September 2024 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. 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. Joining me today is Research Officer, Chuck Gascon, who is responsible for national and regional economic analysis at the Federal Reserve Bank of St. Louis.

Chuck, last time we started with an economic summary of national conditions and got great feedback. So, let’s stay with that format, then work our way into what we are seeing in the state of Arkansas.

Charles S. Gascon: Sounds great. Of the 12 Federal Reserve districts across the nation, three reported slight growth, while nine districts reported flat or declining activity. So, this signals some economic weakness as only five districts reported flat or declining growth in the previous report. Consumer spending ticked down in most districts after generally holding stable in the prior reporting period.

Manufacturing activity also declined in most districts, while residential construction activity reports were somewhat mixed.

Prices increased modestly and cost pressures were generally described as easing. That’s a welcome development.

And on the labor market side of things, that employment levels held steady overall. Although, some firms are reporting lower overall employment levels through attrition, not backfilling those open positions. But a really important sign is that layoffs are remaining rare. So, not many reports of layoffs. And that’s an important thing that we want to keep an eye on.

Lindo Briggs: Thanks for that national view. We can relate with a lot of that. Let’s discuss what I’m hearing in the natural state compared to the six other states in our region. This state tends to stay below the national average on economic activity and not have those spikes. But there are some concerns that keep bubbling up.

Contacts shared that they can see a weakening of household finances. So, families and groups for summer vacations rented homes to split, like Airbnbs. And those were smaller rentals in previous years. No more mega mansions and the pools. They’re really stuffing people into smaller homes now. I will say hotel occupancy rates are still doing well and surpassing 2023 numbers.

Filling the gas tank seems to be the number one complaint, though, that I’m hearing, that and insurance prices. Actually, in your last speaking engagement, I think you shared that property insurance costs could bring some raised eyebrows. How does all this compare with what you’re hearing throughout the district?

Gascon: Overall, I think the story is of a pretty strained household in many, many fronts. Consumer spending is really unchanged or decreased slightly since the previous report. And on the summer vacation stories, we heard from a marina owner in Kentucky that boat rentals were lower than last year. And also that customers were anchoring their boats in coves and swimming instead of cruising the lake to save on gas. So again, that gas, that piece always tends to show up in this in the summer months.

Restaurant and hospitality contacts generally reported that consumers were spending less per visit, purchasing food to-go instead of dining in, in order to save money on things like drinks. And an auto dealer in our district noted that many customers were postponing similar buying decisions as they have higher inventories on their lots, and that’s really reducing that buying pressure to scoop up a car right away. If they see something they like, they can go home and think about it a little bit longer.

Lindo Briggs: I want to touch on prices next because we’re hearing the same thing here with restaurants. When it came to restaurants and grocery stores, I get mixed reviews on if they can pass those prices on. Depending on the product input prices are up from 5% to 60%, which is a huge range. Cost on services for tourism has also gone up. And those prices are passed through to the consumer, which does contribute positive economic trends to the state of Arkansas, especially when it comes to outdoor activities.

But we also have some who can’t pass those prices through, think health care and agriculture. What is your take on prices? What do you think is the consumer’s appetite on continuing to accept increases?

Gascon: Most contacts know that their costs continue to increase and that they have limited ability to pass on those higher costs to households.

So, that’s putting downward pressure on profit margins.

Contacts generally share that they’re expecting their costs to continue to increase and that will continue to put upward pressure on prices, although to a lesser degree going forward. There are also some reports of prices actually declining. So, for example, a bike shop reported that they saw a reduction in manufacturers suggest that retail prices. So, that puts pushes down the sticker price on bicycles. And retailers also report seeing a good response to using discounts and promotions. And that generates foot traffic and helps reduce excess inventories.

Lindo Briggs: I mean, come on, Chuck, who doesn’t love a good sale? A reminder that in this podcast we are sharing the economic conditions collected from outside contacts and reflected in the most recent Beige Book. That report came out yesterday, Sept. 4. You can find it on the Saint Louis Fed website under Research.

Chuck, is there anything that stood out lately in the region or even nationally that maybe I haven’t heard in Arkansas that may be coming our way?

Gascon: In our district, we described economic conditions as unchanged based on the information that we’re receiving. And looking at the reports across the nation, the districts that were adjacent to are. So, the Dallas Fed and the Kansas City Fed, describe conditions pretty similar. In the case of Dallas, maybe a little bit stronger.

Those are reports of weaker growth are generally coming from the eastern portion of the country. We are seeing some disparities across the nation as to kind of how those reports are coming in and how households are faring in the economy.

Lindo Briggs: Before we close, let’s cover labor. For the most part, employment has remained unchanged since our last podcast. The only story that I have heard from contacts not only in our state, but also southern Missouri, is that they usually reduce employment through attrition. There hasn’t been much attrition since the beginning of the year. People just aren’t leaving. So, I’ve heard that. Hiring has slowed, employers are keeping who they have, not letting people go. And some manufacturing contacts still have wage increases when it comes to high skilled workers. But for the most part, wage growth has slowed and leveled off.

Gascon: I think overall labor market conditions seem to be cooling. We’re hearing from contacts that the more people are applying for open positions, and that hiring pressures that really eased noticeably. And as you note, that that natural turnover and not replacing workers is really a desirable way for firms to manage your employment levels without having to lay off workers.

So, we’ll have to keep an eye on if those turnover rates continue to decline, because that does raise the risk that firms could lay off workers if we don’t see a rebound in demand. And the reports that we’ve described today do suggest that there’s been a slowing in overall demand.

Lindo Briggs: As we head into Fall, what would you say is the overall economic outlook in our region? Are things going to get better or stay the same or get worse? What are our contacts saying.

Gascon: Nationally, contacts expect economic activity to remain stable or maybe improve somewhat in the coming months. That’s a really welcome development. In our district, contacts remain slightly pessimistic, which was consistent with our previous report. They cite that slowing demand as a primary concern. And many also mentioned that election uncertainty is playing a role in shaping their outlook.

Lindo Briggs: Chuck, thanks for helping our listeners understand what is impacting our businesses and individuals. 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 Oct. 23, followed by our podcast Oct. 24.

Thanks for listening.