May 2024 Beige Book Interview – Arkansas and the Chicago Fed

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. The information shared in this podcast is from contacts outside the Federal Reserve System. Views and commentary do not necessarily reflect those of the St. Louis Fed or Federal Reserve officials.

I'm Matuschka Lindo Briggs, the regional executive of the Little Rock Branch. And joining me today is senior business economist Tom Walstrum from the Chicago Fed. Great to have you today, Tom.

Thomas Walstrum: Thanks for having me.

Lindo Briggs: So, before we share some commonalities, can you tell us a little bit about your footprint at the Chicago Fed?

Walstrum: We’re the seventh Federal Reserve District and I like to say that we cover the heart of the Midwest. We cover most of Illinois, Indiana, all of Iowa, and then most of Michigan and Wisconsin. And we are your neighbors to the north, where you all touch the Iowa border. And then you cover the parts of Illinois and Indiana that we don't.

Lindo Briggs: What key industries would you say make up your region?

Walstrum: Our big industry is manufacturing, but we've also got, agriculture and some transportation industries, like trucks and rail that are important, as well. But manufacturing really is the big one. And, if you kind of look at the footprint of manufacturing within the district, the eastern part is dominated by the auto industry. That's in Indiana and Michigan. And then the western part, there's a lot of heavy machinery producers like Caterpillar and John Deere located there.

Lindo Briggs: We definitely share manufacturing and transportation. And I think many would be surprised to know that the top industries that drive our state are aerospace. And then we are corporate leaders in retail, transportation and food processing.

Let's start with labor conditions. My contacts are still feeling the pressures of increases in both labor and non-labor costs. Wages have increased slightly with growth starting to level off to pre-pandemic rates. Skilled labor shortages persist despite job and wage growth in certain sectors. And we've heard from businesses in northwest Arkansas that are struggling to fill several thousand open positions, which indicate significant challenges in workforce recruitment and retention. What are you hearing in regards to labor in your area?

Walstrum: While our contacts do love to talk about the labor market, and I think it's because it's something that takes up a lot of their time, because they're running a business or a nonprofit and finding your labor force is a big part of the job.

I think what's really interesting to me is that the labor market does seem to have cooled to the point where finding labor is noticeably easier than it was a year or two ago. So, you know, many of our contacts are still bringing up hiring challenges, but I would just say not as many. And we've also got some contacts who are saying things like, you know what, I'm not actually having trouble finding people right now or because growth has slowed, some aren’t looking for people right now.

Lindo Briggs: And that's a good story, right. Overall employment remained unchanged for us. And the labor market is still tight since our last podcast. As a matter of fact, I would say most sectors remain unchanged. So, there's not much in economic activity throughout most of the sectors. Even banking conditions and lending conditions here have remained pretty stable. That's kind of the story, and I guess that's okay, correct?

Walstrum: I mean, it's fine sometimes for things to be more of the same than have big changes. I think people like that, assuming that the current conditions are pretty good, which I would say, at a macro level, they are.

Lindo Briggs: When we talked earlier in the week you mentioned that the COVID-era was sunsetting. I'd love for you to touch on that real quick.

Walstrum: This set of comments came from our nonprofit leaders, and they're often thinking about revenue streams along with labor force because that's what they need to fund their operations. And what they've been noting, and this is not exactly a news story, is that the COVID-era federal spending bills that that were supporting a lot of nonprofit operations have sunset. And they're starting now to have to look for alternative revenue streams and that's been a challenge. And so, you know, what that means is that they're having to think pretty hard right now about which services to prioritize when demand really hasn't come down. And maybe is getting a little bit stronger as the economy slows.

Lindo Briggs: That’s pretty similar to what we're hearing here in Arkansas. Now, before we wrap up, what will you be focusing on in your region for the next Beige Book?

Walstrum: It's going to be bread and butter questions for central bankers. We’re thinking about interest rates and inflation. So, interest rates are really high right now and the question is how are folks making changes to their business decisions as the result of high interest rates? And then inflation has been slowing, but maybe not as, quickly as we'd hoped toward the 2% target. And the question is, are business and nonprofit leaders seeing signs of inflation not slowing as quickly as before?

Lindo Briggs: Yeah. That's great. Inflationary pressures, obviously very important in Arkansas, health care, hospitality and tourism continue to experience slight growth. So, I think that's where I'll be focusing my questions with contacts is about consumer spending as we head into the summer and vacation season. And just seeing, you know, what kind of an uptick we have there. Well, thanks so much for joining me today. I hope it wasn't too painful. And you'll join us again.

Walstrum: Yeah, it was great. [I] had a great time chatting with you and, yeah, please have me back.

Lindo Briggs: Thanks, Tom. For a full summary of what is happening in the eighth Federal Reserve District, visit the Saint Louis Fed's website at stlouisfed.org. The next Beige Book release will be July 17th, followed by our podcast July 18th. Thanks for listening.