Federal Reserve Bank of St. Louis
Summary of Economic Activity
Economic activity in the Eighth District has slightly increased since our previous report. Employment was unchanged and wage growth remained moderate. Prices have risen at a robust pace with widespread reports of higher nonlabor costs and cost pressures from elevated energy prices. Consumer spending was stable, and banking conditions were largely unchanged. Manufacturing activity softened slightly, though firms tied to energy and defense reported stronger demand. The outlook has slightly deteriorated since our previous report, with contacts citing ongoing uncertainty, supply chain disruptions, and rising fuel costs linked to the conflict in the Middle East.
Labor Markets
Employment levels overall have remained unchanged since our previous report. Retail, leisure-related, and services firms showed a slight increase in employment. An auto parts retailer in Memphis reported steady employment levels, with additional hiring taking place at new locations. In Missouri, a hospital noted an increase in hiring compared with last year, and a hotel owner reported that strong convention bookings and seasonal travel increased staffing needs. In contrast, contacts in manufacturing and wholesale sectors experienced modest declines in employment due to lower demand. A food manufacturer in Arkansas saw reduced demand, prompting downsizing and fewer staff. A warehouse operator in Kentucky also reported decreased labor needs as demand softened.
Wage growth has been moderate. An airport in Arkansas reported a 3 percent wage increase overall with higher raises awarded to top performers. A mobility services firm in St. Louis implemented a 3.5 percent wage increase this quarter. A hospital in Little Rock reported significant wage increases over the past year.
Prices
Prices have risen at a robust pace since our previous report. Nonlabor cost increases were widespread and not solely driven by higher energy prices. For example, a developer in Kentucky noted higher nonlabor operating costs due to supply chain delays and material shortages. A cruise line reported that food and parts expenses had climbed by 3 to 5 percent, leading to increased operational costs. A manufacturer in Indiana observed rising prices for petroleum-based products, impacting construction input costs. A transportation firm reported liability and health insurance costs have risen 2 to 5 percent and the rise in fuel prices has resulted in contract rates increasing about 5 percent with the potential to rise further. The extent to which firms have passed-on these higher costs to customers has varied, but many anticipate continued pass-through in the coming months. A hospitality business opted to reduce services instead of raising prices, responding to customer price sensitivity. A consumer-focused company has mentioned "responsibly sharing" supply chain cost increases with customers. An airport contact noted that airline fares have increased 3 percent in the past month and 25 percent since the beginning of the year.
Consumer Spending
Consumer spending has remained steady since our previous report. Retailers across the District reported steady to slightly higher sales, though several noted weaker demand for discretionary items. Auto dealerships experienced slow sales due to limited inventory and cautious buyers. Tourism and travel activity was steady or improved slightly. Airport operators reported consistent demand in Bentonville and St. Louis and mixed results in Memphis, where low-cost airlines are struggling. Airline contacts expressed concern that elevated fuel prices could reduce seat capacity and discretionary travel. A hotel operator in St. Louis reported revenue exceeding expectations, thanks to strong convention attendance, sports events, and a robust concert schedule. An entertainment venue in Louisville saw slightly lower demand as households chose single-attraction visits over multi-hour packages due to tighter budgets; alcohol sales also declined year-over-year.
Manufacturing
Manufacturing activity has declined slightly since our previous report, as many contacts noted weaker demand and delayed customer decisions, largely attributed to increased costs and uncertainty from the conflict in the Middle East. A manufacturer in Arkansas reported sales did not meet expectations because private customers and government agencies were reluctant to proceed with quoted projects. Similarly, a manufacturer in Indiana noted slower sales growth, with customers postponing large equipment purchases and citing economic uncertainty. Companies producing consumer goods, such as appliances and food products, also experienced lower sales as customers worked through excess inventories. In contrast, manufacturers in the energy and defense sectors saw stronger demand, resulting in robust growth in new orders and greater pressure on production output.
Nonfinancial Services
Activity in nonfinancial services has increased modestly since our previous report. Professional services firms reported mixed activity, with some contacts noting slower project starts and reduced client engagement while other contacts indicated stable workloads supported by ongoing contracts. Health services providers reported stable to stronger demand, with several noting increased patient volumes or market-share gains. Transportation and logistics activity was mixed across regions and sectors. A logistics firm in Louisville reported softer demand in automotive and appliance segments, though demand from the health-care sector increased. A logistics firm in Arkansas reported slightly weaker demand and unit sales, tied to a slowdown in manufacturing. A freight firm in Kentucky reported strong demand driven by increased coal shipments.
Real Estate and Construction
Residential real estate activity was mixed. A broker in Arkansas noted sales fell short of expectations, particularly in the median price range as high rates, fuel prices, and geopolitical concerns slowed buyer traffic. An agent in Southern Indiana reported buyers were hesitant amid economic uncertainty, keeping demand steady or slightly lower than earlier in the year. Conversely, a St. Louis broker observed a significantly stronger market than last year, with more buyers than sellers, resulting in rapid sales and homes often selling 7 to 10 percent above listing price. A Louisville agent reported simultaneous increases in both inventory and sales.
Commercial real estate activity was also mixed. Activity was steady but cautious, with dealmaking slowed by rising interest rates, insurance, and operating cost pressures. A developer in Little Rock saw stable demand for industrial and necessity-based retail, while office demand remained varied. In Louisville, a commercial real estate firm reported activity below expectations due to higher costs, uncertainty over fuel prices, and delayed tenant decisions. Construction activity was mixed as well: A St. Louis builder reported modest growth despite sector volatility, while a Missouri supplier noted weaker construction demand because of slower non-residential activity and higher borrowing costs, with no signs of improvement.
Banking and Finance
Banking activity has remained unchanged since our previous report, with loan demand ranging from stable to slightly weaker depending on the market and borrower segment. A banker in Indiana reported consistent loan growth of 3 to 5 percent, similar to recent quarters. A banker in Memphis observed declining loan demand, particularly among small and mid-sized businesses, as sales cycles have lengthened. Credit standards were little changed, but some banks have tightened requirements for agriculture and consumer borrowers due to increasing financial stress. Although delinquencies have mostly remained stable, several contacts reported early signs of deterioration. Looking ahead, many bankers anticipate delinquencies will rise and credit conditions will become more restrictive, especially for rural consumers facing elevated fuel costs and households relying more heavily on credit cards.
Agriculture and Natural Resources
Agriculture conditions have declined slightly since our previous report. A rice producer in Arkansas noted that sales were below expectations, citing closed shipping lanes and reduced export demand stemming from the ongoing conflict in the Middle East. In the Mississippi Delta, a farm operator reported that planting progress was well ahead of last year; however, farmers' financial positions are no better—and possibly worse—than a year ago. Credit conditions have tightened for some growers, with reports of delays in operating lines and increased reliance on credit. A poultry producer in Arkansas observed that poultry markets have softened considerably year-over-year, as supply growth has outpaced historical norms and pushed prices lower. Cotton contacts indicated improved pricing, though earlier reductions in acreage have limited the industry's production response.
For more information about District economic conditions visit: https://www.stlouisfed.org/research/regional-economy.