Federal Reserve Bank of St. Louis
Summary of Economic Activity
Economic activity has remained unchanged since our previous report but is expected to increase over the next few months. Employment levels were unchanged and wage growth was moderate. Prices continued to increase moderately. Consumer spending has been mixed: Auto sales have decreased, but retail contacts have reported slight increases in sales. The outlook among contacts has improved to be cautiously optimistic.
Labor Markets
Employment levels have remained unchanged since our previous report, and modest expansion is expected over the next few months. A staffing firm in Missouri reported slower hiring and less turnover, reflecting cautious labor market behavior amid economic uncertainty. Despite broader market caution, a professional services firm in Memphis reported optimism about expanding payroll as new consulting lines open. Recruitment challenges continue for specialized roles and skilled trades, prompting some firms to invest in automation and apprenticeship programs to offset shortages. A mid-sized manufacturer in Memphis reported capital budgets shifting toward automation because persistent hiring frictions make robotics and industrial AI the most reliable way to preserve throughput and quality.
Wage growth has been moderate since our previous report. Wage pressures persist across industries, with contacts reporting wage growth between 3 percent and 5 percent driven by competitive benchmarks, union increases, and minimum wage hikes. Overall wage growth is expected to be slightly lower than last year.
Prices
Prices have increased moderately since our previous report. Contacts reported that they were observing higher costs and that these needed to be passed on to customers due to already-tight margins. Some contacts reported that price increases would probably impact demand, while others observed some market tolerance for price adjustments. A furniture manufacturer reported that they were expecting annual price increases of 3.5 percent this year to offset rising material costs and tariffs, with competitors following similar strategies for market acceptance. Contacts reported not only higher input costs but also higher utilities, operational, and labor costs. A construction company reported disruptions due to high price volatility: They have been unable to hold material prices for more than 30 days, causing project delays and renegotiations.
Consumer Spending
Consumer spending has been mixed. Wholesalers reported a decline in sales. A firm in St. Louis reported their sales were down about 5 percent year-to-date, attributing it to inflation eroding customer purchasing power, leading buyers to defer replacing older non-essential goods and demand more aggressive pricing. On the other hand, retailers reported that sales had slightly increased and had met expectations despite cautious spending among customers. Tourism and hospitality contacts reported that customer spending was flat, with one entertainment business reporting that corporate events were up. Auto dealerships reported that sales fell short of expectations, with low volumes of new and used vehicles sold. One dealership attributed low sales volume of used cars to tightened underwriting and financing constraints, and another noted that demand for new vehicles was down because consumers are deferring big-ticket purchases amid inflation and economic uncertainty. Nevertheless, they expect sales to pick up next quarter.
Manufacturing
Manufacturing activity has increased moderately since our previous report. Capacity utilization, employment, and new orders have increased compared with the fourth quarter of 2025 as well as a year ago. While new orders and capacity utilization are expected to increase further in the second quarter of 2026, capital expenditures have paused and are expected to remain subdued due to uncertainty. A furniture manufacturer reported that their expansion designs were progressing, but that execution was unlikely for the next 12 months due to market softness.
Nonfinancial Services
Activity in nonfinancial services has been flat since our previous report; however, contacts expect activity to increase in the second quarter of 2026. A professional services firm in Louisville reported that demand was lower because clients were delaying decisions amid economic uncertainty, which places pressure on revenue and project pipelines. Health services were mixed: A health-care provider in Arkansas reported that demand for direct primary care was increasing because health savings account funds could now be used for monthly fees. A provider in Indiana noted that an economic slowdown and cost sensitivity among patients was impacting elective treatment volumes. Transportation and logistics contacts overall reported that activity was flat, which is an improvement from previous reports in which demand had been declining.
Real Estate and Construction
Residential real estate activity has remained unchanged since our previous report, with contacts across the District describing the market as "balanced." One real estate agent in St. Louis reported that the high-end market remained strong, while a manufacturer reported that slow existing home sales were depressing demand for related manufactured goods. Contacts expect single-family demand to increase in the upcoming months. Some attribute this expectation to customers delaying purchases because they are expecting mortgage rates to fall.
Commercial real estate conditions have improved modestly since our previous report. Commercial real estate firms in Missouri and Illinois reported a strong market overall with strong retail occupancy. However, they expect surplus retail and office inventory to persist. Construction activity overall has slightly increased. A construction firm in Arkansas reported strong growth in industrial and infrastructure sectors, and a contractor in Memphis noted expanding development plans for aviation and logistics facilities. In contrast, a wholesale distributor in Illinois reported that economic uncertainty and expectations of future rate drops were delaying new commercial construction starts, reducing bulk orders for materials. Some construction firms across the District reported that government policy changes were affecting project approvals and timelines.
Banking and Finance
Banking activity has remained stable since our previous report, with loan demand expected to increase in the second quarter. A banker in Tennessee noted limited volatility in new originations and past-due trends, citing steady interest rates and local credit performance. A banker in Arkansas reported slow deposit and loan growth but strong loan quality; yet they also noted consumer stress and overdraft issues. While bankers reported a slight tightening of credit standards and a small increase in delinquencies, both measures were still below prior-quarter expectations. Auto lending has tightened, reducing application volumes. One financial firm highlighted that its delinquency rate had held steady at 3 percent to 4 percent, even as industry-wide auto loan delinquencies continue to rise.
Agriculture and Natural Resources
Agriculture conditions have remained unchanged since our previous report. An agribusiness contact in Arkansas reported that weather uncertainty and rising input costs were making it harder to secure crop loans, which could leave ground unplanted and reduce overall production. A major agriculture lender reported ongoing financial strain among rice farmers, with farm equipment auctions at record levels. Another banker reported that farmers were seeking higher credit lines due to income pressure. Nevertheless, most agriculture lenders observed only limited signs of forced liquidation of assets among farmers, indicating resilience in agribusiness despite hardship.
Visit our Regional Economic Data and Reports page for more information about District economic conditions.