In its latest market report, Grow Quad Cities said that consumer spending nationally had its second lowest quarterly growth rate in the past three years, but artificial intelligence (AI) infrastructure spending kept overall real GDP growth positive at 1.6%.
The Q1 Market Report is a gauge of the current state of the Quad Cities economy and business climate. Released by the Grow Quad Cities – an economic development organization of the Quad Cities Chamber of Commerce, the analysis is written by Bill Polley, senior director of business intelligence for the chamber and Grow QC.
The first quarter findings showed both imports and exports are in recovery mode from tariff disruptions, while the conflict in the Middle East pushed oil prices up, moving inflation above the Fed’s 2% target. This could put more pressure on consumer and investment spending.
Locally, the story is slightly more positive, with the metro gaining approximately 900 jobs since last December. “In the Quad Cities, the labor market remained stable, with employment slightly below last year’s levels, although construction jobs are at their highest level in decades,” Mr. Polley said.
The local Business Outlook Survey’s results showed:
- Respondents were slightly less optimistic overall on U.S. economic activity, compared with respondents to last quarter’s survey.
- Manufacturers were slightly more optimistic than non-manufacturers.
- Manufacturers reported that increases in raw materials and supplies are the biggest inflation concern, while non-manufacturers reported that gasoline and diesel prices are of greatest inflation concern.
Each quarterly report also includes a Regional Market Summary, Labor Market Summary and the Business Outlook Survey. To read the full QC2026 Market Report, visit here.
New narratives emerging
According to Mr. Polley, the current economic picture is not as straightforward as in the past. “That coherent story of consumer and business spending moving in concert with each other is less true in today’s economy. The story is splitting into two narratives. One narrative is playing out in household budgets,” he reported in the Regional Market Summary. “Consumer discretionary spending took a double hit early in the decade from the COVID-19 recession and the inflation that followed. Consumer sentiment fell to levels not seen since the late ‘70s, lower than during each of the last four recessions.”
He pointed out that oddly, the low point in the University of Michigan’s Index of Consumer Sentiment (at that time) came in 2022 during the recovery. “However, sentiment never recovered to pre-COVID levels, and the index even fell further since 2022,” he said. In fact, consumer sentiment is at its lowest level since 1952 when the index began.
“According to the standard narrative, crashing consumer sentiment can only mean recession,” the report said. “Yet, by the profession’s standards, we are not in a recession at all. Part of the reason is that there is a parallel narrative that appears to be operating completely independently from the consumer narrative.”
Uptick in AI investment
The boom in infrastructure spending to support the AI revolution also is a new narrative, Mr. Polley reports. “Beginning in 2021, growth rates for investment in intellectual property products (which captures much AI investment) were in double-digits for six quarters in a row. This spending shows no sign of letting up as this measure was again in the double-digits for two of the most recent four quarters.”
In addition, GDP growth was 1.6% – an increase from the previous quarter but well below most quarters over the past three years. Areas of weakness include slower growth in consumer spending, reduced residential investments, cuts in federal government spending, and a surge in imports.
Regional activity stable
The Federal Reserve’s Beige Book, which reports on economic conditions in the 12 Federal Reserve districts, shed light on conditions in April in the Chicago district, which includes the Quad Cities. Among the Fed’s observations are:
- “Contacts overwhelmingly reported stable labor market conditions, with low turnover and a wait-and-see approach to hiring. A contact at a temporary employment agency said demand was up as companies hesitated to hire long-term employees amidst elevated uncertainty.”
- “One contact reported greater wage pressures for electricians, who were being offered substantially higher wages by data center developers.”
- “Manufacturing demand rose modestly in late February and March.”
- “Expectations for 2026 District farm income declined overall during the reporting period as input costs rose faster than agricultural product prices. Fertilizer and fuel prices increased, though a substantial share of farmers had preordered fertilizers and locked in pricing prior to the reporting period.”
Overall, the report shows the local region faces the same basic pressures affecting the national economy. The report’s latest Business Outlook Survey shows that local business leaders’ sentiment includes a more optimistic view about the next few months by local manufacturers.
“At least as long as the AI buildout continues, the fate of the consumer alone will not necessarily determine if we fall into a recession,” the market report said.
Mr. Polley warned, though, for low income consumers, inflation pressure still could cause significant disruption.
Business Outlook Survey
In the outlook survey, respondents had a slightly more negative view on most indicators compared to the previous quarter’s survey.
Among those findings are:
- In February, 22% of respondents said that U.S. business activity was decreasing compared with 30% in the current survey.
- About 37% of respondents said that business activity in their own company had increased in the last quarter (compared with 51% in February).
- Most respondents (70%) reported that they raised the prices of their own goods and services last quarter, which compared to 62% of last quarter’s respondents who expected to raise their own prices.
While indices showed less optimism across the board, there was a significant difference between manufacturers and non-manufacturers. “Manufacturers are more confident about U.S. business activity in the next six months with over 40% expanding an increase in activity.”
The local survey represents a mix of companies including 32% in manufacturing, 10% in retail, 48% service providers and 10% others.
