight softening in recent months. Home prices in the relatively lower range increased only slightly, but contacts said that interest rates, insurance costs, and property taxes remained barriers to new purchasing activity. Some reports of more low-income homeowners selling their houses emerged as escrow payments rose, but the more common trend was for lower-income buyers to avoid moving to keep their low-rate mortgage if they had one. As a result, inventories of lower priced homes have not risen as much as they have at higher price ranges. Contacts in most local markets reported continued competition with investor purchasers for lower-priced homes. However, rising availability of rental units and softening rent growth reportedly offset some of the price pressures associated with the additional institutional buyers active in local markets.
Manufacturing and Other Business Activity
Manufacturing and consumer service activities grew slightly, which was a shift from volatile reports of growth and declines during the first half of the year. Contacts generally expected the recent pick-up in activity to gain momentum, as expectations for growth over the next six months rose moderately. However, many contacts in professional service sectors across the District reported declining sales, weaker expectations, and lower employee headcounts. Contacts noted that downstream customers are reticent to commit to new service contracts as they try to protect free cash flow and profit margins. The majority of businesses indicated profit margins contracted in recent months. Declines in profit margins were reportedly broad-based across sectors but were most pronounced in heavy manufacturing sectors where tariffs exerted the greatest cost pressures. Looking ahead, contacts at heavy manufacturing businesses were relatively more pessimistic about the outlook for profitability over the next six months.
Real Estate and Construction
Commercial real estate (CRE) activities showed little-to-no change in recent months. Contacts noted nearly all aspects of CRE activity—including prices, sales, absorptions, access to credit, and new development—did not change meaningfully. The recent stabilization of activity is around levels that are in line with historical norms. However, commercial real estate developers noted the costs of contractors and subcontractors were beginning to rise due to a combination of limited availability of crews in certain markets and rising building materials prices across most markets.
Community and Regional Banking
Loan demand and credit standards were mostly unchanged across categories over the last month. Overall loan quality remained sound for District banks, though modest deterioration was noted and was broad-based across lending categories. The outlook for loan quality by most respondents, including the expected impact of tariffs, was unchanged for the next six months. However, some respondents expect tariffs to cause mild deterioration in credit quality due to higher input costs affecting businesses' margins and leading to higher costs for consumers. During the same time frame, respondents indicated tariffs are not projected to affect their willingness to lend. Deposit levels remained stable, though competition on rates persists.
Energy
Tenth District oil and gas activity rebounded, growing slightly over the last month. Rig counts in Oklahoma and Colorado increased slightly despite oil prices falling near firms' reported breakevens and natural gas prices remaining unprofitable. Exploration and production companies maintained steady oil and gas production levels so far this year. Contacts cited data center electricity demand and liquified natural gas exports as key natural gas demand drivers. However, they also mentioned OPEC+ production increases and falling European power demand as risks to their outlook. Drillers noted that contract pricing with oilfield service providers stayed flat, despite falling oil prices, due to increased equipment replacement costs from tariffs.
Agriculture
Agricultural economic conditions in the Tenth District worsened slightly during early August. Profit opportunities for crop producers remained weak, and corn prices declined moderately over the past month alongside expectations of record U.S. production. The majority of crops were in good or excellent condition and could support strong production levels, but low prices could limit revenues. Conditions in the crop sector weighed on the farm economy, but an increase in cattle prices during recent weeks further strengthened income prospects for some producers. Contacts throughout the District continued to cite low crop prices and elevated expenses as key factors weighing heavily on the outlook for farm financial conditions.
For more information about District economic conditions visit: https://www.KansasCityFed.org/research/regional-research.