Support for Arkansas Week provided by the Arkansas Democrat-Gazette, the Arkansas Times, and Little Rock publications of.

Hello again, everyone, and thanks very much for being with us.

So much is happening in so many aspects of the economy, state and national and happening so fast that getting even the snapshot can't be blurred.

But in this edition, we'll give it our best in a moment.

A closeup of the Arkansas economy midway in the third quarter.

But first, among other matters, economics on the national scale, we are joined by a representative French Hill of Arkansas second congressional District as all of us.

Congressman, a pleasure to have you.

Thanks, Steve.

Good to be with you.

You had a personal legislative victory in the last several days.

I guess we could say one down and three to go.

And your crypto package.

Well, it was a good.

Since we visited last time, it has been a good few weeks for creating the first ever federal digital assets, framework.

We passed the Senate bill called the genius Bill that creates a US dollar back payments stablecoin.

And the way to think about this is we have credit, we have debit, we have checking, we have cash.

If you use a payment on a blockchain operating system, it can now be done in this US dollar backed stablecoin signed into law by President Trump about three weeks ago.

And at the same time, we also passed in the House a bill I wrote called the Clarity Act.

We got 78 Democrats on it.

It was over 290 members voted for this bill, which decides for digital assets.

What's a commodity?

What's a security?

How do brokers interact?

How do banks deal with something that's a digital representation on a blockchain.

So in Web3, the future of the use of the web, these are critical building blocks that we needed to get past.

I'm glad we've gotten one signed into law, and I hope this fall we can do the other one.

Brave new commercial world.

And in a sense, should we be, what should we be afraid of it?

Well, I think you're going to end up with, here's the here's the way I like to describe it.

In the first early days of personal computing, you had, a DOS operating system versus a macintosh operating system.

Then with our smartphones, we had things like the smart Apple phone that uses the iOS operating system versus an Android phone that uses Google's Android operating system.

In web three, you're going to see operating systems on blockchains, which are programable ability to make payments on time seven days a week, 24 hours a day.

And so you get a better audit trail, better customer server service, and it's a lower cost than the existing infrastructure.

And I think you'll see banks adopt blockchain payment operating systems.

I think you'll see the credit card companies doing that.

That will lower costs for merchants and lower costs for consumers.

And as I say, it has better fraud protection and better, accounting and compliance features.

On to the larger economy.

The last jobs report was, not especially encouraging.

It was pretty spooky to some in the financial industry.

Your thoughts?

I thought it did show.

Oh, we're getting a slowdown here.

Well, I've thought over the last few months that we had we were on the edge of a slowdown.

And I think that jobs report was, weak.

And so that's why I do think that, the fed, probably this early this fall, will ease interest rates, because I think we have some uncertainty in the economy that, is biased towards slowing rather than robust.

But when you read economic reports from the experts, you can make a case either way.

And in fact, Jay Powell has said that the chairman of the Federal Reserve System, it's just not clear which direction the economy is headed right now.

And so maybe the air, if you said how to on the side of caution, it might be to to ease.

And so that's why I think you saw a split decision in the last open market committee meeting by the fed.

The capital spending on the part of the business seems to be down.

Hiring seems to be down.

Consumer confidence and consumer spending seems to be on hold.

It is that uncertainty that seems to be feeding on itself.

And the tariff situation, it is argued, is not helping.

Your thoughts.

Well, I think as we've talked before, we had such a good discussion last time I was on with you about tariff tariff policy, how to do it.

And I've said many times, including on this show, I don't support across the board tariffs, support very strategically using tariffs to do market opening with individual economies.

And I my best advice to the president would be let's resolve Usmca Korea, Japan, the UK and the EU.

That gives the United States the most trade leverage with China.

Because if you add South Korea, Japan, the EU, the United Kingdom and the US together, we're a substantial part of of Chinese exports, and therefore we have a much more, leverage position, I think, to negotiate with them.

So if it were, if I were designing, I would be trying to take care of, of trade, settlement between countries in Usmca Europe.

