Fed economist predicts more stability in 2025

JONESBORO — Expect to see the national and local economies to moderate in the coming months, Charles Gascon, an economist and research officer for the Federal Reserve Bank in St. Louis, said.

Speaking Thursday at Arkansas State University, Gascon outlined employment, housing, inflation and consumer trends.

He said he believes the risk for inflation is down, even as violence in the Middle East has prompted a rise in energy prices in the past couple of days.

"Global production of oil is kind of at the lower end of the five-year average, so it's more likely that oil prices will move up and then come back down," Gascon said, while also noting there is always an outside risk that spikes in oil prices can adversely affect the economy and inflation on a short-term basis.

Wage pressures remain elevated, but worker productivity is also higher, he said.

"Not a whole lot of change in employment levels, steady demand, not a lot of quits or layoffs, wage growth is returning to normal, it's just not there yet," Gascon said, in summary.

Companies are reducing employment levels, but through attrition – not replacing people who leave their jobs – rather than layoffs, he said.

Arkansas is less sensitive to volatile national trends, due to higher public sector, agribusiness and healthcare employment, Gascon said. However, the row-crop farming sector will feel the effects of lower prices, despite higher yield. On the other hand, meat and poultry producers are seeing higher profits, he said.

The housing sector also has begun to moderate, Gascon said.

"There are welcome signs that housing inflation is cooling." However, the economist said more goes into measuring housing inflation than just the cost of the residence.

"What happened in 2021 and 2022 was there was a huge demand for housing, not a lot of apartments being delivered onto the market, and we saw rent growth go up by 15 to 20 percent at those points in time," he said. At the same time, landlords dropped some of the extra amenities that they had previously offered to fill their spaces. Existing tenants didn't experience those higher rent costs as much, Gascon said. In the past couple of years, rent growth is down to about 5 or 6 percent.

In some cases, he said rental rates have declined in the form of the return of amenities tenants had previously given up.

He predicted housing inflation would continue to moderate over the next couple of quarters.

Gascon said manufacturing production has been lower in the past year because of weakness in the housing market and the auto industry.

Inflation on the cost of such goods as appliances, TVs and other items that go into homes is at near zero because of the large surge in purchases during the peak of the pandemic when more people were spending most of their time at home, Gascon said.

Gascon said the Fed relies on not only statistical reports from many sources, but anecdotal reports from individual sources. One sector of the economy that has a lot of disagreement on is the banking industry.

"We had some banking contacts that are really optimistic," Gascon said. "They see opportunities to make loans. They see growth in their local communities. And even with higher interest rates, they see an environment where things are looking pretty good."

On the flip side there are other areas where banking contacts – they feel like they're on pause – nothing necessarily will change until 2025. Gascon said those contacts cite the uncertainty of the presidential election.