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Eighth District - St. Louis
Beige Book
December 03, 2014

Wednesday, December 3, 2014

Economic growth in the Eighth District has slowed slightly from the pace reported in the previous Beige Book. Retail contacts have mostly seen slow to modestly increasing sales. However, recent reports of planned activity in manufacturing and services have been largely positive. Overall, residential real estate markets have remained weak, while commercial and industrial market conditions have been mixed. Lending at a sample of District banks has increased modestly. Finally, wages have increased at a modest pace, while consumer prices and employment levels have grown more slowly.

Consumer Spending

Anecdotal reports from retailers indicated slow to modestly increasing consumer spending on net. Half of the retailers surveyed anticipate fourth-quarter sales to be similar to a year ago; the remainder of contacts were evenly split between anticipating lower and higher sales. About 40 percent of respondents anticipate that, if current conditions persist, sales will fall short of expectations; only 10 percent of retailers report that sales are on pace to exceed expectations. The majority of retail contacts anticipate that holiday sales will be on a par with last year’s sales, and only about a quarter of respondents anticipate some growth in holiday sales. Major retailers in the District plan to hire roughly the same number of seasonal employees as they did last year to meet holiday demand.

About half of the auto dealers surveyed anticipate fourth-quarter sales to be similar to a year ago; the remaining half of auto dealers were evenly split between anticipating lower and higher sales. The majority of auto dealers surveyed report that their inventories are at desired levels. Most auto dealers saw no change in the product mix of the automobiles being sold.

Manufacturing and Other Business Activity

Plans for manufacturing activity remained positive in the most recent reporting period. Firms in aviation, metals, furniture, industrial equipment, and automobile parts manufacturing plan to hire new employees and expand operations in the Eighth District. In contrast, one firm that manufactures industrial piping equipment reported plans to lay off workers. Reports from food manufacturers were mixed.

Plans for activity in the District’s service sector also remained positive. Firms in finance, information, and communications services reported plans for new hiring and expansion in the District. Reports from healthcare and transportation services firms were mixed.

Real Estate and Construction

Home sales decreased in the Eighth District on a year-over-year basis. Compared with the same period in 2013, September 2014 year-to-date home sales were down 4 percent in Louisville, 3 percent in Little Rock, 7 percent in Memphis, and 5 percent in St. Louis. September 2014 year-to-date single-family housing permits decreased in the majority of the District’s metro areas compared with the same period in 2013. Permits decreased 8 percent in Louisville, 25 percent in Little Rock, and 3 percent in St. Louis. Permits increased 4 percent in Memphis.

Commercial and industrial real estate market conditions in the District have been mixed. Contacts in Louisville reported strong leasing activity for industrial and commercial space. Contacts in Little Rock noted that prospective tenants are being pickier about commercial real estate space in northwest Arkansas. Contacts in St. Louis noted a strong industrial market in southwest Illinois. Commercial and industrial construction has been mixed throughout the District. Contacts in Little Rock noted that multifamily developers continue to look for new sites to build apartment complexes. A contact in Memphis reported two new developments planned for the downtown area that will include a mix of office space, apartments, and restaurants. A contact in St. Louis reported that although the office market is tightening, developers are reluctant to begin construction unless they have found their first tenant.

Banking and Finance

A survey of District banks showed that overall lending activity during the past three months was modestly improved compared with the same period last year. For commercial and industrial loans, credit standards eased somewhat, creditworthiness of applicants improved, demand was moderately stronger, and delinquencies were slightly lower. For prime residential mortgage loans, credit standards and creditworthiness of applicants remained unchanged, demand was unchanged to somewhat stronger, and delinquencies were slightly lower. For credit cards, credit standards were basically unchanged, demand was slightly stronger, creditworthiness of applicants was unchanged to slightly lower, and delinquencies were largely unchanged. For auto loans and other consumer loans, credit standards were basically unchanged, demand increased slightly, and delinquencies were unchanged to slightly lower. Creditworthiness of applicants decreased slightly for other consumer loans and remained unchanged for auto loans.

Agriculture and Natural Resources

As of early November, the harvest of District corn, rice, and sorghum crops was over 90 percent complete, and the harvest of District soybean and cotton crops was close to 80 percent complete. District farmers will see substantially larger field crop production in 2014 than in 2013. Specifically, the District corn and soybean crops will be 7.5 and 15.1 percent larger, respectively, in 2014 than in the previous year. District coal production for October 2014 was about 5.1 percent higher than in October 2013. Coal production year-to-date was 2.8 percent higher than the corresponding period a year ago.

Employment, Wages and Prices

A survey of Eighth District businesses indicated that, in the past three months, prices and employment levels have grown slightly, while wages have grown modestly, compared with the same period last year. Sixty-five percent of contacts reported that prices charged to customers have stayed about the same relative to a year ago, while 21 percent reported an increase and 14 percent reported a decrease. Sixty-four percent of contacts reported that employment levels have stayed about the same, while 32 percent reported a slight increase and 5 percent reported a slight decline. Finally, 57 percent of contacts indicated that wages remained about the same, and 42 percent indicated that wages were higher.

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