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 rose at a robust pace, and increases were widespread. Reports on consumer spending and banking indicated conditions were largely unchanged. Manufacturing activity was mixed. The outlook is unchanged from our previous report, as contacts continue to highlight that uncertainty and elevated fuel costs—driven by the conflict in the Middle East—continue to weigh on overall sentiment.
Labor Markets
Employment levels have remained largely unchanged since our previous report. A health-care provider reported continued difficulty filling licensed positions, leading to higher job openings. A regional bank reported stable staffing but anticipates slight declines ahead due to efficiency efforts. A local development authority in Southern Indiana continued operating with a lean staff, relying heavily on contracted labor. A consulting firm observed increased use of fractional staffing services as organizations limit full-time hiring to control costs. A regional grocer reported reducing part-time hours in response to weaker sales forecasts.
Wage growth has been moderate. Some employers in Memphis reported that they have not increased wages over the past three months despite rising employee requests for raises. Other contacts in Indiana noted that wage pressures have eased in recent months.
Prices
Prices have risen at a robust pace since our previous report. An electricity provider noted that supply-chain shortages have sharply increased the cost of energy-infrastructure materials, with some component prices rising significantly in recent months. A nonprofit leader in Arkansas reported ongoing increases in insurance, transportation, and labor costs that have heightened budget pressures. Contacts generally expect continued pass-through of higher costs in the coming months. For example, a Memphis-area firm observed that vendors are increasingly adding inflation-indexed price adjustments to their service contracts, a practice that was previously uncommon. A large retailer reported broad non-labor cost increases and indicated that it plans to raise prices for customers soon. An agribusiness contact noted that fertilizer-driven cost pressures are expected to persist through 2027 as current inventories work their way through the supply chain.
Consumer Spending
Consumer spending has remained unchanged since our previous report. A large retailer noted that sales fell short of expectations due to weaker discretionary spending and that customers were making more frequent trips but purchasing less per visit. Tourism and hospitality activity was flat overall. A hotel owner reported that, although revenue was down relative to a year ago, bookings exceeded expectations as customers made more last-minute decisions. In Northwest Arkansas, a contact described restaurant activity as stable but cautious, with new establishments continuing to open. A restaurant owner in Central Arkansas observed slower lunchtime traffic but expected improvement if fuel prices continued to ease. Hospitality contacts reported that customers were highly price sensitive, prompting some businesses to roll back earlier price increases. A social service nonprofit in St. Louis reported that meal demand rose about 30 percent over the past two months, reflecting declining consumer purchasing power and reductions in SNAP benefits.
Manufacturing
Manufacturing activity was mixed. A food-processing manufacturer reported plans to shut down its local plant, citing technology-related factors. A Memphis manufacturer noted slower production in recent months. Another contact in the industry indicated that hiring plans for some Missouri manufacturers are on hold, given that rising operational costs and tariffs have reduced profit margins and limited expansion. In contrast, a uniform manufacturer reported strong demand in the apparel segment, though customers are shifting toward lower-cost products—resulting in stable sales volumes but a changing product mix. An economic development official in Southern Indiana noted that several previously delayed manufacturing projects have recently restarted and that some are now scaling up beyond their initially announced scope.
Nonfinancial Services
Activity in the nonfinancial services sector has increased modestly since our previous report. A workforce training organization noted rising demand for customized training workshops in recent months. A human resources provider reported steady service demand, explaining that existing clients have continued purchasing services once budgets are approved. However, decision cycles have lengthened as clients monitor spending more closely. In contrast, a consulting firm serving nonprofits observed a slowdown in discretionary consulting work as organizations face tighter budgets and the loss of grants or contracts. A community action agency in Kentucky reported a surge in calls as households seek support for transportation-related needs. Transportation and logistics activity was mixed. One logistics firm indicated that customers have been expediting their orders in anticipation of new tariffs. Another firm reported that tariff announcements have disrupted supplier arrangements, leading some customers to cancel shipments.
Real Estate and Construction
Residential real estate activity was mixed. In St. Louis, a real estate agent described the housing market as very active, with buyers making cash offers and waiving inspections. In Indiana, a contact reported that the supply of listings remained tight and demand for higher-end homes had softened. A regional banker reported that new residential-loan demand remained weak due to low housing inventory and poor sentiment in several markets.
Commercial real estate activity was also mixed. A developer in Northwest Arkansas reported healthy conditions, highlighted by ongoing developments and new office spaces. Another developer, however, noted a slowdown in the number of new projects entering the pipeline. Construction activity was also mixed. A contact in Southern Indiana reported continued strength in warehouse construction, supported by robust regional industrial growth. An Arkansas chamber of commerce representative said housing construction remained strong, while a Memphis construction firm observed that many local projects remained on hold due to uncertainty, financing challenges, and a mismatch between lender underwriting standards and developer expectations.
Banking and Finance
Banking activity has remained largely unchanged since our previous report, with loan demand ranging from stable to slightly weaker across markets and borrower segments. One banker noted modest loan demand but emphasized that they were not easing standards to boost volume. Another reported that the commercial loan pipeline has been steady in recent months but has not grown. Credit standards were mostly unchanged, though some banks have tightened requirements. One banker described loan quality indicators as mixed: Commercial loans showed some improvement, while loans to households with weaker credit continued to deteriorate, reflecting growing stress among borrowers without strong balance sheets. Delinquencies overall remained stable, but several contacts observed early signs of distress. A bank in Central Arkansas reported that commercial credit quality remained steady, with no meaningful uptick in delinquencies. In contrast, another bank noted rising delinquencies among lower-income consumers and small businesses, though levels remained manageable. A community bank in Mississippi reported an increase in small-dollar loan activity to highly cash-constrained customers, indicating greater reliance on these products in recent months.
Agriculture and Natural Resources
Agriculture conditions remain largely unchanged from our previous report. A banker reported that farm operations are holding steady, with no significant uptick in loan delinquencies. In contrast, a rural lender in Northwest Arkansas noted that drought and reductions in federal funding have sharply reduced farm productivity and revenue. A lumber producer described favorable weather and said they have expanded work hours to meet their supply commitments. Meanwhile, an agribusiness contact expressed pessimism about the outlook for row-crop farming—particularly rice—observing that several farmers are uncertain whether they will be able to continue operating. Credit conditions remain tight for some growers, as certain financial institutions have become more hesitant to partner or share risk on farm loans.
For more information about District economic conditions visit: https://www.stlouisfed.org/research/regional-economy.