April 2023 Beige Book Interview – Little Rock

Matuschka Lindo Briggs: Welcome to the latest economic snapshot, where in 8 minutes or less you'll hear what's happening across the state, as shared by businesses and industry contacts in the Little Rock Zone of the Eighth District. I'm Matuschka Lindo Briggs, the regional executive, with Associate Economist Nathan Jefferson.

Nathan, I spent most of the last few days in southern Arkansas and want to address what we heard the most, and that was plenty of jobs, but no homes available for people that want to move to southern Arkansas. Does that sound familiar to you?

Nathan Jefferson: That sounds pretty much in line with what I'm hearing. This Beige Book, a big thing that came out across Arkansas—and this is statewide, not just southern—is that the demand is there for homes, but the supply just really isn't back yet. So, we heard from a construction contact in Cleburne County, for example, there's really strong demand for homes, really strong demand for custom homes, remodels; sales prices per square foot are all time highs.

The demand is just really robust, but the supply just really isn't there. There's all these big backlogs from constructions that started last year, and even as the supply chain improves a little bit, builders are still working to kind of get things on the market and meet demand.

Lindo Briggs: Right. So, and, you know, I guess it was familiar to hear in northwest Arkansas, when you're hearing people move in, 30 people a day, but when there are jobs, which is great and you're hearing in southern Arkansas, you just can't put the people in there. What else are you hearing about housing in Arkansas?

Jefferson: I'm hearing that the higher interest rates have dampened new construction a little bit and so the pace of new building has slowed. So, what happened is there were all these projects that were started last year, at lower interest rates, and now they have the fixtures, or they have the windows, and they have the doors needed for those projects. And those projects are the ones that are coming on to the market.

But the pace of new construction has slowed a little bit. So, there's clearly buyers for these homes, particularly the entry level or the more affordable ones. And the thing is just kind of getting them on the market. But builders have a lot of things kind of standing in the way as they do that. And I'd say that labor is one of the biggest challenges for builders now as they try to pick up the pace of this construction.

Lindo Briggs: That totally makes sense. And when you mentioned the interest rates too, you got to think of those first-time homebuyers with the lower homes, they're locked in in that 3% interest. And so, you can't get them to move out. So, we are hearing that as well.

So, let's go to the job market. It's still good. Plenty of jobs out there, like I said, that, you know, they need people to move into southern Arkansas, but no easing and finding people to fill those spots, especially in experienced positions.

Jefferson: Yeah, so it's really a challenge for businesses across Arkansas. Again, the demand is there, but it's just difficult to find the labor. One thing that I've heard, and we heard this Beige Book, is that businesses are being a little more creative and reaching out to high schoolers and recruiting in kind of new and innovative ways to try to find the workers they need. And in some cases, really, you know, take the workers they need and train them up from a young age into the workers they need for their business.

So as an example, we're hearing a lot more high school recruiting. We're hearing a lot more kind of new trainee programs. We heard one local hospital, for example, hired an entire graduating student body of 48 high school students to join the nurse training program.

So, businesses are starting to get a little more creative to kind of meet the labor needs. But again, still a very tight labor market. And I'm sure you've heard similar.

Lindo Briggs: Yes, we talked about this in the last podcast, even in central Arkansas, that they said they were giving bonuses even to fast food workers. So, I do think they're getting creative. I love to hear that they're going into the high schools. They are helping to get certifications and things earlier and move them up. Again, what I said, I'm not sure what we're going to do about the experienced positions because something that isn't happening is those people who retired earlier, they're not coming back to the market. So definitely something to watch.

Anything specific in this Beige Book report that stood out in the latest release?

Jefferson: Well, I have my eye on the banking sector. Obviously, there were a lot of national events the last month or so that drew a lot of attention to it. And I wanted to know what exactly had happened in Arkansas and whether there have been any impacts from this broader national events. And what I heard in talking to our Arkansas contacts is that our banking contacts expressed a lot of confidence about the stability of their position.

Now, they did note that they had seen some minor deposit outflows, but they attributed that in part due to the more competitive deposit market. They said that there were some reports of, you know, maybe credit tightening a little bit. You can let me know if you've heard any of this. But overall, they were confident about their financial position, and they said they had not really been impacted by the larger uncertainty that affected other parts of the banking sector.

Lindo Briggs: Yes, kind of heard the same thing, especially when we were down in southern Arkansas the last couple of weeks. You know, there is that aura out there and that the buzz of there is credit tightening. But when I talk one-on-one with financial institutions, nobody said they've actually pulled the trigger on doing that. But definitely they are keeping an eye on it. So, I'm sure that's something that you're going to want to keep an eye on moving forward.

