March 2024 Beige Book Interview – Little Rock

Matuschka Lindo Briggs:  Thanks for joining us for our economic snapshot, where we discuss in 8 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. The information we share in this podcast is received from contacts outside the Federal Reserve system and is not a commentary on the views of Federal Reserve officials.

I'm Matuschka Lindo Briggs, the regional executive with associate economist Nathan Jefferson. Nathan, thanks for joining us.

Nathan Jefferson: Always happy to be here. How are you?

Lindo Briggs: I'm doing pretty good. I want to go ahead and jump right in as we have a little surprise for everyone at the clubs, correct?

Jefferson: We do.

Lindo Briggs: Okay. Let's discuss some of the trends we have noticed in Arkansas since the end of last year and share what we're still hearing from contacts in our district right here on Q1. Let's start with banking across the state. I'm hearing tighter standards and weaker demand for commercial and industrial loans, a decrease in potential borrowers, lots of remodeling, but no new bills.

Many area bankers are feeling pressure and the lack of deposit growth. And another big focus is technology and security as they try to battle the increase of fraud in banks of all sizes, really, in the state. What are you seeing and hearing?

Jefferson: I'm hearing many of the same things with banking. Well, it’s kind of a general slowdown across the board. Not a lot of credit available. I will say, though, that we are hearing from bankers that they are confident and the financial stability of the system and the liquidity right now. A couple of the things that I've heard from over the last couple of months.

Labor markets, kind of a continuation of the same story that we've had for a while now. Definitely an easing up a little bit. A growing number from the telling us that they're fully staffed, or even overstaffed, relative to consumer demand. One other thing I'll note is that in our first quarter survey we asked about prices, and we found that while prices are still rising, the rate at which they are rising has slowed relative to 2023.

So, contacts across the district and across Arkansas told us that they think price increases in 2023 will be less than 2024, which obviously for the Fed is news we want to hear. Considering how inflation has been on the forefront of everyone's mind the past couple of years.

Lindo Briggs: Yes, I've pretty got the same thing, story line when we're talking about jobs. Lots of jobs available and most seem willing to train and they're starting to pick up and hiring right now at the beginning of Q1. Some manufacturers did tell me that they are even holding on to employees, even with increasing overhead costs, with hopes for demand and orders to pick up as we come here in the near future, which makes sense after training and getting employees and how hard it was, as we talked about a lot last year.

Getting everyone up to speed, it makes sense to keep them. So, on a whole, I've heard that workforce is starting to stabilize a bit and 90% of workers are sticking around after being trained. I do want to hit on real estate. The mortgage rate sticker shock continues and the lack of available housing continues. I'm still hearing there is just not a lot of movement.

Everyone is waiting on the sidelines, seeing if rates will go down a bit more. So what we've been doing is asking realtors and bankers, what is that magic number? What do they think will get people to start moving? And I'm hearing kind of five and a half percent. What are you hearing or seeing in surveys?

Jefferson: Well, I just spoke to a group of realtors a couple of weeks ago, and the hope there was that once the 30-year rate comes down to a number starting with five, then you might see people start to move in off the sidelines and back into the real estate market. You know, one thing I'll note, I mean, much like you, what I'm hearing is that it's just a really slow right now, even more so than the typical, you know, seasonal slowdown.

Not a lot of homes sold around this time of year generally, but even less, though, now. One thing I will note, though, is that demand for multifamily remains pretty solid. More so than single family housing. And we are hearing that commercial activity is still pretty strong. We're hearing from Arkansas contacts, a lot of demand for industrial space, a lot of, demand for warehouse space.

So that's really where the activity is right now in the real estate sector.

Lindo Briggs: Yes. Thanks for mentioning that warehouse space. We've been hearing a lot about that, especially in western Arkansas and kind of in that Pine Bluff area out there. So, thanks for bringing that back up. Real quick, I want to remind listeners that we are sharing some of the economic conditions reflected in the most recent Beige Book Report, which came out yesterday, March six.

You can find it on the Saint Louis Fed website under research. Nathan, as we begin to wind down, I really want to address that while we are hearing mostly optimistic outlooks from folks. There are some true concerns bubbling up in the state. I'll let you start with what you're hearing.

Jefferson: Well, a couple of areas of concern that, you know, popped up in our most recent survey. One was the agriculture industry. Our agriculture contacts told us that there's still a lot of concern by labor, availability of labor. Those telling us that high interest rates are very limiting, the ability to, you know, make some needed capital investments, including some labor-saving ones.

And then finally, just more generally, even as fertilizer prices come down, commodity prices, they are a little uncertain about that. And just about the global kind of, you know, commodities market. Right now. So a little bit of a mixed outlook there for agriculture. I'll also say that while consumer spending, you know, the story over the last year or so has been that has largely held up and over the holiday season was, I would say, fairly strong.

We heard that there was even more so than the typical post-holiday hangover in January and February. So our retail contact, our restaurant contacts across Arkansas, they were telling us that that consumer spending will slow a little bit and they were a little uncertain about what that consumer spending would look like for the remainder of 2024.

Lindo Briggs: I'm going to top off on your consumer spending report. Auto dealers are seeing an uptick in loan defaults, credit card delinquencies are back on the rise. So, something we're going to keep an eye on. Lastly, touching back into agriculture, farmers have shared that while input costs have come down a bit, reduce commodity prices reflect thin margin projections. So again, I think we're kind of hearing the same thing not only in Arkansas but through the district.

So, Nathan, here is where I would ask you, what will you be keeping a watch on for the next podcast? But you have some bittersweet news to share, correct?

Jefferson: I do, unfortunately. I will be taking a new position and leaving the St Louis Fed. I mean, it's been a great run working with you, but this is the end of the road for me.

Lindo Briggs: Well, we have enjoyed working with you. I personally have enjoyed working with you throughout the year, so you will be missed. But I will say many people leave the Fed and you know what happens? They come back. So never say never.

Jefferson: It's a great place. I mean, it's been such a joy to work with you, so I'll be sorry to go.

Lindo Briggs: All right. Thanks, Nathan. We wish you the absolute very best.

Lindo Briggs: For a full summary of what is happening in a Federal Reserve district. Visit the St Louis Fed's website at stlouisfed.org. The next Beige Book release will be April 17th, followed by our podcast, April 18th. Thanks and have a great day.