Data Centers Are Boosting Regional Economy as Consumer Spending Lags, St. Louis Fed Says

While everyday consumers struggle under the weight of rising prices on goods and services, large-scale data center construction projects across the Midwest and South are propping up local economies, according to a new report from the Federal Reserve Bank of St. Louis.

The report, known as the Beige Book, is published eight times a year. Each Federal Reserve Bank collects anecdotal data on current economic conditions in its district through reports from bank and branch directors and interviews with key business contacts, economists, and market experts.

The St. Louis Fed covers the Eighth District, which encompasses all of Arkansas and portions of six other states: Illinois, Indiana, Kentucky, Mississippi, Missouri, and Tennessee.

The main takeaway from the latest report is that prices in the district rose at a "robust pace" and increases were "widespread," even as employment growth stalled and wages remained modest. The Beige Book also highlighted elevated fuel costs, which continued to weigh on overall conditions and contribute to uncertainty.

In a podcast interview released last week discussing the latest Beige Book findings, St. Louis Fed Assistant Vice President Charles Gascon said that business contacts in the district are reporting an upswing in "price-sensitive customers."

"A large retailer reported that customers were making more trips to the store but spending less overall," said Gascon. "They were just buying items that were on their lists."

Consumers are also feeling the pinch at home, where electricity costs are rising as utility companies pass on the high cost of upgrading infrastructure to meet growing demand.

Data center construction drives growth

The primary bright spot in an otherwise gloomy economic picture is the region's expanding network of data centers. Fueled by surging need for structural steel and copper, the construction boom gave the local economy a much-needed shot in the arm, helping offset weakness on the consumer side.  

"In manufacturing, data center construction, and the AI build-out, that's where we’re hearing much more bullish reporting and context," explained Gascon.

Other Federal Reserve Banks, including those in Philadelphia, Cleveland, Chicago, Atlanta, and Dallas, likewise reported spiking economic activity driven by data center development.

The St. Louis metro alone is home to over 40 data centers, with roughly a dozen new projects proposed, including the hulking $1.5 billion, 120-megawatt hyperscale site near the former Armory in Midtown.

Public opposition

However, the swift proliferation of these warehouse-sized facilities has met fierce backlash. Activists point to their immense consumption of electricity and water for cooling, driving up utility bills for local residents and raising concerns over noise and environmental pollution.

"The environmental impacts of data centers are devastating, which is one of the primary reasons community members remain opposed to their construction," Elyse Schaeffer, policy manager at Missouri Coalition for the Environment (MCE), tells Realtor.com®.

"MCE believes that with the right regulations in place, the industry could avoid the worst impacts, particularly if required to use 100% clean, renewable energy, to maximize water efficiency and quality, to be set back from sensitive land uses, and to select sites where communities consent to construction," Schaeffer says.

On Monday, St. Louis city leaders held an hourslong discussion concerning a zoning bill that would impose regulations on data centers within city limit, including recycling and renewable energy requirements. 

"I have not heard from residents that they want to live near data centers, especially across the street from one or near one," said 7th Ward Alderwoman Alisha Sonnier, as the station KMOV reported.

The meeting comes just months after voters in the St. Louis suburb of Festus, MO, ousted four incumbent members of the local City Council over their approval of a 360-acre, 12-building hyperscale data center developed by the company CRG, STLPR reported. In response to the public outcry, the $6 billion project has since been scaled down to four buildings.

Data centers and housing

Looking at the potential impact of data centers on the local housing market, Realtor.com senior economist Jake Krimmel says it is still too early to measure, because at this initial stage, data center development mostly affects the manufacturing and production aspects of local economies.

"On one hand, providing jobs and boosting investment and economic activity can be a boon to housing markets," notes Krimmel. "On the other, if fears about data centers becoming a disamenity come true, you could see real estate prices dropping nearby. "