Federal Reserve Bank of St. Louis · Beige Book

Federal Reserve Bank of St. Louis

Summary of Economic Activity

Economic activity across the Eighth District has continued to expand slightly since our previous report. Impacts from the severe weather affecting the District beginning around January 5 were not captured in this report. Employment was unchanged and contacts were satisfied with their employment levels. Prices continued to increase moderately. T1Contacts continued to express inflationary concerns related to potential import tariffs or supply chain disruptions from a dockworker strike. Reports on holiday sales were positive and generally better than expected. Reports from other sectors reflected the typical seasonal slowdown. Many of these contacts shared a positive outlook for the year ahead.

Labor Markets

T2Employment has remained unchanged since our previous report. A retailer reported that they were fully staffed with a seasonal workforce. A manufacturing contact reported that, while they continued to hire workers, overall employment levels were unchanged due to employee turnover. An engineering firm reported ongoing challenges hiring skilled workers in construction. A Memphis area contact reported that T3generative AI technology will "shape their workforce" in the coming year: They are looking to new technologies to help existing employees and expect new hires will be prepared to use these technologies. A human resources company said that they expect their clients will experience an uptick in hiring during the first quarter.

T4Wages have increased at a moderate pace since our previous report. Contacts generally expected wages to continue increasing at a similar pace in upcoming months, typically between three percent and four percent from the same period one year ago. A professional services firm reported wage increases were about the same as one year ago. A manufacturing contact reported that wage growth remained as strong as it has been over the past few years. One contact reported they will increase the number of part-time employees to better manage their labor costs.

Prices

Prices have increased moderately since our previous report. Contacts reported the price of eggs has risen sharply with the rise of bird flu cases. A construction contact reported that costs of lumber and steel have stabilized. Contacts reported the price of trucks and used vehicles has increased over the past few months. A professional services firm reported they continued to increase prices to customers; however, price increases were less than one year ago because wage growth had moderated and they risked losing certain clients from further price increases. A retailer reported no major pushback on higher prices for seasonal items. Contacts across multiple sectors anticipate suppliers will announce price increases at some point in January.

Consumer Spending

Consumer spending has moderately increased since our previous report, with contacts reporting healthy holiday sales. T5Retailers indicated that December holiday sales were much stronger than in previous years, with a late Thanksgiving and cyber-Monday falling in December. A consumer electronics retailer reported steady holiday sales. A retailer with multiple locations noted surprisingly strong holiday sales and foot traffic at their shopping mall location. A lawn and garden contact reported that 2024 sales had met expectations but that T6a notable rise in credit card transactions was a concern, as it may indicate consumers are financially stretched. A home-furnishings retailer reported a ten percent increase in sales relative to one year ago, with an uptick in rent-to-own financing.

Manufacturing

Manufacturing activity has improved slightly since our previous report. Contacts expressed concern about discussions related to tariffs and the possibility of a dockworker strike. As a result, those with overseas supply chains have been negotiating expedited deliveries. Contacts also expressed concern about the future of recent investments in electric vehicle and battery plants projects across the District.

Nonfinancial Services

Activity in the nonfinancial services sector has remained unchanged, on balance, since our previous report. Rural hospital contacts reported ongoing challenges around reduced reimbursements and anticipated reduction in services to control costs. A human resources consulting firm reported that overall revenue and profitability ended 2024 higher than in 2023. A professional services firm noted that total revenue and revenue per client have increased in recent months. An insurance solutions firm reported that higher premiums have caused clients to reduce their coverage but their profits have been maintained.

Real Estate and Construction

Seasonally adjusted home sales have remained flat since our previous report, with transaction volumes and inventories declining due to normal seasonal patterns. A contact in Northwest Arkansas reported that customers are increasingly relying on home equity and remodeling rather than purchasing a different home. The optimistic outlook among contacts was closely tied to their expectation that mortgage rates will decline in 2025; however, many expect only a slight decline in mortgage rates, which will result in a continuation of the current trend of weak but improving home sales.

Commercial real estate activity has been generally unchanged since our previous report. Contacts attributed any slowing in activity to seasonal factors related to the holidays, with demand expected to rebound to normal levels throughout the first quarter. T7Business contacts looking to expand or improve office space reported "sticker shock" from contractors' estimates, which is causing them to scale back initial plans.

Banking and Finance

Banking conditions have been generally unchanged since our previous report. Contacts reported a moderate increase in the demand for new loans heading into the holiday season. The overall cost of funding has risen due to increased competition for deposits. The volume of past-due loans has stabilized after increasing modestly over the past year. A private investment company reported a significant uptick in new leads for 2025, although the cost of capital may be too high to pursue many of these opportunities. Banking contacts reported an uptick in demand for commercial real estate loans.

Agriculture and Natural Resources

T8Agriculture conditions have been unchanged since our previous report and remain historically weak. With the 2024 row crop cycle complete, producers reported limited profits as strong yields were unable to offset lower prices and higher input costs. New farm equipment sales remain weak. Contacts expect conditions to continue to deteriorate in the upcoming months. Banking contacts expect a slight decline in farmland values over the next 12 months. Contacts in Arkansas pointed to lithium extraction opportunities as a bright spot for rural development that could support higher land values.