Before we close out here, I definitely want to talk about supply chain issues. We were talking about the housing. We still were surprised to hear during our tour down in southern parts of the state that they are having supply chain issues on still some of those specialty parts, even an air conditioning unit. One little thing or a particular glass that they needed for a school. So, it delayed them several months.

But another thing that really drew my attention and was kind of shocking was with vehicles, especially for municipalities when they were talking about police cars, any type of emergency vehicles like fire trucks, ambulances, we're not talking a couple of months. They're waiting a year and a half to get these vehicles in. Is that surprising?

Jefferson: Well, we have heard that overall, the supply chain has seen some, you know, I'd say modest improvement. So, some of the things that some of the horror stories that we heard the last year or two years, they're not quite as bad now. But obviously there are still pockets and there are still things that are really core issues of businesses and kind of, you know, struggling to meet their specific needs.

So, yeah, one example would be trucks. We did hear from a different homebuilding construction business that they just have not been able to source and get the trucks they need for their business. And as a result, they kind of really extending the life of the old ones, which is something that they’d really rather not do. So yeah, I'd say that lines up pretty well with what you're hearing. Supply chain has improved overall, but there's still kind of specific needs that public and private agencies need, and it's just still difficult for them. So really a bit of a mixed bag, but I would say on the whole, improving somewhat.

Lindo Briggs: All right. So, for our next podcast, what are you going to focus on? You still going to be looking at the credit conditions?

Jefferson: I am just going to keep an eye on that as well, you know, to see how that plays out and if we do actually get any other tightening that we're starting to hear a little bit about.

Lindo Briggs: Thank you, Nathan, for comparing notes with me about what we are hearing in the Little Rock Zone.

And thanks to everyone who took the time to listen to our economic snapshot of what's happening across the state.

The next Beige Book release will be May 31st, followed by our podcast, June 1st. You can find the entire Beige Book report on stlouisfed.org under Research. For this podcast and our Timely Topics podcasts, visit stlouisfed.org or your favorite podcast app.

Matuschka Lindo Briggs: Thanks for joining us for an economic snapshot where we discuss in eight minutes or less what’s happening across the state, as shared by businesses and industry contacts in the Little Rock Zone of the Eighth District. I’m Matuschka Lindo Briggs, the regional executive, with associate economist Nathan Jefferson. How are you doing, Nathan?

Nathan Jefferson:  I’m good, thanks. Happy to be here.

Matuschka Lindo Briggs: So, let’s jump right into it. I want to start talking about the labor market, wondering if you’ve heard of any easing with hiring challenges? I’ll definitely share that in many small rural areas of Arkansas, the challenges are still there, but they are getting creative about it. So, they have been telling me that they’re changing the job descriptions and easing on the experience, as well as the education needed. So, some are just starting to provide the training needed. What are you hearing with the labor market?

Nathan Jefferson: Well, relative to those rural issues you talked about, one thing we actually heard from agricultural firms is that they’ve started to get more aggressive with using temporary visa worker programs. One contact told us that we’re seeing a real increase in the number of ag firms using those visa programs for the first time. So, I would say in general, some signs of easing in some areas, a little easier time getting workers, but in general, businesses are still trying to be creative, as you mentioned, with trying to bring workers in.

One thing I’ll point out is that turnover is kind of varied across different areas. We had a logistics contact in Arkansas tell us that turnover still been a big challenge, a lot of rotation in and out of the company. But in other areas, it started to get a little easier to retain workers.

Matuschka Lindo Briggs: I’m glad you brought up the ag; heard the same thing in Jonesboro at the ag conference that they have this year or so on pace on with what I’m hearing. How is job growth overall in the state?

Nathan Jefferson: Overall, it’s been solid, about on par with what we’ve seen in the previous few periods. Not quite as robust as, you know, the big, big recovery we saw in 2021 and 2022. But I would say going back to that stable level that we saw pre-pandemic.

Matuschka Lindo Briggs: Let’s remind everyone that the Beige Book Report came out yesterday, March 8th. So, it’s on the Saint Louis Fed website under Research. Nathan, is there any area that stands out for Arkansas in this latest Beige Book Report?

Nathan Jefferson: Sure. Well, we’ve talked about housing before, and I’m sure that you’ve heard it as well. Northwest Arkansas area has been one of the really strong housing markets across the district and across the nation, really. Now, that’s been slowing over the last few months, in part due to this increase of mortgage rates. Now, one thing we’ve heard about this period is that as mortgage rates have started to flatten out a little bit, the markets kind of stabilized and we’ve seen some early signs that there might be a little more homebuying demand. Again, it’s something that was just kind of a reason for optimism, for brokers, for realtors in the market, something to keep an eye on moving forward.

