January 2025 Beige Book Interview – Little Rock

Matuschka Lindo Briggs:  Happy New Year, Chuck.

Charles S. Gascon: Happy New Year to you, too.

Lindo Briggs: So, today we’re going to share what we have been hearing about our seven-state region. For the most part, it seems like the economy continue to expand slightly. And we did expect a big seasonal impact with the holidays. And while that information is difficult to look through and understand as early, we do have some updates. Before we get into region specifics, Chuck, recently we’ve been dealing with some severe weather. How did this impact the report?

Gascon: So, our submission deadline was early last week. So, any economic impact from the winter storms was not captured in this in our district report. Similarly, the wildfires in California, any impact from those was not captured in the San Francisco Fed report. So, we’ll have to wait and see how that all plays out. But something to keep an eye on.

Lindo Briggs: That makes sense. Can you go ahead and kick us off with a summary of the national conditions?

Gascon: Yeah. Overall economic activity increase that a slight to moderate pace across the nation between late November and December. Prices increased modestly overall, but there were actually some instances in which prices were flat or even decreasing. On the flip side, the spread of the avian flu was cited by many as the reason for pushing up egg prices, as those supplies were reduced.

Lindo Briggs: Can I interject here? We definitely noticed this with my kids home. My son, I’m not sure why they need to consume so many eggs in one omelet, but I had to make several pricey trips to the grocery store.

Gascon: Yeah, we definitely had the same thing at our house. And then even more recently with the storms, we saw that the number of eggs on the shelves was basically at zero. Turning to the labor market, conditions were generally unchanged. Half of districts reported a slight increase in employment, and the other half reported that there was no change from a year ago. When we look to the outlook for 2025, it was generally optimistic. There was a slightly greater share of contacts that were reporting an optimistic outlook on balance, so that that was really a positive development. Although contacts did express concerns with any effects related to changes in trade or immigration policy. So that’s something we’ll have to keep an eye on.

Lindo Briggs: OK. Let’s dig into the details of consumer spending. November and December are key months for retail sales and holiday shopping.

Retailors in our district indicated that December sales were stronger than previous years, with late Thanksgiving and Cyber Monday falling in December. We heard also many retailers with multiple locations and foot traffic at the shopping mall was much stronger than last year and actually better than expected. At the same time, we also had some reports that people continue to stretch their spending. A lawn and garden contact reported a notable rise in credit card transactions. And a furniture retailer reported good sales, but an uptick in rent to own financing. Anything to add?

Gascon: It seems like the reports from the district align really closely with the national picture. Most districts reported satisfactory holiday sales and there were many upbeat reports. We didn’t cover vehicle sales here, but vehicle sales nationally also increased, according to the reports from contacts across the nation.

One district retailer, that I would like to highlight did note that there wasn’t much of a push back from their higher prices on seasonal items. So even though there were some constraints there, it does seem like items are still moving. Other districts focused on leisure and hospitality, and they noted that those reports were positive, as well as air travel reports were generally positive around the holiday season.

Again, we’ll have to wait and see what the winter storm impact is going to be on those final numbers.

Lindo Briggs: So, FOMC members decided to lower the fed funds rate in December. And as I travel the district, that is all everyone wants to talk about. Interest rates seem to be top of mind for a lot of people. District real estate contacts shared a generally optimistic outlook, and I think it might be tied to an expectation that mortgage rates will decline in 2025, do you agree with this thought pattern?

Gascon: It definitely showed up in many of the reports that, you know, expectations of lower interest rates was a driver of a positive outlook. And among those real estate contacts, they really only expected a slight decline, nothing back to 2019 or 2020 levels. And so those contacts expected the current trend of weak but improving home sales that continue.

Looking at the bank, our banking contacts, they reported that their overall cost of funding. So, the interest rate that they pay on CDs or savings accounts, has actually risen due to increased demand for deposits. So those interest rates moving in the opposite direction of actually going up. You mentioned earlier that households may be stretching themselves financially. Looking at the banking contacts, they reported that the volume of past due loans has stabilized after increasing pretty modestly over the past year. So, that’s a positive development. as well.

Turning to the demand side, banking contacts reported a moderate increase in demand for new loans heading into the holiday season. So that sends up a pretty good foundation as we move into 2025, with respect to the demand for from new business investment,

Lindo Briggs: I will add that we heard from private investment company that they experienced a significant uptick in new leads for 2025, but they stated the cost of capital may be too high to pursue many of those opportunities.

A reminder that in this podcast, we are sharing the economic conditions, collected from outside contact and reflected in the most recent Beige Book.

That report came out yesterday, Jan. 16. You can find [it] on the St. Louis Fed website under Research.

Let’s transition to one more area, Chuck. You mentioned earlier in the podcast that potential changes to trade policy seem to be affecting the economy. Let’s take the last five minutes we have to discuss trade and supply chain.

Gascon: Sounds great.

Lindo Briggs: Our contacts are expressing concerns about all these discussions related to tariffs and the possibility of dockworker strikes. As a result, some of these businesses in our district, I’ve heard, with overseas supply chains have been negotiating expedited deliveries. Were there similar reports nationally?

Gascon: Yes. A number of districts said that manufacturers were stockpiling inventories in anticipation of higher tariffs or other supply chain disruptions. Some of those have been resolved, but it definitely is worth noting. Nationally, contacts expected prices to continue to rise in 2025. And again, some of those contacts cited policy changes as the reason that they expect prices to increase. However, there are other factors, some of which we’ve discussed here, continue to be to be cited.

Lindo Briggs: Like insurance.

Gascon: Yeah, you got it. It continues to contribute to price increases and cited by many of our contacts. However, there are some signs of easing inflationary pressures. For example, a professional services firm reported that price increases were less than one year ago as wage growth has moderated and they don’t have to pass on those higher costs to their customers. And they also felt like there was a risk of losing some clients due to further price increases.

Lindo Briggs: As always, Chuck, thanks for a great discussion and breaking it down for us as we move at what’s happening nationally and with entire district, as we did today. For a full summary of what’s happening in the Eighth Federal Reserve District, vist the St. Louis Fed website at stlouisfed.org. The next Beige Book release will be March 5th, followed by our podcast on March 6th. Thanks for listening everyone.