And, and the, our two big Asian allies of South Korea and Japan first.

But what we've done, the president's chosen to do it across the board in all nations at once.

And I think that's harder to do.

He may have some good, good success from it, but I do think it's harder to do well.

I mean, the you would design a different policy.

The man who is designing it, the policy seems to be almost schizophrenic.

I mean, it changes from not day to day, but sometimes our, our how to plan on that.

Yeah.

Well it's created I mean I do think tariff uncertainty has created planning uncertainty and profit and supply chain uncertainty as we go into, 2026.

And that's made business cautious.

Which, again, is why when I was with you last time we were together, I urge Treasury Secretary Besson, the president, the Commerce Secretary, you need to get, these decisions behind you before the end of the summer.

And we're here.

And that's why I think they set the August 1st date.

But I don't know that we have the clarity that we really need for most for most businesses.

Well, and indeed, they're there.

If I read the secretary correctly, he's bragging about it.

Look at all the billions in tariff that it's that it's bringing in.

But of course that's passed along, is it not?

Well, not in every, you know, using it as a deficit tool.

Well they are I don't know that that's the best policy for that.

But it tariffs on individual products that I would say below 20% in any one area.

I don't know that they're quote passed along.

I think you can seen buyers and sellers sharing in some level of tariffs that under 20%.

It depends on the product and the complexity of the product.

But the tariffs over that level, I think, have market implications on either supply constraints, supply shifting, purchase shifting.

It's a very dynamic tariff, is a very dynamic economic policy tool at some level.

Inflationary.

Again, it could be depending on the size of the scope and on what on what elements.

I mean, it is, definitely possible to be inflationary.

I think the economic literature at a small base tariff, which you hear some administration officials talking about, like in the 15% or less, variety, I don't I don't think that that's necessarily inflationary.

We have, the big beautiful bill, which you supported every the big issue facing state, one of the big issues, maybe the biggest facing state government.

Yeah.

And Arkansas practitioners, health care providers is the Medicaid program.

The administration says it wants to shave $1 trillion off the Medicaid budget.

It also says nobody's going to get hurt.

Do you agree?

I mean, how's that possible to shave a trillion off and nobody gets, right?

Well, the vast majority is that is two big changes in the bill, one of which, Arkansas already has done under Governors Hutchison and Sanders, which is to have a modest work requirement for able bodied adults who are not themselves disabled or taking care of a disabled person, adult or child, or a parent of young children.

That sort of work requirement is the vast majority of that national savings.

And that's the kind of thing that Arkansas has already implemented before.

And so I think we know exactly how to do that effectively here.

And secondly, is this issue of how provider taxes in some states have been used to leverage extremely high levels of Medicaid spending, like in the state of New York, for example.

But Arkansas has not impacted that back, because our provider tax is lower than the threshold in the budget reconciliation bill.

And just this week, the Department of Human Services here say they don't see, any measurable impact, from the big beautiful bill in a negative way towards rural hospitals or, because of what I've said, that our work requirement plan here is very similar, if not exactly like that proposed in the bill.

What you have is states that have never tried it, and this would require states to do it if the prototype if it will, for a work requirement bill I believe is in Georgia, which has got decidedly mixed reviews.

As a matter of fact, negative reviews as to its effectiveness.

What's going to be different about this one?

Well, we've seen we've seen work requirements here before.

The federal courts and the Biden stopped and blocked it.

Yeah.

But we we've seen, how that affects, the marketplace here.

And for those states that do have a high provider tax that the bill is asking them to cut back the Congress, put in a $50 billion rural health care fund to benefit Medicaid services at rural hospitals.

And, in fact, again, Arkansas's Department of Human Services says they're likely to have $500 million potentially, contributed to the state coffers from that fund.

One final question.

You're going to run well, the federal government's going to run out of money.

What about six weeks?

I think maybe a little.

Yeah.

Any chance are we going to go another?

Can't continue working as I do because the Senate hasn't passed.

