Economic conditions in Arkansas continue to grow, showing a “modest improvement” in the first few months of the year, although a report released by the Federal Reserve Bank on Wednesday noted that business leaders are pessimistic about the future.
According to Nathan Jefferson, a regional economist at the Fed who covers the Arkansas district, labor shortages and price hikes are creating a negative outlook among economic operators. About 48% of business contacts said they expect regional economic conditions during the rest of 2022 to be worse than in 2021.
“We’ve seen a bit of a weakening in the outlook,” Jefferson said Wednesday. “People are a little more negative, a little more concerned about what the rest of the year is going to look like.”
The Fed’s Beige Book, published eight times a year, summarizes US economic conditions and includes details on Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee .
Regional consumers appear to be freed from the constraints of the pandemic and are going out more to spend money, the report notes.
Consumer spending “has been pretty strong,” Jefferson said, adding that restaurants, airlines and hotels are reporting more dollars entering the sectors. “We’ve seen a shift from goods to services,” he said, “with people shopping less online and traveling, buying flights and eating out.”
Even with a slight improvement in overall economic conditions, trouble spots remain across the state.
Passenger demand at Northwest Arkansas National Airport has not returned to pre-pandemic levels, but is expected to do so by the end of the year.
Interest rate hikes have slowed the real estate sector, but prices in northwest Arkansas continue to rise and homes are selling. Current 30-year mortgage rates are 5.35%, up 0.07% from a week ago. Rates for a 30-year mortgage were 2.98% a year ago.
“It’s still a pretty strong real estate market in northwest Arkansas,” Jefferson said, “maybe even stronger than the rest of the district.”
Nonetheless, interest rate spikes are ending mortgage refinancing activity, the Fed reports, noting that Arkansas industry layoffs “are possible in the future.”
Arkansas and the Regional District labor markets remain tight and employers are raising wages across the board to retain and attract workers, with one transportation company reporting that it has increased wages by 20% or more over the past of the last six months.
The battle for workers is so fierce, combined with the flexibility of remote working, that companies across the country are raiding the region for workers and luring them in with higher wages. “As companies get to grips with remote workers as part of their long-term business model, they’re hiring across the country and people are searching for jobs across the country in ways they wouldn’t. had before,” Jefferson said.
Nationally, economic growth has also increased modestly, although activity at Beige Books reports has slowed in recent months. Rising prices are squeezing retail spending and a shortage of workers is hampering growth, the Fed said, noting that companies see the labor market as their biggest challenge going forward. All eight regional districts reported that a more pessimistic outlook for the rest of the year prevails among businesses.
“Rising interest rates, general inflation, Russian invasion of Ukraine and disruption due to covid-19 cases (particularly in the northeast) round out the main concerns impacting the household and business plans,” the report said.