April 2025 Beige Book Interview – Little Rock

Matuschka Lindo Briggs: Good afternoon, Chuck. I can’t wait to focus on three key areas today: trade, consumer spending and agribusiness. But first, can you kick us off with the economic summary of national conditions?

Charles Gascon: Yeah, sure. Happy to be here today. Let’s just say, a lot has changed since the last time we met.

Reports indicate that economic growth has slowed since our previous report. However, the degree in which economy has slowed is really varied across the nation. Most districts describe the economy as continuing to expand, just at a slower pace. And I believe four districts, including the Philadelphia Fed and the New York Fed, describe a contraction in the economy. So, a big variety there.

Most districts describe the outlook as being notably weaker than on our previous report. And contacts expressed concern over heightened uncertainty due to the changes in trade policy.

With respect to labor markets, employment was up slightly. Only the San Francisco Fed described employment as decreasing. While many contacts across the U.S. did report that they have workforce reduction plans, for the most part, these are just sitting on the bookshelf right now. So that’s good news.

On the inflation front, prices continue to increase modestly; that’s similar to our previous report. Some districts reported that their contacts were expecting future price increases, and that near-term inflation expectations have risen.

Briggs: Did weather affect others across the U.S. the way it did here in the Midwest? We were hit pretty hard with days of heavy rain and flooding. We even had tornadoes touch down, and we had some pretty severe damage. Did you hear the same nationally?

Gascon: Yeah. I was at an agricultural outlook conference last week, and one of the speakers shared a map of drought conditions in March and April, and rainfall. To sum it up, the rain just really missed the mark. We had drought conditions in the Southwest and Plains states; that was noted by the Dallas Fed report. But in Arkansas, Kentucky and Tennessee, where there was no drought situation, that’s where all the rain hit. So our District was really hit the most with all the weather over the last period of time.

Briggs: Thanks for that national update. Now let’s share some of the insights we’ve been hearing from across our seven-state region. What’s the economic outlook that you have been hearing from contacts? How are they interpreting and responding to changes we’re seeing and hearing? The headlines have really focused on changes in trade policy. What are contacts saying?

Gascon: Contacts expressed a lot of uncertainty and are really putting in an elevated amount of effort to understand the impact of tariffs and the ways that they can reduce their cost increases and mitigate supply disruptions.

They also noted that at this point, they were really unwilling to make changes due to elevated uncertainty. I think one response that I got to an email really sums up what I’ve been hearing: A contact said, “We’ve spent a lot of time this past week trying to digest changes. Clearly a lot of disruption. I’ll keep you posted.”

Briggs: Yeah. They’re not alone. Some contacts have stated that ongoing tariff discussions are creating some volatility in raw-material prices, pushing many businesses to reassess their sourcing. This, of course, also adds to the growing concern and possible upward pressure in prices. Are you getting any insight on how businesses might try to reduce the impact on their profits?

Gascon: Many are still in the first stages of really trying to understand what the impact will be. And in many cases, their impact is greater than what they initially anticipated.

First and foremost, they’re buying ahead of tariffs—that’s a way to try to manage some of that risk in the near term. And that’s led to a buildup of inventories at many firms.

Large retailers announced to their suppliers that they will not be accepting price increases solely due to tariffs. So they’re pushing back. An HVAC supplier reported that they’re now going to price their equipment based on shipment dates, rather than the contract or purchase order dates; that’s going to allow them to shift that risk to the people buying the product instead of them holding it in-house.

Briggs: When I have discussions about trade in Arkansas, overall contacts are concerned about a prolonged trade war. They feel this could really affect consumer confidence over the long term, which in turn will continue to hold back consumers from making large purchases. Are you getting similar sentiments across the District?

Gascon: I think the final outcome is about the same, but the comments I’ve received do not necessarily focus on the cost of a prolonged trade war, but rather the general uncertainty in the outlook as a result of changes in trade policy. And that uncertainty is what’s going to hold back consumers and businesses from making those large purchases.

A colleague of ours, Kevin Kliesen, just wrote a nice blog post about how uncertainty shocks can trigger recessionary conditions. I would encourage all of our listeners to read that.

One interesting thing in the Beige Book that runs counter to what I just talked about with this pullback in spending is auto sales. It appears that many consumers are worried that auto prices are going to spike, so reports from auto dealers around the nation say they’re stronger than on our last report. Auto sales seem like they ticked up.

Briggs: So I’m hearing you say auto sales are pretty good right now, but a dealer I spoke to in Arkansas said their outlook has deteriorated.

What about other big-ticket purchases? I’m starting to hear that overall spending appears to be slowing. I’m seeing mixed signals when it comes to areas like restaurant sales and tourism, which show more and more caution in consumer behavior.

Gascon: Yeah, I would agree. Consumers are being more cautious, and the reports from consumer spending across our District were generally mixed. Reports indicate that sales of home appliances, toys and seasonal items have decreased—that’s those big-ticket items, as well as some of those discretionary purchases. On the other hand, personal care items, cosmetics and grocery sales have all increased. So when people come in to buy durables, those are still holding up.

Hospitality contacts around our District reported no change in activity. Hotel bookings remain generally pretty strong, although other districts did report a slowdown in travel.

Briggs: I was surprised to hear a Fort Smith retailer state that trade discussions may have broken the mortgage rate stalemate. He started to see a slight surge in homebuilding, so we’re going to keep an eye on that.

We began the show by talking about the heavy rains and the flooding that have taken a toll on our region. From a row-crop standpoint, many farmers are working hard to pump water off already planted fields so they can replant as soon as conditions allow. What kinds of challenges have you been hearing?

Gascon: District businesses were negatively impacted by rain. It delayed the delivery of merchandise. It postponed some really large events. And it also led to the flooding of businesses. One interesting anecdote came out of Louisville, where a restaurant actually closed early and “preflooded.” That’s  something that we don’t see very often.

Briggs: So it was preflooding to keep the muddy water out.

Gascon: Exactly. The thought was you bring the clean water in and then they could reopen more quickly after the river waters receded.

Briggs: Got it. So ag [agriculture] businesses in the southern part of the state were fortunate not to receive all the heavy rains. They ended up with maybe 5 inches, not the 14 inches that other parts of Arkansas got.

So that relates to what you were talking about regarding Texas and other parts of the country. Can you wrap up with just a high-level recap of the outlook for ag conditions in our region?

Gascon: For Arkansas row crops, positive cash flows are likely for cotton farmers. And that’s unique to other cotton-growing regions across the nation.

For rice, the outlook is a bit weaker. There is a risk of negative incomes coming from that area, but again, still faring better than the areas that are in drought.

Operating incomes for row-crop farmers more broadly are expected to be negative in 2025; that’s been well-anticipated. Government supports are in place to offset some of those losses in 2025.

When you get to meat and poultry producers, the outlook is much more favorable, with lower feed prices, stable demand, and particularly on the home consumption side of things, demand looks like it’s going to be holding pretty stable.

Briggs: Overall, the outlook from contacts is starting to decline from neutral to slightly pessimistic.

Chuck, thanks for breaking this all down for us.

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 June 4, followed by our podcast June 5.

Thanks for listening.