Kansas City Fed: Tenth District Activity Steady, Costs Squeeze Margins
The Kansas City Fed's October 2026 Beige Book says Tenth District activity held steady, with cost pressures and labor constraints squeezing margins.
What you need to know
Business activity in the Tenth District held steady in subdued conditions with pockets of strong demand, according to the Kansas City Fed's October 2026 Beige Book. Manufacturing and business services were strongest, while rising fuel and shipping costs squeezed margins. Activity is expected to increase slightly over the next six months.
- Durables manufacturing and business services were the strongest segments, with the data center buildout crowding out other production.
- Most firms passed higher costs to consumers, but services firms reported less pricing power, pressuring margins.
- Consumer spending declined modestly across most retail sectors, and firms expect it to remain flat.
Activity and demand
The Kansas City Fed's October 2026 Beige Book reported that Tenth District business activity continued to hold steady, characterized by subdued conditions punctuated by pockets of strong demand. Durables manufacturing and business services were the strongest segments. Contacts cited military contracts and the data center buildout as strong but crowding out other production.
Business service contacts noted that increased technology and infrastructure spending was spilling over into consulting, IT, engineering and other services. Most firms said higher fuel costs weighed on current orders and sales, and they expected demand to weaken further if fuel prices remained elevated. Activity is expected to increase slightly over the next six months.
Costs, prices and consumers
Prices increased moderately across the district. Manufacturing firms cited higher costs for aluminum, copper and fuel, along with rising shipping costs and delays in receiving inventory. Most firms reported being able to pass these costs on to consumers. However, services firms reported less ability to raise selling prices, putting more pressure on their margins and prompting renegotiation of terms across the value chain.
Consumer spending declined modestly across most retail sectors. Several firms noted that fuel prices weighed on consumption by reducing household purchasing power and dampening sentiment. Households were more likely to eat at home, shift down on quality and forgo planned purchases. Firms expect consumption to remain flat over the next six months as households remain cautious.
Labor and small business
Labor conditions saw little to no change despite strong manufacturing demand. Manufacturers increased average hours, added overtime options and extended shifts because of limited labor availability. Services firms, particularly retailers, saw slight decreases in employment, part-time positions and hours worked. Employment is expected to grow slightly, with moderate increases in wages and benefits.
Organizations serving small businesses reported deteriorating financial conditions, driven by worsening credit quality and reduced cash flow. They attributed the challenges to higher prices and policy uncertainty, and noted tighter Small Business Administration lending standards. Small businesses were increasingly seeking liquidity through merchant cash advances, often to cover overhead and payroll, with the high cost of these products exacerbating difficulties.
What did the Kansas City Fed's October 2026 Beige Book say about Tenth District business activity?
It said activity held steady in subdued conditions with pockets of strong demand. Manufacturing and business services were strongest, while cost pressures squeezed margins. Activity is expected to increase slightly over the next six months.
Sources & context
- Federal Reserve Bank of Kansas City - Beige Book - October 2026 ↗federalreserve.gov
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