Economic activity drags in state, region

Economic activity is still dragging in Arkansas and surrounding states, weighed down by price increases that are producing cautious consumers wary of spending more as the year closes out, according to a national analysis released Wednesday.

About 75% of companies in the seven-state region that includes Arkansas reported paying more for goods and equipment though the majority of those are holding tight on what they pass on to customers, the Federal Reserve Bank reported in its final Beige Book economic survey for 2023.

Companies say consumers are sensitive about price increases and businesses cite two chief reasons for absorbing further price increases for customers.

"First, some previous price increases were enough to cover more recent cost increases," the Fed found, noting that some businesses implemented larger increases earlier in the year. "Second, increased consumer sensitivity to price increases has lessened businesses' ability to raise prices."

Retailers and freight transport contacts reported slowing consumer demand, particularly for high-end goods. "Some items, such as luxury handbags and watches, have seen price decreases of about 15%," the Beige Book reported.

Manufacturing activity in Arkansas remains problematic and the Beige Book noted "growth has decline slightly" since the last report issued about six weeks ago. "On average, firms reported they expect slight decreases in production, capacity utilization and new orders in the coming quarter," the Fed report said.

The state's October unemployment report revealed a continued weakening in manufacturing employment, which has shed 3,700 jobs in the past four monthly reports.

Across the region and nation, construction activity also is sluggish, especially in the multi-family sector, as builders delay or cancel projects to avoid spiking interest rates.

New borrowers also are avoiding the market while others are beginning to have trouble paying what they owe. "Loan demand fell, and delinquencies ticked up above pre-pandemic rates," the report said. "The general outlook for the regional economy weakened slightly due to concerns about future demand."

Employment remains relatively stable and labor markets remain tight -- yet companies are reporting it's easier to hire workers than it was a year ago. "Staffing contacts reported clients are staying at jobs and less prone to leave than they were last year," the Fed said.

Tight labor markets are fueling wage increases, particularly for businesses having a tougher time reaching staffing goals. A manufacturer "noted that hourly wages have risen only slightly, but an increase in overtime pay due to labor shortages has driven up labor costs."

Some regional retail, restaurant and hospitality contacts reported that consumer spending remains mixed. Auto dealers noted a decline in business activity, pointing out that higher interest rates have slowed consumer demand for new car purchases.

The St. Louis Federal Reserve Bank's Beige Book report includes a regional economic analysis that includes all of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. The survey includes major metro areas such as Little Rock, the Northwest Arkansas corridor, Louisville, Memphis and St. Louis.

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