Matuschka Lindo Briggs: I have heard the same in northwest Arkansas, but I traveled quite a bit in central Arkansas, and they are also cooling. But how much cooling really depends on the price of the house. Everything at, say, $500,000 and above – yes, that is now sitting on the market a lot longer, sometimes over 30 days. But for homes, say under $500,000, closer to $400,000, those are still not really sitting and they’re still moving is what I’m hearing. We will be heading to west Arkansas and southern Arkansas regions in March and April, so we’ll get a better update on those areas when it comes to housing.

Nathan Jefferson: Gotcha.

Matuschka Lindo Briggs: So last podcast, you showed concern of tightening credit conditions in our area. What’s the latest on that?

Nathan Jefferson: So that was something that was obviously in the forefront of everybody’s mind: interest rates going up, was hearing about these tightening credit conditions, and a lot of concern about what’s going to happen with cash flow, what’s going to happen to these businesses. Now, I think a piece of positive news here is that, by and large, credit conditions have held up really well, even as conditions tighten.

We’re not seeing a lot of delinquencies, we’re seeing businesses by and large, handle this pretty okay, and that’s something that a lot of people were concerned about, a lot of, you know, our banking, financial contacts were concerned about. But so far, that’s held up. And it’s a bit of a, you know, encouraging news there.

Matuschka Lindo Briggs: I will say I’ve had calls and visited quite a few financial institutions, so I have had a pretty well-rounded look of what’s going on in banking all over the state. One thing that is still holding strong is no default on loans. So, I think everybody’s kind of breathing a sigh of relief, but they’re still kind of, it seems like edgy, almost like they’re just waiting to see what’s going to happen next.

Another thing with banks, I’m hearing in response, and going back to when we were talking about the labor market, in relation to the hiring challenges, they are creating new job titles. So, the odds of you just applying for a teller position? That really seems to be changing. They’re merging roles and responsibilities and doing more training and providing better benefit package[s], which in turn kind of what you mentioned earlier, it is actually helping them with turnover when it comes to that.

Nathan Jefferson: Yeah, businesses is getting creative, to kind of increase retention, in a lot of different ways.

Matuschka Lindo Briggs: Absolutely. I will say that I think the days of just putting up a sign that says “for hire” or looking for someone are long gone over, for right now.

Nathan Jefferson: It’s not coming back.

Matuschka Lindo Briggs: So, before we wrap up, I do want to touch on manufacturing. What I’m hearing is that orders slowdown in Q4, which is normal, but they have yet to pick back up in Q1 like they usually do. They are still getting orders, but nowhere close to capacity. Are you hearing of things picking up from your contacts?

Nathan Jefferson: We are. So, our first quarter survey showed results just along those lines. New orders, the number of new orders and the volume of production has slowed in Q1, below typical levels. But at the same time, though, there’s a little bit of a silver lining. Manufacturers are actually a little more optimistic. They actually have a slightly better outlook for the upcoming quarters because supply chain blockages are clearing up, because they expect the input prices to be down a little bit, and because even though there’s this tight labor market, they’re having a slightly easier time finding workers. So, while new orders and production are down right now, there’s actually a little bit of optimism moving forward, which is definitely something I want to keep an eye on.

Matuschka Lindo Briggs: That is what we want to hear. We are a manufacturing state, Nathan.

So, as always, thanks for helping me compare notes and sharing what we are hearing in the Little Rock Zone. I want to thank all of those that took the time to listen in and hear our economic snapshot of what’s happening across the state.

The next Beige Book release will be April 19th, followed by our podcast, April 20th.

Until next time. Have a good day.

Matuschka Lindo Briggs: Thanks for joining us for this pilot podcast where we are staying in the zone with an economic snapshot of Arkansas. During this podcast, we will discuss in eight minutes or less what's happening in the Little Rock zone of the Eighth District. I'm Matuschka Lindo Briggs, the Regional Executive for the Little Rock branch with Associate Economist Nathan Jefferson. The Beige Book is released eight times a year with anecdotal information of what is happening in our district, so we will have eight short podcasts following their releases with quick takeaways of what we are hearing from industry contacts across our zone. Nathan, thanks for joining us today.

Nathan Jefferson: Thanks for having me.

Matuschka Lindo Briggs: Now, our region of the Little Rock zone serves the majority of Arkansas, except northeast Arkansas, which is served by our Memphis branch and my colleague, Douglas Scarboro. Explain why it matters that we get this anecdotal information of what is happening in the Little Rock zone.

Nathan Jefferson: So, the regional Feds are deliberately set up to gather information from the industry. We get anecdotal information from business leaders and community contacts throughout the region in order to gain a better understanding of what's happening throughout our districts. We want to get information understanding that's more than just the headline data figures. So, what we do is we go around, we reach out to contacts, we gather information to get a better sense of how they're thinking, what the outlook is, and then, we present that information to President Bullard prior to FOMC meetings so he has an understanding, a real-time understanding of the district economy before he goes to D.C. for a FOMC meeting.

