July 2025 Beige Book Interview – Little Rock

Matuschka Lindo Briggs: Great to see you again, Chuck.

Chuck Gascon: It’s good to see you too, Matuschka.

Lindo Briggs: You’re probably getting sick of me, be honest. So, Chuck was just in Arkansas last week as we met with congressional staffers and hosted a breakfast event at the office. Let’s dive into the national summary. I know we have a lot to talk about today.

Gascon: Overall, economic activity has increased slightly from May to early July. Five districts reported slightly or modest gains, five had flat activity, and the remaining two districts noted modest declines in activity. Overall, this represented an improvement from our previous report. So that’s good news.

Employment increased slightly overall, but employers remain cautious with hiring. Many contacts expect to postpone major hiring, as well as layoff decisions, until uncertainty has diminished. So, those two things can net out.

Employers in a few districts ramped up investments in AI and automation aimed at reducing their need for additional workers. And although reports of layoffs were limited across most industries, they were somewhat more common across the manufacturing sector. I think that’s an area I want to dive into a little bit further.

Lindo Briggs: Can I share that most contacts in Arkansas seem happy where they are with employment? There’s less turnover, and they have steady streams of applicants. Wage growth has been modest, and fewer contacts reported wage pressures. Although, I did hear from one manufacturing firm that they recently increased their starting salary to keep up with the local average starting wage.

Gascon: Wage pressures remain a cost issue and a concern. Many industries expect cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices could start to rise more rapidly over the latter part of the summer. So, we’ll have to keep an eye out for that.

But at this point, price pressures remain modest to moderate across districts—that’s similar to our previous report. All 12 districts’ businesses reported experiencing more-pronounced input cost pressures related to tariffs, especially for raw materials that are used in manufacturing and construction. That’s really early in the supply chain.

Insurance costs, on the other hand, are pretty widespread across many industries and are a widespread source of price pressures. Many firms report passing these costs on to customers through price increases or surcharges.

Then last but not least, I note that uncertainty remains elevated, and that’s continuing to contribute to caution among businesses.

Lindo Briggs: We have joked about this a little, because it’s the new buzzword, but it is also reality. All we both hear when we are listening to the voices of Main Street is people are pausing due to uncertainty, Chuck.

Gascon: Yeah, the word “uncertainty” was mentioned 54 times in this report. But the Boston Fed noted that while it is still a major factor in slowing activity, it was mentioned less frequently than it was in May. So, maybe a little bit less uncertainty. But that could change on a day-to-day basis. Contacts across the nation noted that they had delays moving forward with expansions and other projects due to uncertainty. But as one firm noted to the Kansas City Fed, at some point they will punch through the uncertainty because of pent-up demand. So, there’s still a desire to grow. And that’s what we always see in the U.S. economy. As this uncertainty resolves itself, I think we’ll start to see a reopening and strengthening pick back up.

Lindo Briggs: You mentioned that all districts reported elevated levels of trade policy uncertainty, leading to caution among households. Since this is a continuing theme from our previous report, any further insights in this report on how or what caution means, and the effect on consumer spending?

Gascon: At a national level, consumer spending declined in most districts, with softening at a slight level overall. Auto sales receded modestly on average, as consumers rushed to buy vehicles early in the year to avoid tariffs.

Now, a positive note: A retail department store told the New York Fed that they were seeing improving sales, particularly of denim and fine jewelry. But another retailer told the Cleveland Fed that they were having flat sales—only purchases of essential items and not discretionary purchases. That really runs contrary to what the New York Fed was hearing.

Reports of tourism were equally as mixed. Contacts told the Atlanta Fed that international travel continued to slow and that group bookings are falling short of expectations. But reports from the Richmond Fed noted that luxury hotels were seeing their strongest growth. So, again, really different stories depending on where you’re looking in the economy.

Lindo Briggs: I’ve heard the same mixed feedback when I look into consumer spending in Arkansas. While some retailers report strong consumer spending, others are seeing a shift in behavior, with e‑commerce drawing customers away from the brick and mortar.

The hot days have been great for retail sales and some boutique stores. One contact stated that consumers are spending, traffic is steady, and people are buying at regular prices, so they don’t need to do further promotions or discounts. Small coffee and breakfast eateries say business has pretty much been steady.

Now, I say “mixed feedback” because I also heard the flip side: Two boutiques in central Arkansas are closing their doors, and both blame online shopping. Also, nonprofits in Arkansas are starting to see a halt in donations and participation, and they believe that stems from all the uncertainty, Chuck.

Gascon: It’s always hard to know what to make of the aggregate data because every community is very different. We see pockets of strength and also pockets of weakness. And that’s showing up in the anecdotes that we’re hearing across the state.

Lindo Briggs: You mentioned earlier we wanted to get back into manufacturing a little bit more. This month I toured some manufacturing plants in Arkansas to gain firsthand insight into current challenges and opportunities on the ground. The companies I spoke with have a positive outlook for the year ahead. They still see a lot of demand in the future for manufacturing in the state of Arkansas. Are manufacturers in other districts having a similar experience?

Gascon: Reports from manufacturing across the nation were not necessarily as strong as they were in Arkansas. Overall, manufacturing activity edged lower. Manufacturing firms in the Cleveland Fed’s district that provide goods to retailers reported weaknesses in new orders. The Chicago Fed reported declines in light-vehicle production, as well as heavy-truck production, with some supply chain disruptions occurring, as well.

A metal manufacturer reported that current conditions were stable, but there appears to be an ominous volume cliff ahead, which is signaling a downturn to them. And then a bourbon producer in our District reported ongoing weak sales due to lower international demand.

Lindo Briggs: I’m going to pile on to that. A few manufacturing contacts shared that they had seen a rise in input costs, but many had stocked up on inventory before tariffs took effect. They haven’t reported any major supply chain disruptions, but they do expect to pass some of those higher costs along to stakeholders moving forward.

As far as hiring, they have openings, but they are in a holding pattern and not currently hiring unless they absolutely need to.

When it comes to labor, turnover has slowed and is almost nonexistent, which is great to hear. Companies have held steady for the last six months, I’d say. Part of that is due to incentives—from pay raises every six months to shift changes, they’re giving bonus days off, prizes and overall benefits. Do you have any positive developments?

Gascon: I have not gotten a bonus day off—I can tell you that much.

We have heard some positive developments for manufacturers across the District. A packaging manufacturer in Kentucky reported that activity has rebounded, and they’re seeing positive effects due to tariffs; their sales continue to be strong.

A home appliance manufacturer in the District reported that they’ve recently seen an uptick in demand for their middle-tier-priced products, and the firm is looking to shift more production to their domestic locations. Similarly, a plastics manufacturer reported to the New York Fed that they have seen an uptick in demand as firms are looking for domestic suppliers. So, we are seeing some early signs of reshoring activity taking place.

Lindo Briggs: Well, Chuck, this month sounds very similar to our last podcast, and I think I can close making the exact same statement: Elevated levels of economic and policy uncertainty have led to hesitancy and a cautious approach to business and household decisions.

We did mention that it was going to take a few months—not one month, which is when we had our last podcast, but a few months—to see how this all plays out.

Gascon: Yeah, it’s like being on a road trip with your kids and they’re asking, “Are we there yet? Are we there yet?” We’re not there yet.

Lindo Briggs: Exactly. Well, Chuck, as always, we appreciate your time and expertise.

For a full summary of what’s happening in the Eighth Federal Reserve District, visit the St. Louis Fed’s website at stlouisfed.org. The next Beige Book release will be September 3, followed by our podcast on September 4.

See you in the fall.