Eighth District Beige Book

Summary of Economic Activity

Economic activity and employment levels have remained unchanged since our previous report. Wages and labor costs have increased moderately, rising at a faster pace than in previous reports. Contacts reported that immigration policies were resulting in labor shortages. Prices have increased moderately, but at a faster pace than in previous months; contacts expect prices to increase at a faster pace over the next year. Contacts expressed a high degree of uncertainty and they are concerned that tariffs will result in further cost increases. The outlook remains slightly pessimistic, but its deterioration has subsided.

Labor Markets

Employment has remained unchanged since our previous report. Most contacts reported no change to employment levels, and employers are cautious with hiring due to uncertainty. A staffing company reported that businesses were not hiring until they have more clarity on federal policies. A professional services firm reported that they would like to hire another person but are waiting until conditions have settled. A manufacturer reported no plans to cut staff or contractors. Contacts in manufacturing, construction, and agriculture continue to report labor shortages and abnormally high turnover, which they attribute to the loss of immigrant labor.

Wage growth has been moderate, but higher than in previous reports. A recreational business in Missouri reported that their average cost per hour of labor had increased 5.5 percent this year, driven by H2A labor rates and the rise in the minimum wage at the beginning of the year. A contact in agribusiness reported that wages rose 8 to 10 percent annually, yet turnover remained high. Some contacts reported that wages were higher due to normal annual pay increases, and others attributed the rise to keeping up with higher living costs and retaining talented workers.

Prices

Prices have increased moderately since our previous report, but at a faster pace than in previous months. Contacts expect prices to increase at a faster pace over the next year, attributing this increase to tariffs as well as market opportunities to improve profit margins. A regional manufacturer sourcing most of its inputs domestically reported facing an 8 to 10 percent increase in domestic supply costs from the beginning of the year. Some contacts that absorbed their cost increases have found it unsustainable, and many reported passing some of the costs along and testing the impact on customers. A Kentucky manufacturer sourcing roughly 70 percent of its materials from Asia expressed concern about reaching a tipping point where consumers could no longer absorb additional price increases. An auto parts distributor was concerned that consumers would not be able to afford the rising costs. A restaurant owner in Arkansas was absorbing higher input costs where possible but raising some prices, with sensitivity to the customer value proposition. Another restaurant increased menu prices, testing their customers’ loyalty to their brand.

Consumer Spending

Consumer spending reports were mixed. Some retailers reported stronger-than-expected sales, while others reported a decrease in sales. A kitchen supply retailer reported that sales had been strong and above expectations. Auto sales were also mixed. A car dealer in Missouri reported that sales had been good because customers were buying before expected higher prices. Another dealer reported that sales had fallen below expectations, as prices of new vehicles were somewhat unaffordable and there was a shortage of used car inventory. Leisure and hospitality contacts reported a decrease in their sales. A hotel franchise reported that business travel was improving slightly and that leisure travel, although it remained subdued, was stabilizing. Contacts have also reported consumer spending volatility, with one retailer noting that on any given day they could be surprised by how busy they were or how few customers they had.

Manufacturing

Manufacturing activity has been flat relative to the previous quarter and one year ago, with many contacts reporting that sales had fallen below expectations. A manufacturer in the steel industry reported a flat first half of the year and expected the remainder of the year to be similar. A beverage manufacturer reported a major reduction in their exports due to retaliation against US tariffs; however, increased demand for other products was balancing their portfolio at some facilities. A food processing manufacturer reported that production volumes had decreased about 4 percent and that further declines were anticipated. A Kentucky manufacturer that had been in a holding pattern for any new capital spending projects since the beginning of the year was moving forward with acquisitions of distressed companies.

Nonfinancial Services

Activity in the nonfinancial services sector has been generally unchanged since our previous report. Transportation businesses reported slightly lower activity. A health care business reported mixed activity across their services. An auto repair firm reported that business had exceeded expectations year-to-date due to work on older-model vehicles that were being kept instead of traded in. Staffing companies reported lower demand for their services as companies were cutting back on costs where possible and that hiring activity was down. Professional services businesses reported that fewer construction projects were resulting in lower demand for their services, but they were expecting conditions to improve.

Real Estate and Construction

Residential real estate activity has remained unchanged since our previous report. While active listings and sales have increased slightly relative to a year ago, real estate agents across the District described the residential market as slow and expect this to continue for the remainder of 2025. A home builder in Missouri reported that newly constructed homes were lingering on the market longer and discounts were being offered to move this inventory. Additionally, contacts have shared that high-end properties were sitting on the market longer.

Commercial real estate activity has remained unchanged since our previous report. Contacts reported continuing progress on existing projects but no new business taking place. Developers cited economic uncertainty, high borrowing rates, and higher construction costs as factors. On the bright side, a development group in Tennessee reported that retail demand for space remained strong after a pause in the spring.

Banking and Finance

Banking activity has remained unchanged since our previous report; however, loan demand has been slightly better than previous-quarter expectations. A banker in Tennessee reported that loan growth continued to be moderate and forecasted the remainder of 2025 to be moderate. Credit conditions remain strong, although delinquency rates have slightly increased and bankers expect a continued rise into the next quarter. For example, a banker in Kentucky reported that credit quality in the consumer and commercial lines of business continued to be stable, apart from some consumer accounts that are attributable to CRA-related exposure. Overall, bankers noted that they would continue to be cautious: They were selective in their lending as consumer credit risk was building and as CRE loan pipelines were slowing.

Agriculture and Natural Resources

Agriculture conditions have remained strained but stable. One contact reported that, while they were appreciative of additional government support, farming remained a very difficult business as all the major row crop prices were below farmers’ break-even production costs. A farmer in Western Kentucky shared that, while soybean production was strong, they were prepared to store their production instead of selling it as usual, reflecting a weak market demand relative to production. A large farm equipment dealer reported that defaults on payment for equipment were increasing, and more farms were likely to fail this year. Nevertheless, most contacts do not expect a significant drop in land values. Cattle farming contacts reported strong profits but were not expanding due to the high cost of expansion and longer-term uncertainty.

Visit our Regional Economic Data and Reports page for more information about District economic conditions.