March 2025 Beige Book Interview – Little Rock

Matuschka Lindo Briggs: Chuck, can you start us off with the economic summary of national conditions?

Charles S. Gascon: Yeah. Overall economic activity rose slightly since mid-January, and modest or moderate growth was reported by four of the other 12 Federal Reserve districts. Six districts, including St. Louis, reported no change in overall economic activity, and the San Francisco and Philadelphia Fed Districts report reported slight contraction. So, a little bit of a mixed bag, but overall economic activity rose slightly. Expectations for the coming months were slightly optimistic.

Turning to the labor market, employment nudged up slightly and was higher on balance. The availability of labor continued to improve in many sectors and districts. Wages grew at a modest pace, which was slightly slower than the previous report, and several districts noted that wage pressures were easing.

Looking at inflation, prices increased moderately in most districts, but several districts did report an uptick in the pace of increase relative to the previous report. And many districts noted that higher, the higher price of eggs and other food ingredients was impacting food processors and restaurants.

Lindo Briggs: Nice to hear about the labor improvement. So, can I touch on the eggs? I know we mentioned this in our last podcast, so I wanted to ask contacts in Arkansas about the egg prices. And I’m hearing to get around price increases, families are purchasing their own chickens and raising them for egg production. So, I thought that was interesting. Contacts also shared they don’t expect egg prices to decrease in 2025.

Gascon: I have to say, I think the purchases of chickens in Arkansas may be unique to the state or our Federal Reserve district, but that is worth noting. Just kind of following up on that, you know, talking to firms across multiple districts, they noted that they had difficulty passing on higher input costs to customers.

And kind of building off of that, many contacts noted that the potential of tariffs could impact their input prices and then lead them to raise prices. So, we did have some reports of firms preemptively raising prices to offset those costs that they're anticipating going up.

Lindo Briggs: All right. Now let’s share a little more of what we have been hearing around our seven state region. For the most part, it seems like there has been more uncertainty and the outlook has weakened. Now, day to day operations seem to be remaining steady. If I had to call out where the focus is when we reach out to contacts, it would definitely be trade and tariffs. Chuck, we have a lot to talk about. Where do you want to start?

Gascon: Let’s start with inflation. I think this topic remains top of mind among many of our contacts, as well as many households in the, in the economy. Prices have increased moderately since our previous report, but those price increases have been slightly above expectations.

Lindo Briggs: Okay. So this is the typical time of year for some product price increases. Contacts noted that tariffs and the threat of tariffs were leading some suppliers, such as lumber, to adjust prices preemptively. Are you hearing anything similar?

Gascon: Yeah. Most contacts noted that they haven’t experienced price increases yet, but they have received notices that price increases may be coming. So, they’re anticipating those price increases. I think that makes it quite difficult to really understand if that hit has already occurred, or if it’s something that’s going to be coming in the future.

Lindo Briggs: I was at the AG conference last month in Jonesboro at Arkansas State University. I mentioned that because an outlier on inflation pressures seems to be agriculture, where contacts in that industry generally expect prices to continue to decline. Anything else you want to add to that?

Gascon: Yeah, I think that’s generally consistent with what we saw in our surveys that we didin February. You know, the contacts in the sector expected prices to be stable or potentially falling. It’s definitely a weak segment in the U.S. economy today in the ag market. So, I definitely echo what you were hearing there.

Now, I would turn on the other side, to what we’re hearing from contacts in other sectors and what we’re also seeing in surveys outside the Federal Reserve System, which is an increase in near-term inflation expectations. So, while there are some exceptions, you know, many contacts felt like they did have some ability to pass on price increases. Tourism is probably one of those areas where there’s an exception. And contacts in that area noted that they were getting negative feedback regarding price increases, and they use discounts and promotions to retain business.

Lindo Briggs: Let’s take a look at manufacturing. Contacts across the district noted price increases from suppliers and concerns about tariffs, further increasing input costs that would negatively impact their competitiveness in the market. You seeing that?

Gascon: Yeah, I mean, the reports from the manufacturing sector really had a clear focus on trade and tariffs in this round and continue to build up from we heard last round. Now, I would say that, despite that uncertainty and that discussion, you know, the reports generally indicated that manufacturing activity picked up slightly, relative to our last report. I’ll just give you one example. A consumer goods plant in Kentucky reported that they went from 24 hours, five days a week to 24 hours, seven days a week with their operations. So a little bit of a pickup there.

Lindo Briggs: Right. And I do want to share that manufacturers in Arkansas noted that the industry was flat and the market was soft, despite their expectations that things would pick up early in the year.

Gascon: Yeah, I think that was pretty consistent with what we heard from a lot of manufacturers. Significant optimism going in the first quarter. And maybe things didn’t turn out as well as they expected. A St. Louis manufacturer noted that their sales had fallen below expectations, and they attributed that to lower shipments in the first week of the of the quarter, and they really cited snowstorms as being a key factor for that. They saw some rebound in the quarter, but probably not enough to catch up completely.

Lindo Briggs: Since we’re talking about weather, it seems like every winter we have disruptions from storms, making it difficult to interpret the economic data. January consumer spending data came in weaker than expected. What are you hearing from contacts in recent weeks about consumer spending?

Gascon: It’s kind of a similar trend to what we saw in January, which is a slight decline in spending since our previous report. District auto dealers reported that new and used vehicle sales had been significantly slower than expected. And that’s despite lower than expected prices. And they attributed this to cold weather. When it’s snowy outside, it’s not exactly the best time to go look at snow covered cars and deal with all that slush on the roads. So, that that’s generally the story there. And then in general, you know, reports from report on retail sales were mixed. What do you hear from contacts in Arkansas?

Lindo Briggs: A Little Rock retailer reported continued strong demand as they increased market share. I had a food service distributor [that] reported consumers were buying less, buying less often and trading down. Does that sound about right?

Gascon: Yeah, it’s pretty consistent to what we heard around the district. A bit of a rebound as the weather improved, and I think that’s going to be something we’re going to have to keep a close eye on. You know, consumption is a real key driver of U.S. economic growth, and so we’ll have to understand how household finances are looking for 2025, and that will give us some key signs of the economy. As I just mentioned, reports over the last week or so at, as the weather’s improved, have noted the shopping activity picked up. I know my kids wanted to get out and about and do some shopping this weekend. And we also saw signs that construction activity was picking up, so. That was another area that was disrupted by bad weather and seems to be improving. So those are welcome signs.

Lindo Briggs: Yes. And I’m happy to contribute to that shopping as well. All right, Chuck, that seems like an optimistic note to end the day. Thanks for another great discussion. For a full summary of what is happening in the Eighth Federal Reserve District, visit the St. Louis Fed’s website at stlouisfed.org. The next Beige Book release will be April 23rd, followed by our podcast April 24th. Thanks for listening.