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Eighth District - St. Louis
Beige Book
July 16, 2014

Wednesday, July 16, 2014

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Economic activity in the Eighth District has increased modestly since the previous report. Retail activity in the District has expanded at a modest pace. Recent reports of planned activity in manufacturing and services have been positive on net. Residential real estate market conditions have continued to deteriorate throughout the District, while commercial real estate market conditions have improved. Lending activity at a sample of small and mid-sized District banks has increased slightly. Finally, wage and employment levels have grown modestly, while prices have increased slightly.

Consumer Spending

The retail sector experienced, on net, modest growth across the District with openings announced in the apparel, auto, and home and garden sectors, but these were accompanied by a few closures by both national and local retailers. Contacts noted that the retail furniture market remains soft in parts of the District. One major mall in the District saw slightly positive sales growth. Contacts reported good sales entering the summer months for hardware/lumber yards, retail establishments, and restaurants. Finally, some restaurants and businesses across the District saw historically large revenue during the World Cup festivities.

Manufacturing and Other Business Activity

Reports of plans for manufacturing activity have been positive since our previous report. Several manufacturing firms reported plans to add workers, expand operations, or open new facilities in the District, while a smaller number of manufacturers reported plans to reduce their workforces. Firms in auto parts, medical equipment, adhesive and sealant products, precious metals, electronic products, alcoholic beverage, and boat manufacturing plan to hire new employees and expand operations in the District. In contrast, firms that manufacture food and pharmaceutical preparations reported plans to lay off workers in the District.

Reports of planned activity in the District's service sector have been positive since the previous report. Firms in transportation; distribution; courier and express delivery; and business, engineering,communication, and hotel services reported new hiring and expansion plans in District states. In contrast, firms in health care, adjustment and collection, and media services plan to lay off employees. Contacts in Louisville reported that more restaurants are opening than are closing and that a major grocer expanded floor space.

Real Estate and Construction

Sales of new and existing homes have decreased in the largest metro areas of the District. Compared with the same period in 2013, May 2014 year-to-date home sales were down 6 percent in Little Rock, 4 percent in Louisville, 5 percent in Memphis, and 11 percent in St. Louis. May 2014 year-to-date single-family housing permits decreased in the majority of the District metro areas compared with the same period in 2013. Permits decreased 25 percent in Little Rock, 17 percent in Louisville, 1 percent in Memphis, and 3 percent in St. Louis.

Commercial and industrial real estate market conditions have improved, on balance, since the previous report. A contact reported weak demand for office space in the Louisville downtown area, but expected an increase in office space leasing activity because of recent employment gains. Contacts in Memphis noted strong retail leasing activity. A contact in Little Rock reported a stable and healthy industrial market. A contact in St. Louis reported tight market conditions in the industrial market and an increasing demand for new warehouse distribution centers with high ceilings and good multi-modal access. Commercial and industrial construction activity improved throughout most of the District. A contact in Memphis reported a commercial expansion in Shelby Farms Park. A contact in Louisville reported a new commercial development project in northern Kentucky. A contact in Little Rock reported a new office building under construction in Pinnacle Hills Promenade in Rogers, Arkansas. A contact in St. Louis reported an increase in commercial construction projects in north St. Louis County.

Banking and Finance

Total loans outstanding at a sample of small and mid-sized District banks increased 2.8 percent from mid-March to mid-June. Real estate lending, accounting for 72 percent of total loans, increased 1.4 percent over this period. Commercial and industrial loans, accounting for 16 percent of total loans increased 4.7 percent over the period. Loans to individuals, accounting for 5.1 percent of total loans, increased 4.6 percent over the period. All other loans, accounting for 6.8 percent of total loans, increased 12.5 percent over the period. During this period, total deposits at these banks decreased 1.7 percent.

Agriculture and Natural Resources

As of late June, District farmers had completed the corn, cotton, and rice plantings. In contrast, soybean and sorghum plantings were behind the 5-year average rate of progress in Tennessee, Arkansas, Mississippi, and Kentucky. Over 90 percent of the District's corn, cotton, rice, sorghum, and soybean crops were rated in fair or better condition. The winter wheat harvest was behind its 5-year average rate of progress for all District states. Year-to-date coal production in the District for May 2014 was 1.5 percent lower compared with the same time last year. However, District coal production for May 2014 was 0.3 percent higher than in May 2013.

Prices, Wages, and Employment

Business contacts in the District indicated that wage and employment growth has been modest, while prices have increased slightly since the previous report. Contacts in the manufacturing sector throughout the District cited lack of skilled blue-collar and technical workers as a concern, in some cases limiting business expansion. Contacts in Little Rock and Louisville noted that wages are rising moderately for positions where the employment supply is limited. New hiring reports from Louisville were notably positive: A mall that will employ more than 1,000 employees is set to open, and an e-commerce retailer is filling more than 500 full-time jobs at its distribution center to meet growing demand.

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