Eighth District - St. Louis
Beige Book
October 14, 2015

Summary

Economic activity in the Eighth District increased at a modest pace since our previous report. Despite steady employment growth, contacts across many industries reported difficulties finding workers. Retailers and auto dealers continued to report higher sales. Banks continued to report strong growth in loans, although loan growth has slowed from our previous report. Real estate conditions continued to improve at a steady pace as home sales and permits increased in most areas. Poor crop conditions and falling prices are putting downward pressure on farm incomes.

Employment, Wages, and Prices

District employment grew at a modest pace since our previous report. Firms that provide warehousing and distribution services, information technology services, and health care and social assistance services reported plans to hire new employees. Contacts across many industries reported increased hiring difficultly. Reports from the manufacturing sector were mixed. Manufacturing contacts in rural areas throughout the District continue to report difficulty finding and retaining qualified employees. In particular, contacts in the rapidly growing furniture manufacturing sector in northern Mississippi have struggled to find enough employees with cutting and sewing skills. Contacts in trucking and other modes of transportation continue to report a shortage of qualified operators and technicians.

Contacts reported that lower fuel prices have led to lower fuel surcharges, and prices for agriculture-related consumer goods are falling in response to the crop price declines. Wages in the District grew at a modest pace, with contacts reporting wage and salary adjustments around 2 percent. One contact noted workers are changing jobs as a means of obtaining higher pay.

Consumer Spending

Anecdotal evidence from local contacts indicates that the retail sector experienced modest growth since the previous report. The majority of contacts indicated that sales met or exceeded expectations. However, some retailers noted a slight slowdown in activity during the final weeks of summer. Retail activity continues to pick up in southern Indiana, as firms have announced plans of new retail development and the expansion of existing retail centers.

Reports from auto dealers were mixed. Multiple contacts reported increased foot traffic and sales in recent weeks compared with the previous quarter. Several others noted that sales, services, and repairs have recently decreased but expect activity to pick up for the remainder of the year. Contacts continued to indicate a shift in demand toward trucks and SUVs and away from cars as the result of low gas prices.

Manufacturing and Other Business Activity

Manufacturing activity has improved at a modest pace since our last report. Several companies in the District, including firms that manufacture appliances, transportation equipment, primary metals, and plastics and rubber products, reported increased capital expenditures and facility expansion plans.

Reports in the District’s service sector have been generally positive since the previous report. Several universities, hospitals, and senior care facilities reported plans to build new facilities or upgrade existing ones. Transportation industry contacts reported a mixed outlook. Several contacts have noted a sharp slowdown in shipments of materials related to the energy sector but are continuing capital expenditures as previously planned.

Real Estate and Construction

Residential real estate activity continued to expand, but at a slower pace than in the previous report. That said, contacts expect a steady improvement through year-end. Compared with the same period in 2014, August home sales increased on a year-over-year basis: 2 percent in Little Rock, 1 percent in Louisville, 7 percent in Memphis, and 2 percent in St. Louis. Residential construction increased in the majority of the District’s metro areas on a year-over-year basis. Compared with the same period in 2014, August single-family building permits increased 6 percent in Little Rock, 8 percent in Memphis, and 20 percent in St. Louis and decreased 2 percent in Louisville. Contacts expect further increases in home construction to catch up with the current high-demand and low-inventory situation.

Commercial real estate market conditions were positive throughout the District. Contacts reported high demand in the apartment, office, and industrial real estate markets. Many retailers are shifting toward downsizing but are willing to pay higher rents for smaller locations. Commercial construction activity continued to be positive throughout most sectors. Construction activity was particularly high in the healthcare sector, with expansions of medical office campuses.

Banking and Finance

Overall banking conditions remain strong in the District. Loan growth slowed somewhat relative to prior quarters but remains in positive territory and above the national growth rate. Total loans outstanding at a sample of about 80 small and mid-sized District banks increased 10 percent in September from the same time last year. Real estate lending increased 9 percent over the reference period. Commercial and industrial loans increased 10 percent over the period, and loans to individuals increased 7 percent. Lending growth in each of these categories was slower in September than in the earlier this year, but growth rates remain above historical levels.

Agriculture and Natural Resources

Contacts expect District row crop yields to be about 10 percent below 2014 levels as the result of extensive rainfall. Many contacts believe that crops with earlier planting seasons, such as corn, will experience a yield decline of up to 30 percent in the most rain-ridden areas. Contacts noted that with the recent decline in crop prices and stickiness of some input prices, production levels will not be high enough to prevent a decline in net farm income. While most livestock-related prices are also trending downward, the recent bird flu outbreak has had a mixed impact on poultry prices. District coal production has continued to fall, with August production 4.7 percent below the August 2014 level. Year-to-date coal production is currently 5.1 percent below last year’s level.

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