Federal Reserve Bank of St. Louis
Summary of Economic Activity
Economic activity across the Eighth District has increased slightly since our previous report, a continuation of trends reported over the past few months. Employment was unchanged and wage growth continued to moderate back to longer-run trends. Inflation pressures increased modestly, with slower price growth than in previous reports. Reports on consumer spending were mixed. Real estate activity was generally unchanged. District crop conditions remained stable, with high rainfall mitigating excessive heat. Banking conditions remained stable while manufacturing activity increased moderately.
Labor Markets
Employment has remained unchanged since our previous report. The labor market continues to be tight, but some contacts have reported an easier time hiring. A retailer reported they have seen an uptick in applicants that meet qualifications, while an agriculture contact from St. Louis noted labor needs have eased with less turnover. Despite some improvement in ability to hire, several contacts still reported unfilled jobs and difficulty in finding the right candidates.
Wage growth has risen slightly since our previous report. A transportation contact reported that this year they returned to normal wage increases. An auto-parts manufacturer said the large one-time wage increases due to direct competition for workers has disappeared.
Prices
Prices have increased at a modest pace since our previous report. Contacts continued to report limited ability to pass-on higher costs to households, given their heightened sensitivity to price increases, despite expectations costs will continue to climb. An auto dealer noted that higher-priced vehicles are slower to sell and are accumulating on lots without manufacturer incentives. A pet-supply retailer noted that manufacturers have continued to increase prices, albeit at a slower pace, even though commodity prices have decreased. Similarly, an agriculture contact noted that prices for some commodities have been stable recently, but that cost increases are anticipated going forward. A railroad contact noted that their firm still faces significant cost pressure, for electronics especially, but that final prices to customers have not changed recently. Conversely, a shipping contact noted that pricing related to the movement of goods continues to climb, primarily through fuel surcharges. Manufacturers in Arkansas reported that higher costs can still be passed down to customers through higher prices.
Consumer Spending
Reports on consumer spending have been mixed. Retailer and auto dealers have generally reported flat to declining sales, restaurant contacts have generally reported increasing sales, while hospitality contacts reports were mixed. An Arkansas cycling retailer stated that bike sales are experiencing a slump, although bike rentals, especially e-road bikes, are thriving due to increased tourism. District auto dealers noted overall weaker sales and major disruptions due to a cyberattack affecting many systems. A Memphis restaurant contact stated that there's been a surge in demand, specifically in restaurants catering to social and nightlife scenes. A hotelier contact reported that occupancy rates are down across their hotels in Mississippi.
Manufacturing
Manufacturing activity has moderately increased since our previous report. Firms in Arkansas and Missouri reported moderate increases in delivery lead times, production, and inventories. Several manufacturing firms reported higher prices of goods, which they passed on entirely to customers. Manufacturers reported ongoing issues with attracting and retaining employees, especially in entry-level positions. However, several firms noted that people are willing to commute longer to jobs that offer good culture, training, and funding for post-secondary education. Employment was generally unchanged, and firms expect slight increases in employment in the coming quarter.
Nonfinancial Services
Activity in the nonfinancial services sector has remained largely unchanged since our previous report. Trucking contacts reported a mixed outlook, with more reports about layoffs and streamlining than about expansions. However, two airport contacts described the outlook as cautiously optimistic, noting passenger volumes being stronger than expected both locally and nationally, with future bookings also looking strong. A railroad contact reported a decline in shipments combining rail and truck transportation but expected a heavy grain shipment season to partially offset the drop. District healthcare and educational institutions continue to invest in new facilities, spurring regional development.
Real Estate and Construction
Residential home sales have remained unchanged since our previous report. On average, homes are being sold for slightly less than asking price and are on the market for longer than they were a year ago, suggesting that buyer demand has slowed. In most metro areas, while inventory levels remain historically low, they are higher than a year ago. However, Memphis inventory is almost back to pre-pandemic levels, while inventories in St. Louis continue to trend lower.
Commercial real estate conditions are mixed, depending on the property type. Office leasing activity remains depressed. One contact noted that upon renewal, square footage was down by 20 to 30 percent. The industrial market remains weaker than a one year ago, but brokers are seeing a slight uptick in leasing activity. The retail market remains strong with low availability rates and stable construction activity. In the multifamily rental market, a contact noted that supply had increased and that demand continued to be strong, particularly in suburban areas.
Banking and Finance
Overall banking conditions in the District remain stable. Loan growth increased at a modest pace for both consumer loans and commercial and industrial loans. Contacts reported that the volume of mortgage loans has been increasing in recent months. Competition for deposits remains elevated and total deposits continue to increase. While consumer loan delinquencies continue to rise, contacts reported that credit risk remains low to moderate.
Agriculture and Natural Resources
Overall agriculture conditions have remained stable since our previous report. The share of major District crops of soy, rice, corn, and cotton rated fair or better declined slightly in every state except Tennessee, where the share remained the same. Despite extreme high heat, soil conditions have improved relative to the drought conditions observed last growing season. District contacts reported that rains earlier in the year have helped protect against high temperatures, but high temperatures remain a concern. Contacts in agriculture equipment and services stated that the slowdown in transactions relative to their peak in 2021–2022 has continued.