But one appropriations bill we've passed I think for but that work is not going to be done in my view, before the end of September.

So I anticipate we have to have a CR.

Will you come back soon?

I will, good to be with you.

All right.

Thanks, Congress.

Appreciate as all as always.

Thank you.

And as always, we thank you for watching.

And well, actually, we'll be back with a little bit more in just a moment.

And we are back a robust mid-summer revenue report from the Arkansas Treasury.

But is there more to keep an eye on?

We're joined now by Doctor Jeremy Horvat, all of the Economic Research Center at UCLA.

Jeremy, thanks for coming back aboard.

Great to be back.

Steve.

The situation at, and worse seems to be in Arkansas that it's stable, if not a little bit better than that.

Are that deceptive?

I think that's that's right.

You know, we have the the July numbers are the first month of the fiscal year.

So it's always hard to read that.

And there's a little uncertainty because the tax filing deadline was extended into July.

But, you know, they ended the last fiscal year with a bigger surplus than they had, forecast.

And this year, so far up up about 5% over last year.

So looking good so far but hard to read too much into one month short.

Well and that's a policy matter too.

But surpluses can be in themselves deceptive.

Well, I think they are a reflection of policy decisions at the appropriation level and at the projection level.

Yes, that's right.

And keep in mind also that last year revenue was actually lower than the prior year, but that was expected because of all the tax cuts that we're phasing in.

So while the revenue now is stabilized, it's lower than it had been the past.

But that was that was planned, as you said, through policy through tax cuts and other policies as well.

Yeah.

And the the job outlook now.

Yeah.

So there's a lot of uncertainty about jobs right now in the economy.

We've seen several major revisions to, to national jobs numbers downwards.

In fact every every month this year so far has been revised downward, including the last two months, that big, big time.

So this has been, you know, a national debate about, you know, what does that mean?

How reliable are the numbers?

But certainly for those of us that follow these numbers closely, you know, a big revision down like that, you only see that usually when you're entering a recession.

So that's kind of where we're we're just tentative, tentatively saying the big R-word.

But you see big revisions down like that.

We saw them in 2020 and 2008.

You go back to the early 80s, you see big revisions down like that.

So the numbers are worrying for a number of reasons, but especially because there's been mostly no job growth now in 2025 compared to what we would have expected.

Yeah.

And why do we know there's a lot of factors that, you know, we always talk about.

But I think that the uncertainty, about the tariffs and the effects of the tariffs are causing a lot of possibly company is just to slow down hiring, not laying people off yet, but as the, you know, uncertainty maybe abates a little bit.

You know, this past week, a lot of the major tariffs did go in place.

And Trump, you know, didn't do the usual level.

We'll back down at the last minute.

So I think that maybe they'll be more certainty.

But now we'll start to see the effects of the tariffs over the next few months.

Can we.

Yeah.

Can we narrow this even more to Arkansas and take a look at what's going on here at our economy in terms of manufacturing, in terms of service jobs, everything?

And how stable is that situation anyway?

Yeah, I think that there is some industries that will be perhaps protected by these tariffs.

So steel is one that might be protected in terms of the manufacture of steel.

But for companies in Arkansas that are going to use steel as an, as an input for those, they're, say manufacturing aircrafts, that's their their inputs are now going to be end up being more expensive as the tariffs will raise the prices of both imported and domestic steel.

So I think that it goes a little both ways.

Right.

Some industries like this these tariffs so they'll be protected by them.

Others are going to see their costs go way up.

And that's where a lot of the uncertainty about jobs is, is for those industries in Arkansas and elsewhere.

They're going to see the cost of their inputs go way up, to put it mildly.

There is substantial executive branch pressure on the fed to cut interest rates.

A your projection, your prediction on that.

A Bank of England, by the way, is just we're recording this on Thursday morning.

We have to, Bank of England just cut its rates like that, which is it's not a there's not necessarily a transatlantic effect anyway, but that would seem to add to the administration's pressure on the fed to cut those interest rates.

You want to make a projection prediction?

