Federal Reserve Bank of St. Louis
Summary of Economic Activity
Economic activity in the Eighth District has modestly increased since our previous report. Employment was unchanged, and wage growth remained moderate. Reports of price increases were broad based, indicating strong upward price pressure. Many businesses expressed rising concerns about health-care costs. Consumer spending was mixed, while banking conditions were largely stable. Activity in nonfinancial services and manufacturing increased modestly overall, with manufacturing gains driven primarily by stronger demand from national defense and from data center and energy construction. The outlook remains unchanged from our previous report, with persistent uncertainty weighing on expectations.
Labor Markets
Employment levels have remained unchanged since our previous report. A retailer in Arkansas noted that staffing levels were stable following an intentional reduction last year. A financial services firm in Memphis reported staffing growth in some divisions, while a contact in St. Louis indicated that employment growth among small businesses had stagnated, with some firms reducing staff. Several contacts also reported increased churn. A health-care provider in Mississippi cited rising turnover among highly skilled workers; a nonprofit in Louisville reported worsening morale and higher turnover among younger staff; and another nonprofit in Central Kentucky attributed recent turnover to financial instability within their community.
Wage growth has been moderate. A health-care provider reported implementing 2.5 percent annual pay increases, with larger increases in some segments. Nonprofit organizations in Arkansas and Kentucky reported increasing wage pressures due to higher inflation, with one organization reporting a 3 percent cost-of-living adjustment.
Prices
Prices have risen at a robust pace since our previous report. Across the District, contacts highlighted sharp increases in non-wage labor costs—especially health care—which many firms are struggling to sustain. Some employers have begun shifting premiums to workers, several nonprofits have reduced or eliminated employer-paid benefits, and one contact noted that some workers declined job offers due to high insurance costs, particularly at smaller firms. Nonlabor costs have also climbed. A health-care provider in Arkansas reported rising expenses for supplies, equipment, technology, and insurance, with increases outpacing reimbursement gains. A logistics firm observed more-pronounced vendor price increases compared with a year ago and that companies were using recently returned tariff rebates to defer future price hikes. Contacts continued to report substantial price volatility, with some industrial services firms relying more on dynamic pricing and with construction firms increasing their use of cost-plus contracts to manage fluctuating input costs.
Consumer Spending
Consumer spending has remained mixed. A business services firm in Memphis reported softer demand for entertainment-related services over the past three months: Fewer corporate events and reduced discretionary spending have lowered activity compared with the same period last year. A logistics firm noted that consumers were pulling back on purchases tied to construction and home-improvement retail, leading to weaker-than-expected sales volumes. An entertainment venue in Louisville reported lower admissions but stable revenue due to earlier price increases; demand also shifted from high-end tours toward mid-range options, and wedding rentals softened amid increased local competition. At the same time, a gas station retailer observed that consumers appeared stressed but selective, continuing to purchase discretionary items such as nicotine and energy drinks despite budget pressures. A retailer in Mississippi reported strong sales and sustained demand for retail space, with conditions resembling pre-pandemic levels. An airport contact noted that premium travel demand remained strong, while low-cost carriers experienced significant weakening.
Manufacturing
Manufacturing activity has increased modestly overall. Firms connected to data-center and energy construction and defense production reported strong demand, while those tied to housing materials continued to experience weakness. One industrial manufacturer noted exceptionally strong business conditions, and an engineering firm reported solid demand for industrial and engineering projects driven by recent digital and AI-related investments. In contrast, a logistics and distribution firm in Memphis observed softening manufacturing-adjacent activity tied to residential construction over the past three months, as elevated fuel prices contributed to weaker consumer demand in those segments. A contact in Tennessee reported that automation and data-integration projects had produced meaningful productivity gains, raising efficiency in some high-volume plants. These improvements lowered unit costs and expanded output capacity without equivalent growth in head count.
Nonfinancial Services
Activity in the nonfinancial services sector has continued to increase modestly since our previous report. A legal services provider reported stable but cautious demand, with clients seeking fixed-rate structures and multiple consultations to manage costs. An engineering services firm noted steady to above-average project activity. A firm serving entertainment and corporate functions scaled back offerings in response to weaker demand. Nonprofits reported rising demand for rental and mortgage assistance, noting that cost-of-living pressures were leading more households—including middle-income households—to seek services. Nonprofits highlighted significant delays in grant payments from state and federal agencies, which were straining operations and prompting consideration of layoffs while awaiting reimbursement.
Real Estate and Construction
Residential real estate activity has declined slightly since our previous report. Inventory has increased in the largest metro areas, and marketing times have lengthened. However, some pockets of strength remain. A real estate broker in Mississippi reported a roughly 2 percent year-over-year increase in sales volume and gross commission income across commercial, residential, and land transactions, with commission per sale unchanged. A small regional bank in Central Kentucky also noted strong housing market activity despite tighter financing conditions.
Commercial real estate activity was unchanged. A developer in Memphis reported that regional industrial momentum tied to large automotive and advanced-manufacturing projects had not materialized as quickly as expected, slowing related construction-adjacent activity. An airport contact noted that airport-related infrastructure planning remained constrained. They also noted that expansions have been dependent on legacy carriers, as low-cost carriers have weakened, which has limited near-term construction prospects for related facilities. Contacts also reported that substantial input-price volatility continued to affect construction-related operational planning, prompting contractors to seek ways to manage the risks associated with long-term projects under significant price swings.
Banking and Finance
Banking activity has remained mostly unchanged since the previous report. Loan demand was steady, with bankers in Mississippi noting stable activity but fewer large loan requests. A banker in the Memphis area reported increased reliance on lines of credit among firms facing delayed payments, indicating tighter cash-flow conditions. Bankers across the region also observed signs of household financial stress. A community development lender noted that clients were seeking bank loans to stabilize finances and increasingly relying on buy-now-pay-later and other short-term debt tools.
Agriculture and Natural Resources
Agriculture conditions have not changed since our previous report. A contact in Tennessee noted that the 2026 crop should range from profitable to break even, depending on yields and support from higher commodity prices. Grower sentiment is cautiously optimistic and less focused on immediate financial risk. In Arkansas, many acres previously planted with rice were replaced by soybeans or corn. Dry conditions allowed several farmers to complete the harvest early without delays from storage or shipping. Contacts reported strong yields for cotton, soybeans, rice, and corn in Arkansas, while in Mississippi drought and high fuel costs reduced hay production. Forestry contacts in Mississippi continued to report challenges stemming from high fuel and insurance costs, limited market access, and difficulty thinning stands.
Visit our Regional Economic Data and Reports page for more information about District economic conditions.