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

Wednesday, July 13, 2016


Economic conditions in the Eighth District have continued to improve at a modest pace since our previous report. Job growth remains modest although some employers report ongoing difficulties finding workers to fill vacant positions. Meanwhile, wage pressures remain strong. Retail sales continued to grow at a modest pace, with positive reports from auto dealers. Manufacturing has shown slight improvement after modestly weaker activity earlier in the year. District residential real estate activity remains robust, and commercial developers continue new construction projects. Banks report strong loan demand from both households and businesses in June. Lastly, conditions remain favorable for the District’s row crop farmers.

Employment, Wages, and Prices

District wage growth has been strong, employment growth has been modest, and price pressures have remained slight. Contacts in Louisville noted that difficulty attracting employees is resulting in upward pressure on wages, particularly in the manufacturing sector. A manufacturing contact in Louisville reported employment in their firm increased by 4 percent compared with the same period last year, and contacts across several industries expect employment to be either stable or increasing over the next year. In general, contacts have reported only slight increases in prices charged to customers; however, agribusiness contacts have seen a steady increase in row crop prices.

Consumer Spending

General retail sales have continued to grow modestly since the previous report. Contacts expect sales to remain the same or increase slightly during the third quarter, as households are generally reporting favorable buying conditions for major household items. Reports from auto dealers were mainly positive. Auto dealers in eastern Arkansas reported that sales continue to be favorable compared with 2015. Multiple dealers noted that they expect an increase in year-over-year sales in the third quarter.

Manufacturing and Other Business Activity

Manufacturing activity has slightly improved since our previous report. Several companies reported capital expenditure and facility expansion plans in the District, including firms that manufacture motor vehicles, wood products, and beverage products. Several food manufacturers also reported plans to hire new employees and expand facilities, but one firm reported plans to lay off workers following investments in more-efficient equipment. News from furniture manufacturers was mixed: A few furniture industry contacts reported plans to open or expand facilities, while others noted that sales have been soft and that inventories have begun to accumulate. Some manufacturing contacts reported a boost from low raw material prices.

Reports of plans in the District’s service sector have been positive since the previous report. In particular, several firms that provide online retail and package delivery services have announced plans to build new facilities and hire new employees. Many healthcare providers also reported plans to renovate and expand facilities and hire additional staff. Reports from the transportation sector were mixed. One contact in the trucking industry reported plans for a large expansion, but another trucking contact with ties to the energy sector reported a decline in business and plans to reduce employment through attrition.

Real Estate and Construction

Residential real estate activity remained strong in most of the District. Year-over-year May home sales increased by 15 percent in Little Rock, 4 percent in Louisville, 11 percent in Memphis, and 6 percent in St. Louis. Three-quarters of local real estate contacts expect demand for single-family homes in the third quarter to be slightly higher than the same time last year. Residential construction activity improved moderately, driven by high demand and low inventory. Most real estate contacts expect an increase in construction during the third quarter. However, multiple contacts noted a lack of developed lots for new construction.

Commercial real estate activity was generally positive throughout the District. Demand remained relatively high for most sectors. Commercial construction activity improved slightly. Most construction contacts expect third-quarter demand to remain about the same year-over-year. Several projects relating to healthcare were announced through the District, and hotel and multifamily housing construction projects have been announced in both Louisville and St. Louis.

Banking and Finance

Banking conditions in the District were robust in June. The pace of loan growth remains above the national pace, but leveled off slightly compared with last quarter for all loan categories except commercial and industrial loans. Total loans outstanding at a sample of about 80 small and midsized District banks increased 21 percent in June from the same time last year. Real estate lending increased 18 from the same time last year. Commercial and industrial loans increased 27 percent over the period, and loans to individuals increased 38 percent.

Agriculture and Natural Resources

Most fields were unscathed by the heavy rain in May and early June. About 94 percent of both District corn and soybeans were rated fair or better as of mid-June, which is around 5 percentage points higher than their 5-year averages for both crops. Among major District row crops, rice is the only crop with a lower rating than its 5-year average. With healthy fields and the recent crop price rally, row crop farmers are set to experience significant income improvements relative to 2015. Meanwhile, the coal outlook is not experiencing any such rebound. District production in May was down nearly 30 percent relative to May 2015.

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