10.20.22 – Arkansas Democrat Gazette
Price increases driven by sustained inflation are starting to alter the buying patterns of consumers in Arkansas and surrounding states, according to an economic update released Wednesday by the Federal Reserve Bank.
Consumers are changing buying habits and are more watchful of prices, preferring to stay away from brand products in favor of less expensive alternatives, the Fed reported in its October Beige Book study.
“We saw more price sensitivity among consumers and businesses are having a harder time passing price increases along,” said Nathan Jefferson, regional economist at the Fed’s St. Louis office, which analyzes Arkansas and parts of six other states.
Pricing pressures and worker shortages are creating a difficult operating environment for businesses.
“While there were anecdotal reports of easing in the labor market, firms continued to report difficulties recruiting and retaining employees and wage pressures persisted,” the report said. “In the services sector, firms reported softer demand but many were still unable to operate at desired volumes due to a lack of workers.”
In Arkansas, a Fed survey of the trucking industry found the sector is being especially drained by the worker shortage and hiring has become hyper-competitive, driving up wages for drivers and other support personnel. About 90% of trucking fleets raised pay an average of 11% over the past year, the report said.
Companies that rely on the trucking sector for deliveries are being pinched as a result of a tight market for drivers. “That’s limiting operations across a range of industries,” Jefferson said Wednesday.
At the same time, consumers are being more selective and price conscious.
“Retailers are having to deal with price increases and by and large they have been able to pass those along to consumers without too much of a problem,” Jefferson said. “It’s only been in the last couple of months that we’re seeing some increased pushback — more than before.”
Cautious buyers are altering their spending habits to cope with rising prices and fears of the situation growing even worse.
“There’s a little bit of both at play here,” Jefferson said. “It’s primarily that prices are at a level that people aren’t just able to go beyond but there is also a little bit of concern looking forward on the part of both consumers and businesses. There is a little bit of cautiousness.”
For example, a Little Rock car dealer reported that buyers are still coming in but spending less.
“They’re still getting sales but now it’s a lot more pre-owned cars instead of new cars,” Jefferson said. “People are shifting down a little bit.”
Despite it all, Northwest Arkansas continues to grow and prosper to a large extent, according to Jefferson.
The region, bolstered by population increases, continues to generate an economic performance above the rest of the region and the nation. “Northwest Arkansas the region, not just the housing market but the overall economy, has seen some stronger activity than the district as a whole,” he said.
The St. Louis district includes all of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. Major metro areas in the district are Little Rock, Memphis, Louisville and St. Louis.
The Beige Books examines economic highlights in employment and wages, prices, consumer spending, manufacturing, real estate and construction and agriculture among other areas.