Jeff Fox on business: Economic uncertainty is taking its toll

Two recent economic snapshots suggest that the region's economy, like the national economy, continues to move ahead but businesses and consumers are pulling back some as they expect higher inflation among other worries amid the tariff flip-flops and other uncertainties coming from Washington.

Eight times a year the Federal Reserve posts its Beige Book reports, a summation of observations by business owners and others across the country. The Kansas City Fed, looking at the prairies and plains from here west to Wyoming and south to Oklahoma, last week posted this:

* "Overall activity … declined moderately in recent weeks across several sectors of the regional economy. Consumer spending fell, particularly on retail and other discretionary items. Contacts indicated they expected consumer demand will further weaken in coming months but expressed high levels of uncertainty about the outlook for household spending. Businesses in both consumer and industrial sectors described a cautious approach to capital expenditures …"

* "Spending declined significantly across several retail categories, including apparel, electronics, and furniture. Both foot traffic at retail locations and online retail sales softened in recent weeks. Consumers seemingly spent more time at home over the past month as modest declines in spending at restaurants and hotels were offset by moderate growth in spending on groceries and home maintenance. … The primary driver of the softening outlook for consumers was an expectation higher prices would tighten household budgets …"

* "Business activity was mixed amid volatile demand conditions, with manufacturing activity contracting slightly, and consumer retail and discretionary spending declining substantially. However, activity in wholesale service sectors rose at a robust rate, driven by sales of materials, industrial equipment, and health care supplies. The rise in wholesale activity was often attributed to businesses responding to shifting trade dynamics by building their inventories."

* "Single family home builders indicated activity slowed in recent months. Customer demand for newly built homes softened despite builders offering relatively strong incentives to offset high interest rates."

* "Employment levels were unchanged across most sectors. However, employers reported reducing overtime hours and indicated plans to scale back employment of contractors and temporary workers. Businesses indicated they were taking a cautious approach to staffing levels that prioritized flexibility, suggesting that future changes to workforce size or hours will likely be incremental. … Wage growth was moderate, led by an acceleration of wages in consumer-oriented service sectors."

* "Ongoing shifts in trade policy led to businesses accelerating import activity to limit exposure to looming import levies, resulting in higher global transportation costs. Many U.S.-bound ocean shipping routes were tightly booked, causing surge pricing in spot markets for shipping. Moreover, some retail firms opted for the quicker and more flexible, but much more costly, option of air freight to avoid tariffs. Contacts noted they intend to pass these higher shipping costs onto consumers over the next year. Businesses generally anticipated higher input and output prices in the coming months."

The Creignton Economic Forecasting Group at Creighton University also posts a monthly snapshot of nine Midwestern states, based on surveys of corporate purchasing managers. Its latest report, released last week, noted "significant volatility" in the economy. The report suggests growth ahead – but also a bumpy road.

For instance: "Approximately one-third of manufacturers reported switching input providers due to tariffs, or the threat of tariffs."

The report also cited the U.S. International Trade Administration and said the regional economy's exports in the first quarter of this year – $23.4 billion in manufactured goods – were down 1.4% from the first quarter of 2024. There's also a silver lining: Missouri manufacturers' exports – $4.2 billion – were up 6.5%.

Jeff Fox is The Examiner's editor. Reach him at [email protected].

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