Fed Beige Book: Interest Rates Leads To Weak Loan Demand for Banks

Posted January 18, 2024

The Federal Reserve Board released its first Beige Book report of 2024, showing the Kansas City region’s consumer spending decreased across several categories and weak loan demand for multiple loan types.

The Beige Book is a Federal Reserve System publication that monitors economic conditions in 12 Federal Reserve Districts. The Kansas City region is the Tenth District.

Loan demand in the Tenth District weakened modestly from a range of loan types, particularly in commercial real estate loans. CRE demand took a decline due to rising borrowing costs and cash flow pressures.

Bank leaders experienced little to no change in credit standards, however, some believe future credit performance and lack of borrower liquidity will be key barriers to changing CRE demand in the near term.

Activity in real estate and construction also began to cool with Fed contacts alluding to the sector will start to gain traction in the coming months thanks to companies wanting to restructure loans.

Furthermore, prices rose slightly in the Tenth District with manufacturing finished products increasing the most at a modest rate, according to the Fed. While manufacturing prices increased, other industries were mixed. Service costs decreasced in prices by passing high input and labor costs onto customers. Meanwhile, grocery stores pushed back on higher costs from their distributors and are concerned about their ability to pass cost increases onto customers.