St. Louis Fed Regional Economist Charles Gascon discusses current economic conditions in the Eighth District, as published in the Beige Book.
Economic activity in the Eighth District has increased at a moderate pace since the previous Beige Book. Most businesses reported improving sales and recent reports of planned activity have been mostly positive. Residential housing market conditions continued to improve at a steady pace, and commercial construction contacts noted a backlog of projects. A survey of small to medium-size District banks indicates strong growth in bank lending. On the other hand, natural resources and agricultural conditions remain weak. Persistent wet weather has led to deteriorating crop conditions, and District coal production continued to decline.
Consumer spending continued to grow at a modest pace since the previous report, with most business contacts reporting year-to-date sales at or above 2014 numbers. Several retailers and restaurants cited sustained increases in demand as reasons for expanding their business or adding new locations. Retail openings were announced throughout the District in the restaurant, grocery, outdoor specialty store, electronics, and apparel sectors. New tourist attractions have also opened within the District.
Reports from local auto dealers on year-over-year sales were mixed. Multiple luxury auto dealers noted strong sales in recent months, while other dealers reported a slowdown since the end of the first quarter. Several auto dealers indicated an increase in the business seen by their service and parts departments, with some attributing this to customers repairing their used cars rather than purchasing new vehicles.
Reports of plans for manufacturing activity have been positive since our previous report. Several manufacturing companies reported plans to add workers, expand operations, and/or open new facilities in the District. In particular, several furniture manufacturers in northern Mississippi have expanded operations or made plans to add capacity in response to increased demand from hotels. Other firms that produce fabricated metal products, plastics and rubber products, machinery, and transportation equipment have also announced plans to hire additional employees and expand operations in the District. In contrast, a few firms that manufacture chemical products and primary metal products reported plans to lay-off workers or close facilities.
Reports of plans in the District’s service sector have also been positive since the previous report. Firms that provide administrative and support services and warehousing and storage services reported new hiring and expansion plans in District states. In contrast, several firms in education and health services reported plans to lay-off employees.
Anecdotal evidence suggests that wage pressures remain moderate and employment growth remains modest. Contacts noted starting wages and salaries have been increasing for administrative support and information technology positions, as well as some temporary positions. A staffing contact in the District noted an uptick in hiring for human resources positions, for both recruiting and staff development. Employers continued to note a shortage of qualified employees, especially in the commercial construction industry where companies are experiencing a smaller pool of job candidates. A contact in the information technology sector noted labor supply for IT consultants is probably at its lowest level in 20 years.
Residential real estate conditions continued to improve at a steady pace. District home sales increased on a year-over-year basis in May: sales were up 5 percent in Louisville, 10 percent in Little Rock, 4 percent in Memphis, and 3 percent in St. Louis. Residential construction in May was mixed when compared with the same period last year. May monthly single-family building permits increased 25 percent in Little Rock and 17 percent in St. Louis. Permits were the same in Memphis and decreased 14 percent in Louisville.
Commercial and industrial real estate market conditions were positive throughout most of the District. Contacts in Memphis reported low vacancy rates, strong demand, and continued fast absorption in the industrial market. Contacts in Louisville reported that warehouse vacancy rates continued to decrease and vacancy rates tightened in part due to increasing property demand from e-commerce companies. Commercial and industrial construction activity was positive throughout most of the District. Commercial construction contacts noted more projects than one year ago, and many have a backlog of projects. A mixed-use area with apartment, office, and retail space is planned in a long-vacant property in Louisville.
Total loans outstanding at a sample of about 80 small and midsized District banks increased about 11 percent in June relative to the same time last year. Overall loan growth was strong although slightly slower than previous quarters. Real estate lending increased about 9 percent over the period of reference. Commercial and industrial loans increased 13 percent over the period, and loans to individuals increased 11 percent. During this period, total deposits at these banks increased 8 percent.
District crop conditions deteriorated since our previous report due to persistent severe weather in the Midwest. About 59 percent of District corn crops remained in good or excellent condition, representing close to a 16-percentage-point decline since our previous report. Notably, Illinois had a record amount of rainfall across the state, topping the previous record established in 1902. A southern Illinois corn farmer noted, “There is good drainage around here, but there’s no way to deal with that much rain.” The damage to field crops also extended to District soybeans, where 76 percent of the crop is rated in good or excellent condition, down 10 percentage points since our previous report. In contrast, the condition of District cotton, rice, and sorghum crops improved moderately since our previous report. District coal production continued to fall short in May, with 13.8 percent fewer tons produced than in the same month last year. Year-to-date production is 7.4 percent lower than at the same time last year.