Eighth District Beige Book

Summary of Economic Activity

Economic activity has remained unchanged since our previous report. Consumer spending reports were mixed. Residential real estate activity has slightly increased. Bankers across the District reported improved earnings performance in the second quarter due to lower funding costs. Employment levels were generally unchanged, and wage growth has been modest. Prices continued to increase moderately, and most contacts continued to expect higher nonlabor costs in the coming months as a result of tariffs. The outlook among contacts remains highly uncertain and slightly pessimistic.

Labor Markets

Employment has remained unchanged since our previous report. Most contacts reported no change to employment levels, and many were adopting a cautious wait-and-see approach to their hiring. A retail staffing firm reported there was a “high bar” for hiring additional workers through the end of the year. An agribusiness contact reported that they had not backfilled a couple of positions and had no plans to do so. A printing company reported hiring one fewer person than originally planned due to slower demand. On the other hand, a real estate business reported that they were expanding and hiring to fill a variety of positions. A manufacturer reported they were hiring to start a third shift; however, they have been unable to fill the open positions. Some contacts shared that they had lost their immigrant workforce due to fears of incarceration and deportation and it was restraining business activity. For example, a construction company reported that the lack of workers was slowing project completion, and a landscaping company reported that they were unable to fulfill more than half of their customer requests.

Wage growth has been modest. Fewer contacts reported wage pressures than in our previous reports. Contacts that did report wage pressures primarily cited the need to meet higher costs of living and to provide selective wage increases to retain talent. A manufacturing firm reported their recent merit pay increase was 3.75%.

Prices

Prices have increased moderately since our previous report. Some contacts reported absorbing higher costs, but many contacts reported passing along these costs to customers. A bourbon producer reported that they were absorbing higher costs, and an auto dealer reported that, for the time being, the manufacturer was absorbing tariff-related costs. A packaging company reported facing a pigment surcharge of 10% to 15% in anticipation of tariffs and that they were not passing it along to customers due to competition with larger manufacturers. On the contrary, a construction company reported that HVAC equipment and utility billing had increased and that those costs had to be passed along. Consumer packaged goods companies reported increasing prices, which will raise costs for grocery stores over the next 90 days. A wellness center reported that service providers had responded to higher costs by offering more add-on services. A manufacturing company in Memphis reported they had raised prices significantly to offset the tariff cost on steel and aluminum as well as tariffs on imports from China.

Consumer Spending

Consumer spending reports were mixed. A museum contact reported that they were seeing a decrease in attendance and lower sales at their gift shop. This trend began at the start of the year; at first they had attributed it to the poor weather, but now they believe it reflects lower demand. An auto dealer in Missouri reported that their sales in June had been slow, but that increased construction activity nearby may have been behind the slowdown in customer traffic. However, they noted that sales in another location had also been slow. Boutique stores in Little Rock reported that hot days had been beneficial to their business: Sales were strong and customers were spending without the need for further promotions or discounts.

Manufacturing

Manufacturing activity was mixed. A bourbon producer reported ongoing weak sales due to lower international demand. An engine manufacturer reported that, while recent sales had met expectations, they were down relative to one year ago. A car manufacturer reported that sales were strong and that the company was operating at full capacity. A packaging manufacturer in Kentucky reported that activity had rebounded in anticipation of the tariffs and that sales continued to be strong. A home appliances manufacturer reported that they had recently seen an increase in the demand for their middle-price-range products. The firm is also looking to shift more production to their domestic locations.

Nonfinancial Services

Activity in the nonfinancial services sector has been mixed. A contact in a regional chamber of commerce reported seeing fewer businesses opening and more businesses closing, reducing their overall membership. A staffing company reported being very busy. A bankruptcy attorney serving middle-sized to large firms reported that they were receiving more work than they could handle. A wellness company reported that some clients, especially corporations, had reduced their spending or canceled contracts altogether due to budget constraints. Similarly, nonprofit contacts reported they are also pulling back on hiring and marketing as donations and participation have declined. A nonprofit in Arkansas reported that their recent fundraiser was the worst ever, despite it being typically their largest source of donations.

Real Estate and Construction

Residential real estate activity has slightly increased since our previous report. Active listings and sales in St. Louis and Louisville have increased relative to a year ago. A residential real estate firm in St. Louis reported that June sales were ahead of pace due to several successful new partnerships and growth in business from people who need to sell their homes quickly.

Contacts reported that, while commercial real estate projects continued to progress, there was no new business taking place. An office renovation company reported that projects had fallen short of expectations, as businesses were not spending. A developer reported concerns that some projects requiring refinancing would not be profitable at higher rates, which could result in foreclosures.

Banking and Finance

Banking activity has remained unchanged since our previous report. While credit conditions remain strong, loan growth has been modest, with banks noting a decrease in loan demand. A community banker in Mississippi reported that financing conditions had tightened, with higher interest rates reducing both demand for loans and the capacity to repay loans. Another District banker reported that they were adopting more conservative underwriting standards, particularly for agriculture and small business loans. A Missouri banker reported that their portfolio remained strong, yet they were seeing some signs of stress, including rising delinquencies in consumer and auto loans and some cracks in commercial real estate. Overall, bankers across the District reported that earnings improved in the second quarter due to lower funding costs from balance sheet restructuring and some loans in their portfolio being repriced at higher rates.

Agriculture and Natural Resources

Agriculture conditions have remained strained. Contacts shared that sales in June were down and that forecasts for the rest of the year were weak. Farmers in Arkansas were concerned that poor crop conditions would limit yields, making it more difficult to generate a profit with low commodity prices. Some farmers reported reducing fertilizer usage due to tight budgets and others are still trying to find additional financing to make it to harvest. An accountant reported reducing billing rates for all their farmers this season due to concerns about their financial stability.

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