Eighth District - St. Louis
Beige Book
January 13, 2016

Summary

Economic activity in the Eighth District has increased at a modest pace since our previous report. Business contacts reported that ample job opportunities continued to be available in most areas. General retailers continued to report 2015 sales were at or above 2014 levels, while auto dealers continued to report mixed results. Real estate conditions continued to improve. A survey of District banks suggested banking conditions are stable or generally improving. Crop conditions continued to be troubled by wet weather: Although winter wheat plantings were on schedule and in good condition, late-December rain and subsequent flooding has damaged the crop in some parts of the District.

Employment, Wages, and Prices

Business contacts indicated that growth in employment and wages in the District was modest and prices were generally unchanged. Contacts across the District reported that employment opportunities were available across most industries and regions. Contacts in the construction industry continued to report that difficulty finding workers was restraining their ability to grow. Contacts reported that year-end raises were generally at or slightly above last year’s levels while their prices charged to customers were generally unchanged from one year ago.

Consumer Spending

Retail sales growth has remained modest since the previous reporting period. Retail contacts reported holiday sales were slightly higher than one year ago and that year-to-date sales for 2015 were slightly above 2014 levels. Contacts indicated that sales at a new outlet mall in Arkansas have exceeded expectations since the mall opened three months ago. A large, multi-location convenience store chain in the District is looking to expand after seeing record profitability in 2015, attributing this success mostly to low gasoline prices. Hospitality contacts reported favorable occupancy rates, and multiple downtown Louisville hotels announced renovation plans.

Reports from auto dealers continued to be mixed. The majority of contacts indicated that year-to-date sales are higher compared with the same time last year. However, several contacts reported a slowdown in activity over the past few months, including a luxury auto dealership that reported sales recently have been far below expectations.

Manufacturing and Other Business Activity

Manufacturing activity has been positive since our previous report. Several companies reported capital expenditure and facility expansion plans in the District, including firms that manufacture food and beverage products, electrical equipment, and machinery. In particular, firms that manufacture motor vehicles and motor vehicle parts have announced significant expansions. In contrast, reports from the primary metals industry were negative. A large steel manufacturer temporarily suspended production, citing low prices, increased imports, and decreased demand from the energy sector. Similarly, a contact in the aluminum industry reported a pessimistic outlook as a result of increased competition from abroad.

Reports of plans in the District’s service sector have been positive since the previous report. Firms that provide health care and social assistance services and leisure and hospitality services reported plans to hire new employees and expand facilities. Reports from the transportation sector, however, were mixed. Some contacts in the trucking industry reported plans to hire new drivers and that low fuel prices were boosting revenue; parcel companies in the District reported record holiday-related demand. Other industry contacts reported weak volume of freight loads for this time of year. A contact in water transportation noted that falling crude oil prices have reduced barge traffic and revenues. Recent flooding along the Mississippi river temporarily halted barge traffic and led shippers to seek alternative means of transportation.

Real Estate and Construction

Residential real estate activity has continued to improve since our previous report. Compared with the same period in the previous year, November home sales increased on a year-over-year basis: 13 percent in Little Rock, 5 percent in Memphis, and 1 percent in St. Louis; sales were generally unchanged in Louisville. Residential construction activity increased throughout most of the District. On a year-over-year basis, November single-family building permits increased 61 percent in Louisville, 21 percent in Memphis, and 3 percent in St. Louis. Most contacts expressed a positive outlook for residential construction activity for early 2016. Commercial real estate market conditions continued to improve throughout most of the District. Commercial construction activity continued to increase throughout all sectors, and contacts expect the commercial real estate market to strengthen further in the first quarter of 2016.

Banking and Finance

Banking conditions in the District remained positive in December. Compared with earlier in 2015, loan growth in December was slightly better and remains above historical averages. Total loans outstanding at a sample of about 80 small and midsized District banks increased 11 percent in December from the same time last year: Real estate lending increased 10 percent, Commercial and industrial loans increased 10 percent, and loans to individuals increased 7 percent. Lending growth in real estate was better in December than earlier in 2015, while growth in C&I and individual loans was flat to somewhat lower. During the reporting period, total deposits increased 7 percent relative to a year ago, slightly faster than the pace of deposit growth in the nation.

Agriculture and Natural Resources

As of late November, District winter wheat was roughly 95 percent planted, which is consistent with recent history. More than 94 percent of District winter wheat was rated fair or better. However, due to warmer weather about 86 percent of the crop had already emerged—a proportion that is notably higher than recent averages. Moreover, late December flooding has led to concerns about significant crop damage.

Year-to-date District coal production was 5 percent below the 2014 level by the end of November, while production in the month of November was almost 12 percent below the amount produced during the same month in 2014.

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