Well, projections are hard to make, but at least in terms of the kind of predictive numbers that we look at, the the chance of the fed cutting in the near future has gone way up recently, both because of weaker economic numbers and possibly because of executive branch pressure.

You know, Trump has already talked about who he wants to, you know, replace Powell with at the either at the end of his term or before that.

And you know, the fed does have a lot of independence.

So I think that they will they will still make at least for now.

They will make the decisions based on the numbers.

But the numbers are not looking as good.

So I think that does really does increase the chance of a rate cut.

Sometime this year.

Possibly soon for the time being.

You're betting on the fed, betting on the Fed's, you know, independence.

And but I do think that they are now looking more seriously at it, especially as you see not just the jobs numbers but other other numbers in the GDP report, that are going to suggest the economy.

Well, not in the big R-word recession.

The economy is slowing down a bit.

And so that is something that that they are always watching, on a daily basis, including when these big numbers come out.

Well, I mean, let's go to the R-word here.

I mean, how the prospects of a significant recession look at the looking at the data.

What's your estimation?

I think that certainly look how close.

Looking backwards.

I think there was a lot of talk about there being a recession in the first half of the year, with all the uncertainty from the tariffs.

We've talked about, all the data so far shows that there was not.

So we got through the first half of the year with no recession.

That's good.

But really all these tariffs are now finally coming online.

Some of them won't even have an effect till, say, October, because goods that are already on, on ships right now are not gonna be affected by the tariffs.

So I think that I would my bet would be probably if there is a recession this year wouldn't be too later.

But I think next year when I think we look to it being much more likely possibility.

Yeah.

And consumer prices.

Yes.

Consumer prices.

Well we're you know, we're nowhere near the 2022 numbers.

We saw that were extremely high, consumer prices, especially for goods, which are the things subject to the tariffs.

You like eggs for breakfast?

Go.

I'm sorry.

Sure.

Yeah.

I mean, eggs are of course, thankfully way down from what they were at the beginning of the year.

But if you look at goods overall, they are starting to tick up just a little bit.

I mean, not anything that that causes huge concern, but if we look at the first half of this year, goods prices are starting to rise a little bit.

And there's a worry that those once the tariffs, really do kick in that could, that could cause them to go up even more.

You know, services are a bigger part of the economy.

And those have actually been kind of more mild and trending down, which is why the overall inflation numbers have been, you know, getting close down to 2%, kind of close to where the fed wants, but that that could be turning around to now as we've started to see the price of some good start to rise.

Yeah.

And you're watching to I every economist, every banker does everyone in finance does, consumer spending, which is only like 70% anyway of the economy.

And there's some cautionary notes there as well.

Yes.

Consumer spending is not only the biggest part of the economy, it's the part we look at for for changes that are going to, you know, slow down the economy.

So I think that what we've seen is that, you know, this comes out both in the GDP report that we just got, last week and in monthly numbers, the consumer spending, it's not falling, but it's kind of plateauing.

It looks like it to some extent that consumer spending is essentially, you know, in inflation adjusted, seasonally adjusted terms, it's really no higher than it was last December.

So consumer spending seems to have plateaued a little bit.

So there's a wariness or a caution anyway, on the part of consumers as well as the business community, I think absolutely.

I think some consumers are, you know, if they have extra savings or maybe trying to get ahead of the tariffs by speeding up some spending, but there's only so much that you can do, especially for things like food you can't really buy, you know, like your food six months in advance.

So I think that there's, you know, some consumers trying to get have it, some businesses trying to get ahead of the tariffs.

But overall, I think that consumer spending, while there will be some month to month wiggles.

It's been it's been pretty flat and part of that is just to people being uncertain about the future.

Yeah, a stated objective one stated objective primary stated objective of the administrate Trump administration and with these tariffs is to bring manufacturing back to Arkansas.

Well, I mean, back to the United States.