Matuschka Lindo Briggs: And all of the presidents use this real-time information before the Federal Open Market Committee meetings, correct?

Nathan Jefferson: Yeah. So, at a FOMC meeting, the president will go around and share the regional conditions throughout their district, and that report will be based on the research that we do for Beige Book talking to regional contacts.

Matuschka Lindo Briggs: What stands out from this Beige Book that you want to share?

Nathan Jefferson: Well, a couple things. First, we hear reports of a continued tight labor market, even more so in the Little Rock zone than across the rest of the Eighth District as a whole. We hear our contacts tell us that across a wide range of sectors they're still struggling to get the staffing levels they want, get the workers they want, and that's affecting their operations.

Secondly, we heard that supply chain bottlenecks, while they have started to ease a little bit, they still remain a key issue for a number of sectors, particularly in the Little Rock zone as well. We hear this across transport, across the healthcare industry, across food services. Contacts are, in some cases, trying to be creative and work around the supply chain shortages. In other cases, they just have to account for longer lead times, but whatever the case, it's still something that's affecting operations for a lot of businesses.

Matuschka Lindo Briggs: Can you give specific examples of how some particular industries are dealing with challenges?

Nathan Jefferson: Sure. So, in the health care sector, for example, they're less able to substitute other goods because, clearly if you need something, you need it. So, we heard a hospital contact tell us that lead times for sterile water, for example, are much, much longer than they used to be and that's affecting their ability to, kind of, you know, provide proper care. Now, in other sectors, you're more able to, kind of, be creative and work around some of these supply chain challenges, but it still affects your profit margins, and it affects your ability to serve customers. So, in the restaurant industry, for example, we heard that one restaurant was used to a certain packaging of chicken products. The packaging isn't available right now because of the supply chain issues. So, they substitute with a different, a smaller volume of chicken packaging, but that's something that's affecting their margins because it's more expensive. And because it's a slightly different product, it's affecting what exactly they serve their customers.

Matuschka Lindo Briggs: Are there any key takeaways you're focusing on?

Nathan Jefferson: Yes. I'm looking at specifically how credit conditions have tightened. That's something that we've heard a lot of in this previous Beige Book, that businesses’ access to credit had, kind of, tightened up in recent months. I want to keep an eye on how that's affecting businesses, in part because they've already been impacted, as I mentioned, by tightening profit margins due to rising import costs. So, I want to see exactly how the financial position of businesses is affected as a result of these tighter credit conditions.

Matuschka Lindo Briggs: What about the housing market here in our zone in Arkansas?

Nathan Jefferson: Well, we've heard a lot about this, and I think two things that are important to keep in mind. First, know that the housing market in Arkansas and across the Eighth District is affected by the same things that we've heard in the housing market across the country. So, in the Spring and Summer of 2022, as mortgage rates started to increase, housing market activity slowed pretty considerably throughout Arkansas, and that's something that has continued into the fall and winter, even more so than traditional seasonality, as the fall and winter are generally a slower time for the housing market. So, that's what the housing market is dealing with right now in Arkansas.

But one other thing that's important to note is that northwest Arkansas has seen much stronger housing market activity than the rest of the state as a whole, the rest of the district as a whole, and really has been, kind of, a national standout in a lot of ways throughout 2022. Even as mortgage rates started to rise and activity slowed in a lot of other areas, northwest Arkansas saw bidding wars. They some saw some really, really strong demand. They saw some really high levels of construction. Now, that has started to slow a little bit throughout the fall and winter as well, but even so, it remained the stronger and more active housing market than the rest of the state.

Matuschka Lindo Briggs: What do you want to hear more about from our region before the next Beige Book?

Nathan Jefferson: So, I mentioned a few of the challenges that businesses and contacts are dealing with right now. I want to hear how those are progressing. So, the tighter credit conditions, the high uncertainty right now. Obviously, there are a lot of concerns about consumer demand, about what financial conditions will look like moving forward. I want to see if businesses are still dealing with that or if that's, kind of, leveled out to any effect, if it's not worsening or if it's improving in any way.

Matuschka Lindo Briggs: Nathan, I appreciate you giving us a closer look at what is happening in our area of the Eighth District. Thanks so much for joining us.

Nathan Jefferson: Thank you. Thanks for having me.

Matuschka Lindo Briggs: So, that's an economic snapshot of our Little Rock Zone. The Beige Book release will be March 8, followed by our podcast on March 9. To read the full Beige Book, visit research.stlouisfed.org and search Beige Book. Have a good day.