Beige Book Report: Kansas City
October 15, 2025
Summary of Economic Activity
Economic activity in the Tenth District fell slightly, with softening activity reported across several sectors. Businesses' reports on conditions were more mixed over the past month as strategic pricing behavior, different exposure to technology and policy shocks, and changing consumer preferences all led to shifts in market shares among competitors. Employment levels fell slightly overall, and bankers noted consumer loan portfolios deteriorated moderately. Prices rose at a moderate pace, and contacts reported they anticipate raising selling prices in 2026 at a slightly faster pace than this year. Despite the recent decline in economic activity, the majority of contacts across a broad range of sectors indicated they expect their sales and employment levels to be higher at the end of 2026 compared to 2025.
Labor Markets
Employment levels reportedly fell by a small amount recently, led by slight reductions in head counts at consumer and business service providers. However, construction employment also faced headwinds in certain parts of the District. Most contacts indicated any impending layoffs will be modest and meant to right-size staffing levels with slightly softer demand conditions to maintain profitability. However, some professional service companies indicated larger layoffs that occurred recently were associated with the adoption and implementation of AI capabilities that reduced overall labor needs. Waning growth in labor demand and the availability of former federal workers in many local markets kept wage growth subdued. Despite the recent softening in labor demand, the majority of businesses across all sectors indicated they expect their head count to be greater at the end of next year compared to their current level.
Prices
Prices continued to grow moderately over the past month. Input prices grew at a strong pace among manufacturing firms but more moderately for services. Accordingly, manufacturing firms expect selling price growth to accelerate to a strong pace over the next couple of quarters. Anticipated price growth among services was slightly softer, though still expected to be at a moderate pace in coming months. The anticipated acceleration of price growth was expected to be somewhat persistent; most firms reported they anticipate raising selling prices in 2026 at a slightly faster rate than this year.
Consumer Spending
Consumer spending declined slightly over the past month. Several contacts noted household consumption was more volatile recently due to heightened price sensitivity. Sales, deals, and markdowns reportedly drove small surges in purchasing activity for certain businesses, especially purchases by lower income households that need to be more selective. Sales of goods, particularly automotive and sporting goods, declined moderately, underscoring the uneven pullback in household spending between goods and services. Contacts at auto dealerships indicated demand continued to shift from SUVs and electric vehicles to family sedans and used vehicles. To manage softer sales, several firms reported they reduced staffing hours and have grown more cautious about passing along higher input costs in the near term, instead focusing on constraining cost growth. The majority of contacts reported they expect sales in 2026 to outperform this year, despite the recent softness in demand and lower expected spending for the remainder of 2025.
Community Conditions
District contacts in childcare said preschool seats seem to be more available than they were earlier in the year. However, prevailing prices remained difficult for low- and moderate-income families to afford, especially for infant and toddler slots. In characterizing the prices of childcare one provider noted, "cost of infant-toddler care in Nebraska is greater on an annual basis than in-state tuition at University of Nebraska–Lincoln." Nonlabor costs remained a significant driver of pricing, as wage growth has been relatively muted for staff.
Manufacturing and Other Business Activity
Manufacturing activity increased slightly over the past few weeks, driven by clearer market expectations from tariffs. Although high levels of input costs remain one of the most significant burdens, one manufacturing firm described raw material costs as moving from a "boil to a simmer," as firms are "no longer scrambling to contain every shock." Several manufacturers shared that higher capitalized firms with less foreign import exposure were able to expand their market share, edging out other domestic competitors. Furthermore, the traditional cost advantages of lower-priced foreign goods have eroded slightly, also allowing certain domestic manufacturers to gain market share. Manufacturing contacts expected economic conditions to be more favorable next year than they were throughout 2025.
Real Estate and Construction
Commercial real estate (CRE) activity declined moderately. Several aspects of new property development fell, including the sales of construction materials, volume of construction underway, and prices for construction materials. Construction employment faced headwinds amid the slowdown in CRE and residential development activity. In contrast, construction of data centers in several parts of the District absorbed the availability of certain skilled workers. One labor leader noted construction of housing is constrained locally as any resident skilled workers were hired for data center construction. Financial aspects of CRE activity were largely unchanged with credit standards, access to credit, and load demand all reportedly stable. Though CRE activity fell over the past six months, the overall level of activity remains near its historical norm.
Community and Regional Banking
District banks noted little to no change in loan demand and credit standards across categories. Although overall loan quality continues to be sound, moderate deterioration in consumer lending portfolios was noted. Furthermore, the majority of respondents expect consumer lending portfolios to continue to face challenges over the next six months as disposable income levels decrease. Some respondents specified they expect customers with lower personal incomes or employed in industries driven by discretionary spending to be the most likely to face challenges. A modest increase in deposit levels was noted particularly in money market accounts and certificates of deposit, and respondents commented that customers are locking in interest rates ahead of any market rate decreases.
Energy
Tenth District oil and gas activity fell modestly. Nearly two-thirds of contacts reported steady drilling activity, while others saw declines. The number of active oil and gas rigs rose in Colorado and Wyoming but decreased slightly in Oklahoma as natural gas spot prices fell. Tenth District firms continued to report declining revenues and profits. However, oil prices have remained slightly above profitable levels, and some firms reported lower breakeven prices due to reduced regulatory compliance costs. Capital expenditures in the sector also declined further, with many firms citing heightened uncertainty as a headwind for investment. Contacts still anticipate natural gas prices will reach their breakeven price within the year, but do not expect that oil or gas prices will support a substantial increase in drilling activity in the foreseeable future.
Agriculture
Disparities in the Tenth District agricultural economy persisted through the end of September. Profit opportunities for crop producers remained weak while conditions in livestock industries were considerably stronger, particularly for cattle producers. In a recent survey, over 80 percent of lenders in crop-heavy areas reported declines in farm income and working capital, compared to about 40 percent in areas with more cattle production. Agricultural credit conditions deteriorated gradually, and many lenders reported that weak conditions in the farm economy were having a modest negative effect on local economic conditions. Contacts remarked that strong cattle prices were supporting diversified operations but the weakness in crop profits were weighing heavily on farmer sentiment.
For more information about District economic conditions visit: https://www.KansasCityFed.org/research/regional-research.