Arkansas certainly has been, has lost how many jobs over the decades, over the last half century to foreign, outsourcing, particularly in the manufacturing area, the fabrics, textiles and etc.. Is it realistic to, to to assume that Arkansas and the rest of the nation can see a resurgence of manufacturing consumer goods?

I think there can be some increase in the number of manufacturing jobs and the manufacturing output.

But I think the kind of getting back to the, you know, jobs as a percent of the economy, manufacturing, we're never going to get back to the levels of, say, the 1990s or 80s or certainly not the 70s.

I think that's just wishful thinking.

There is some manufacturing coming back.

There's still here's the interesting thing.

There's still a ton of manufacturing down in the US.

It just requires a lot fewer jobs.

We manufacture in, you know, dollar terms, inflation adjusted more goods than we ever have before in the US.

It just takes a lot fewer workers.

And if you look at the global picture, same with the farm economy to yeah, we we manufacture and produce more food than we ever have before.

But with now with, you know, less than 2% of the workforce employed in agriculture, that's due to technological advances and productivity gains and, you know, better seed technology and all sorts of things in agriculture and in manufacturing.

So I think that, you know, if we look at the long term trend manufacturing jobs in terms of the number is actually kind of flat if we go back throughout, through most of our history, but as a percent of our economy, the service sector is where all the growth is.

And I think that is where it'll be in the future.

So I think that trying to protect a certain number of jobs is is probably not the wisest guide for policy, even though we will see a few things here and there that we'll see and for all the discussion of artificial intelligence we have, yet, we've only beginning to feel the impact of AI, on manufacturing every aspect of the economy.

Yeah, we're only beginning to feel the effects, both in terms of how it might benefit us in terms of productivity gains and what the job effects might be.

There's there's at this point, a lot of estimates of this here's the jobs that might be affected by it, but it's really just we're in such early days, it's really hard to say.

But I think that long term worries about mass unemployment from this are probably overblown, as they always have been with technological advances.

But certain sectors of the economy will lose a lot of jobs because of this.

We just really don't know what they are right now.

Right.

And finally, this, you and every economist, everyone on business, relies on government statistics, economic statistics.

There was a, what the administration regarded blindly as a discouraging report.

He used the word rigged and he fired the director of the BLS.

Are we firing them or do you have confidence as an economist?

You have a confidence in those numbers.

I do have a lot of confidence that the people at the BLS are doing the absolute best they can with the data they have.

One of the challenges they face is actually the response rates.

These surveys have been trending down over the years, just fewer manufacturers and other employers are filling out the reports and giving them the data.

And some of it comes in late.

That's why you see these big revisions sometimes.

But I don't have any, in my view, looking at the data and knowing people who have worked at Blass and other agencies, I have every confidence that they're doing the best they can to just tell us what the economy looks like, not trying to, you know, rig it in any direction to hurt or harm a particular party or politician.

So I think that a lot of that is just, you know, a reaction to a bad report, and that these revisions are actually part of the normal process.

It'd be great if there was an overhaul and the agency actually did modernize and update the procedures.

And blessed commissioners have actually been calling for this for years.

It just it takes a lot of money and a lot of work to, to improve the process.

So I think that, you know, it is worrying, though, to me as an economist that, you know, these numbers are should be our guide to how we understand the world and the economy.

And if, if Trump or whoever else is, is firing people because he didn't like one report, that's that's very worrying that we will not have good data in the future.

In other words, have we here fired the messenger?

Absolutely.

I think that's the metaphor a lot of people are using.

And I think that that is, you know, publicly, I think that's what they're, you know, they're saying we're going to fire this person because we don't believe them.

But I think privately, a lot of people in the Trump administration are actually are worried about these numbers because because they they know that these numbers are pretty close to accurate, and they actually are worried that it might be showing the economy slowing down more than we thought.

Jeremy hurt at all.

As always, thanks for coming on board.

Thank you.

See you next time.

And as always, we thank you for watching and we'll see you next time.

Support for Arkansas Week provided by the Arkansas Democrat-Gazette, the Arkansas Times, and Little Rock Public Radio.