Eighth District - St. Louis
Beige Book
December 2, 2015

Summary

Economic activity in the Eighth District has increased at a modest pace since our previous report. On net, hiring managers expect to increase their payrolls; most expect to raise starting wages or salaries to attract new hires. Retailers continued to report higher sales, although most auto dealers noted current-quarter sales are below expectations. Banking conditions remain stable, as loan demand remains relatively strong, particularly for commercial and industrial loans. Real estate contacts expect fourth-quarter homes sales to be higher than one year ago. Low crop production and low prices continue to put downward pressure on farm incomes.

Employment, Wages, and Prices

A survey of business contacts indicated that wage growth in the District was moderate, while employment and prices grew at a modest pace. About half of hiring managers reported raising salaries or wages of existing employees by more than they have in the past few years, and about two-thirds of hiring managers reported raising starting salaries or wages of new hires by more than they have in the past few years. Just over two-thirds of hiring managers surveyed are actively seeking employees: They cited high sales, overworked staff, and need for different skills among the top reasons why.

One-third of respondents indicated that prices to customers had grown at a rate faster than at the same time last year, whereas just over half indicated they grew at about the same pace; the remaining indicated slower price growth. By sector, most manufacturing contacts reported their prices to customers have remained unchanged or are slightly lower, whereas construction contacts noted increasing prices. In services, retail contacts noted net increases in their prices charged to customers.

Consumer Spending

General retail has continued to grow modestly since the previous report. The majority of business contacts indicated that sales in the current quarter have met expectations and were at least slightly higher compared with the same time last year. An Arkansas hospitality contact stated that business travel has increased in recent months, and a Louisville hospitality contact stated that fourth-quarter occupancy has been strong throughout the state of Kentucky. Reports from local auto dealers were mixed. The majority of survey respondents claimed that sales over the past two months have fallen short of expectations, although one local dealer expects record sales for the fourth quarter. Most auto dealers surveyed believe sales will continue at their current pace into early 2016. Several contacts noted that low gasoline prices and low interest rates continue to benefit business activity in the short term.

Manufacturing and Other Business Activity

Manufacturing activity has increased since our previous report. Several companies reported capital expenditure and facility expansion plans in the District, including firms that manufacture transportation equipment, electric appliances, and furniture. In particular, firms that supply parts for the automotive sector are working overtime to fill orders, according to contacts in Kentucky and Indiana, and several of these firms plan to expand to meet the demand. Contacts in the primary metals industry reported a decline in activity at steel and aluminum mills as a result of increased competition from imports. In a recent survey of manufacturers, a majority of contacts noted that production, capacity utilization, and new orders were either about the same level or higher in the fourth quarter relative to a year ago, with responses split evenly between the two. The majority expect activity in the first quarter to be about the same relative to one year ago.

Reports from the services sector have been positive since the previous report. Firms that provide warehousing and storage services as well as health care and social assistance services reported plans to hire new employees and expand facilities. Firms that provide courier services cited growing e-commerce as driving the need to expand facilities and hire permanent positions in addition to seasonal positions. Contacts noted that they are having a difficult time filling both full-time and seasonal positions.

Real Estate and Construction

Residential real estate activity expanded at a faster pace than in the previous report. Contacts noted fourth-quarter home sales were slightly higher than the same time last year, while inventories remain lower. Residential construction activity was positive throughout most of the District, compared with the same quarter in the previous year. Most contacts noted that home construction has been higher than one year ago; however, contacts were generally less optimistic about the first quarter of 2016.

Commercial real estate market conditions were positive throughout most of the District. Contacts noted about the same to slightly higher demand across all sectors and expect demand to remain the same or increase slightly in the first quarter of 2016. Commercial construction activity continues to be positive. Since the previous report, there were announcements of large-scale multi-family construction projects planned in many parts of the District.

Banking and Finance

A survey of District banks showed stable banking conditions. Loan demand was stronger overall, especially for commercial and industrial loans. While most survey respondents reported unchanged or slightly higher demand for residential mortgages, there was a noticeable increase in the number of banks indicating lower demand. Credit standards were generally unchanged to slightly higher for residential mortgages and business loans, except in St. Louis where they were slightly lower. Standards for the other loan categories were unchanged. Loan delinquencies were unchanged to slightly lower for all loan categories, and the creditworthiness of applicants was unchanged. About one-third of respondents noted decreases in consumer borrowing due to increased competition from alternative lenders.

Agriculture and Natural Resources

As of mid-November, more than 90 percent of the District corn, rice, sorghum, and soybean crops had been harvested, while cotton was just over 80 percent harvested. Contacts noted that extensive rainfall has resulted in lower crop production levels relative to last year. Forecasts indicate that corn, cotton, and rice production will be more than 15 percent below last year’s levels. Sorghum production will be twice as high as the 2014 level, but it is a relatively small share of overall production. Because of relatively low production levels and low crop prices, industry contacts mostly have a negative outlook for farm income. Lastly, the District’s October coal production was 7 percent lower than in 2014. Year-to-date production is currently about 4 percent below last year’s level.

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