(Federal Reserve Bank of St. Louis)
The Federal Reserve Bank of St. Louis reported Wednesday in its latest Beige Book that overall economic activity and employment in Arkansas and the surrounding region has been steady.
However, the outlook among the bank’s contacts remains “slightly pessimistic” as inflation erodes consumer purchasing power and labor shortages persist in manufacturing, construction and agriculture.
The St. Louis Fed represents the Eighth Federal Reserve District, which includes all of Arkansas and parts of Missouri, Kentucky, Tennessee, Mississippi, Indiana and Illinois.
Since the bank’s last report on Sept. 3, prices have increased moderately, affecting groceries, apparel, utilities and professional services. The bank’s contacts reported that price increases were not solely due to tariffs but also insurance premiums, utilities and opportunism.
Consumer spending softened, particularly among middle-income households relying on credit and “buy now, pay later” programs, the report said. An event center in northwest Arkansas reported fewer room rentals and gatherings, and youth-focused gaming facilities reported lower sales.
Manufacturing activity has declined slightly, with some firms offshoring or adjusting supply chains due to labor and cost pressures, according to the report. While some firms reported that they were building multiple facilities across the region to offset shipping and logistics costs, an apparel company reported offshoring manufacturing to the Caribbean due to labor challenges.
Some contacts also reported looking for cost-effective strategies to manage tariffs, shipping, and labor dynamics such as shipping unfinished goods to the U.S. for final assembly.
Nonfinancial services activity was largely unchanged, though hospitals and nonprofits face growing financial stress and demand. Transportation and logistics companies reported observing changes in the shipping strategies of businesses and that the upcoming peak season would be affected by trade policy changes. A logistics firm in northwest Arkansas reported that sharply rising trucking insurance premiums were compressing margins.
Residential real estate remains slow, with longer selling times and declining prices for some homes. In rural areas, weak agriculture conditions and financial stress of hospitals are negatively impacting the housing market.
Commercial real estate activity has been mixed, with institutional projects active but multifamily, office and industrial projects slowing in some regions. In northwest Arkansas, an airport project had eight bids, significantly higher than for previous projects, indicating a slowdown in new commercial projects.
Banking activity has been steady, with strong commercial loan demand but rising consumer delinquencies and tighter small business lending standards.
Agriculture conditions have deteriorated due to high input costs, poor crop quality and extreme weather. A farmer in Arkansas estimated that up to one-third of Arkansas farmers may go bankrupt or exit the industry to avoid losing land or homes.
On the other hand, contacts in the protein business reported that demand for protein remains very strong.