Eighth District Beige Book

Summary of Economic Activity

Economic activity has remained unchanged since our previous report. Employment levels were unchanged and wage growth has been modest, although contacts reported the possibility of a future reduction in force. While prices continued to increase moderately, contacts indicated that the increases were starting to accelerate. District businesses were negatively impacted by heavy rains, delaying the delivery of merchandise, postponing events, and flooding businesses, farms, and neighborhoods. Contacts expressed a lot of uncertainty and an elevated effort in estimating the impact of tariffs and ways to reduce cost increases and supply disruptions. They also noted that they were unwilling to make changes due to elevated uncertainty. The outlook has continued to decline from neutral to slightly pessimistic.

Labor Markets

Employment has remained unchanged since our previous report. A staffing agency in Kentucky reported that hiring activity picked up at the end of the first quarter, but several contacts in the region reported no changes in employment. Retailers felt the hiring market had shifted back in their favor, with more candidates eager to work. One contact indicated turnover in their call center had been very low recently. While there have been few reports of layoffs, several contacts indicated the possibility of reducing headcount in the future. A software service company indicated they created a contingency plan to reduce staff, but they were not actively planning to do so.

Wage growth has been modest. One contact reported that wages were stable, and another reported they were expecting no wage increases for 2025. In Missouri, small businesses have expressed confusion about changes in the state’s sick leave policies.

Prices

Prices have increased moderately since our previous report; however, businesses expect costs to increase due to tariffs and are looking for ways to reduce the impact on their profits. A retailer indicated that price growth accelerated from the previous quarter, particularly food prices, with general merchandise prices increasing slightly. A pharmacy reported they were starting to see price increases from manufacturers, but their costs had not been impacted yet as they had built up inventory. A retailer indicated their initial worst-case-scenario estimates of tariffs would result in a less than 2% cost increase; however, their updated estimates—prior to April 2—indicated they would face a 5% increase. A manufacturer reported that what initially looked to be a mild impact had worsened and was forcing them to evaluate sourcing options. Large retailers announced to their suppliers they would not accept price increases due to tariffs, and an HVAC supplier reported they would now price their equipment based on shipment dates rather than contract or purchase order dates.

Consumer Spending

Consumer spending reports were mixed. Hospitality contacts reported little change in activity, with mixed reports on restaurant sales. Hotel bookings have generally remained strong, with some reports of cancellations due to a pullback in federal spending. Retail sales have been mixed: Sales of personal care items, cosmetics, and groceries increased while sales of home appliances, toys, and seasonal items decreased. Retailers catering to higher-income customers reported sales were flat. Auto dealer reports were mixed. In Arkansas, one dealer continued to report vehicles sales have been weaker than expected and the outlook had deteriorated; Louisville dealers reported increased showroom traffic, while noting this would likely fall as soon as the tariffs took effect. Retailer inventories have increased slightly due to a combination of pre-ordering in advance of tariffs and weaker-than-expected sales.

Manufacturing

Manufacturing activity has been flat on net since our previous report. Survey indicators suggest a slight increase in manufacturing activity in Missouri and Arkansas, with an increase in employment, production, and new orders. An Arkansas electrical equipment manufacturer reported they had a three-year backlog of orders and that demand for their products continued to increase. A vehicle manufacturer reported that they were running at 60% of their capacity. Contacts in food service, retail, and consumer goods plants in Kentucky reported their schedules had been softening. Contacts reported concerns about price and supply issues that had led to higher inventories and efforts to domesticate the supply chain. Some contacts also reported they were reluctant to execute previous capital investment plans or create new ones due to ongoing uncertainty. A bourbon distillery indicated that planning ahead felt almost impossible when trade rules kept changing.

Nonfinancial Services

Activity in the nonfinancial services sector has been mixed. Transportation and logistics contacts noted an increase in activity as steel-related customers have increased their production in anticipation of tariffs. Transportation firms remain optimistic that demand for materials will continue, but they are concerned about tight margins. Recent heavy rains resulted in postponed or cancelled deliveries due to impassable roads and flight cancellations. A contact in auto mechanics reported strong activity with lead times of over one week to schedule repairs, noting that this uptick in demand could be related to customer concerns about tariff impacts on parts. A software service provider reported they had to cut their growth targets and were pressuring their sales team to “push hard” now, as they expected sales to become increasingly difficult next quarter.

Real Estate and Construction

Residential real estate activity has remained unchanged since our previous report. Active listings have increased relative to a year ago but sales continue to fall behind. One contact reported observing a slowdown in home buyer and seller activity around the time of the tariff announcement. A home builder in Little Rock reported their business had slowed considerably and that houses were staying on the market longer. In contrast, another builder reported that lower mortgage rates had started a surge in home building and the increase in activity was evident.

Commercial real estate has improved slightly. Contractors in Kentucky reported the commercial construction market remained steady. Supply chain disruptions are impacting the lead times for materials, which have pushed project timelines and increased construction costs. While some construction companies have diversified their supplier network and begun pre-ordering materials, other businesses halted projects due to substantial increases in costs due to tariffs. A builder in Arkansas reported their backlog of projects remained stable, with slight increases in commercial and government-related work. However, they were concerned about future slowdowns due to uncertainty and a decrease in federally funded projects.

Banking and Finance

Banking activity has remained unchanged since our previous report. A Kentucky financial institution reported facing tightening margins, which had influenced their willingness to lend, while a banker in Arkansas reported that projections for lending growth continued to be strong. A bank reported that deposits were up compared with the same time a year ago, but they were starting to show signs of decline as were new account openings. Bankers reported that consumer past-due accounts continued to rise; however, the exposure was staying at 60 days or less. Similarly, they reported observing a slight increase in small business bankruptcies and past dues. Bankers reported that, despite a few pockets of concern, credit portfolios were strong.

Agriculture and Natural Resources

Agriculture conditions have been unchanged since our previous report. Wet soil conditions combined with significant rainfall has delayed planting, and in some areas, flooding will require replanting of crops. A farmer in Arkansas reported not being able to sleep for three days due to the disruptions caused by the flooding. While operating incomes for row-crop farms are expected to be negative in 2025, government supports are expected to offset losses. The outlook for meat and poultry producers is more favorable due to low feed prices and stable demand, particularly for home consumption. Contacts reported elevated levels of uncertainty regarding the economic outlook and trade policy but have not made any significant changes to their operations.