May 2023 Beige Book Interview – Little Rock

Matuschka Lindo Briggs: Thanks for joining us for our 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. We want to start this podcast to say that we are still thinking of those affected by the tornadoes that ripped through the Little Rock and Central Arkansas area.

We know that many of you are still rebuilding and trying to get your lives back in order, so we definitely wanted to share our thoughts and let them know that they are with you. Nathan, have you heard anything on your side on the impact from the tornadoes and general conditions in the region?

Nathan Jefferson: Well, obviously, these tornadoes had a pretty big impact throughout the stretch of Arkansas. We heard, for example, that a lot of businesses were forced to shut down, a lot of businesses in the hospitality sector. There was also obviously a lot of construction activity in these sectors, as people and businesses were trying to rebuild. One kind of medium-term thing that you might see as a result of this is maybe a shift from some of the affected communities in Little Rock to more bedroom communities on the fringes of the metro area.

But in general, I would say that there was a sense of optimism here that people were confident, their ability to rebuild. And talking to businesses that have been closed since the tornadoes hit, there was optimism that they would be able to reopen shortly.

Lindo Briggs: Yes, that's good to hear. And there were many affected, everything from large grocery store chains to smaller businesses, apartment complex and total subdivisions and even today, you can still see some of the devastation. Personally, this was five minutes from my house in both directions of either way that you went, and we just drove around even as early as last weekend and you still see there are trees in several homes, in subdivisions. You know, there are tarps still all over roofs, but some of them are uninhabitable and tree roots are still up. They've cut down the trees. So, people have been banding together, so that's been good.

But the other thing is that many events were canceled due to this or even in counties or areas that didn't cancel their events, they didn't get the expectations of turnouts, I think because people were working and helping those affected and rebuilding so it's good to see that you're seeing that things are starting to turn around.

So, moving from there, the last two podcasts, you've really kept your eye on tightening credit conditions in the area. I understand you also did a survey recently. What are you hearing from financial institutions in Arkansas?

Jefferson: Well, as you mentioned, we asked Arkansas banks what they've seen over the last couple of months, if any of the shocks that have taken place nationally, which have made such news, have had an impact regionally and I think the story that we got is that there was no real story, which is positive news. So, we heard, for example, that there's been credit tightening and there had been some deposit outflows, but this isn't really due to any kind of singular shock. This is kind of an ongoing continuation of some trends that we've seen going back to the second half of last year. So, it's a good thing to know that there was still a lot of confidence in these banks’ stability and the overall stability of the financial sector in Arkansas. And while, again, there has been some tightening, think of it as not due to any shock, but just an ongoing continuation of things that we've been seeing for a while now.

Lindo Briggs: What about delinquencies?

Jefferson: Well, delinquencies have been ticking up, but again, that's been going back to late 2021, early 2022, and they're still at a relatively low level, historically speaking. So, credit conditions are, I would say, tighter overall, but still fairly stable.

Lindo Briggs: In central Arkansas, I'm hearing a renewed focus on liquidity. Are you hearing the same from others?

Jefferson: I was, yeah. I've heard many of the same things. So, just credit in general, we businesses just really being cautious, drawing on their resources and really not trying to apply for credit unless they really need to. So, part of some of this is coming from the business’s part because of the higher cost of borrowing.

But in general, yes, things have tightened, but again, not due to any singular shock, just due to general economic conditions, the higher cost of credit in general. And I would say that overall, there's still a lot of confidence in banks and their financial position.

Lindo Briggs: I agree. Just going out, talking to the general public, even my friends throughout the state, the confidence in Arkansas’s financial institutions has not been shaken. They definitely still value the trust in the banking system. So that is good to hear.

Let's remind everyone that the Beige Book Report came out yesterday, May 31st. You can find it on the St. Louis Fed website under Research.

Nathan, is there any area that stands out for Arkansas in the latest Beige Book Report?

Jefferson: Well, I was looking closely at construction in the real estate sector. We've talked, obviously about Arkansas’s real estate market, pretty hot in several areas across the country. And we touch briefly on the construction that popped up as a result of the tornado. But in general construction's been doing with some supply chain issues, some labor shortages. And I want to see kind of how that played out for the state as a whole.

What I saw was kind of a continuation of some of the same things that we've been seeing. Labor markets have eased a little bit, but it's still really difficult for a lot of these construction firms to find the workers they need. And there still is a lot of demand for this, you know, construction work and the real estate market in general, particularly in the hotter parts of the state.

Lindo Briggs: What have you heard about consumer spending overall?

Jefferson: Consumer spending, I would say, has been mixed, but on the whole, it's been stable. So, one thing that we heard is that a lot of Arkansas business kind of downgraded the expectations in the early part of the year, but they've been beating those expectations and people have, by and large, been spending. Now, I'd say there's a little more of a mixed outlook and there's a little bit of pessimism looking forward to the second half of the year.

But for now, there is, I would say, optimism that, you know, the summer can hold up and that people will have continued to spend even if they're a little more price sensitive, that people are still spending and the demand is still there in the hospitality sector.

Lindo Briggs: That's exactly what I was going to lead into next. The hospitality industry and restaurants seem to be going strong. Still, they are hopeful that travel will stay strong throughout the summer and people will be going out there for vacations. Is that what you're seeing?

Jefferson: Very much so, yeah.

Lindo Briggs: Okay. Well, I will tell you that I am seeing it, too. On a personal note, I have tried to rent a houseboat, I've tried to rent a condo. We've got several lakes and in Arkansas and just trying to plan vacations and everything is booked – booked solid. People kept saying, you should have planned that nine months ago. So really good for tourism in Arkansas.

So it's great to hear. Not so good for the Briggs family, but …

Jefferson: That's a shame.

Lindo Briggs: I know that's something we're going to have to go with. Last question: what are we hearing with the labor market? You touched on it a little bit. Seems to be not much changed since our last podcast and continue to hear of just slight easing.

Jefferson: Yeah, I mean, more of the same here. No new news sorry to say. I was hearing that it's a volatile labor market, some moderate easing again, going back several months now. But a lot of industries such as food service, construction, still struggling to find workers, health care as well.

Lindo Briggs: All right, as always Nathan, great to catch up with you to discuss what we're hearing in the Little Rock Zone. I want to thank all of you 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 July 12th, followed by our podcast, July 13th. Have a great day.