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Eighth District - St. Louis
Beige Book
September 2, 2015

Wednesday, September 2, 2015


Economic activity in the Eighth District has continued to increase at a moderate pace since the previous Beige Book. A survey of District businesses indicated that wage growth was generally moderate and employment growth was modest. Retailers and auto dealers continued to report higher sales; although some retailers did report that current quarter sales have been lower than expected. Reports from manufacturers were mixed. Banks reported increased lending activity over the past three months. Real estate conditions continued to improve at a steady pace, as home sales were up and construction activity remained robust. On the other hand, agricultural and natural resources conditions remain weak as crop conditions continued to deteriorate and coal production continued to decline.

Employment, Wages, and Prices

A survey of about 150 District businesses indicated that wage growth in the District was moderate, while employment and prices grew modestly. Fifty-nine percent of contacts indicated that wages during the past three months were higher, and thirty-eight percent indicated wages were unchanged relative to the same period last year. Thirty-seven percent of contacts reported that employment during the past three months was either higher or somewhat higher as it was during the same period last year, fifty-six percent reported their employment was unchanged, and the remainder indicated a slight decline. Two-thirds of hiring managers are actively looking for employees, mainly for sales, managerial, and professional and technical positions. A contact in the construction industry mentioned the talent pool for skilled positions remained limited. Finally, about half of contacts reported that prices charged to customers were about the same during the past three months relative to last year, thirty-five percent reported an increase, and the reminder reported a decrease in prices.

Consumer Spending

Reports from general retailers were mixed. Most contacts reported sales at or above 2014 levels in the most recent quarter. However, many of these contacts indicated that sales fell short of their expectations. Still, the majority of respondents have a somewhat optimistic outlook. A Louisville travel agency noted recent sales have exceeded expectations as consumers appear to have more discretionary income to spend on leisure travel.

The majority of auto dealer contacts indicated an increase in sales since the beginning of July compared with the same period last year, and many expect the trend to continue through the fourth quarter. Several dealers reported a shift toward more high-end and new cars. One dealer reported record sales of its high-end models. A few contacts noted that low gas prices continue to have a positive impact on demand. Others mentioned that parts/service volumes remain high.

Manufacturing and Other Business Activity

Manufacturing activity has been mixed since our previous report. New orders were unchanged on net, with reports of increased orders offset by an equal number of reports of decreased orders. A majority of manufacturing contacts noted that orders have been short of expectations during the third quarter. Expectations for new orders in the next quarter were similarly mixed. Contacts in furniture manufacturing have reported continued expansion in northern Mississippi amid exceptionally strong demand; in contrast, contacts in the steel industry have reported increased competition from imports and weak demand from the energy sector.

Reports from the service sector contacts have also been mixed since the previous report. Several firms that provide healthcare, food, and accommodation services reported new hiring and expansion plans in District states. A majority of contacts in the healthcare industry noted that sales met expectations in the second quarter but were largely unchanged from one year ago.

Real Estate and Construction

Residential real estate activity continued to expand at a steady pace. June year-over-year home sales increased 7 percent in Little Rock, 20 percent in Louisville, 13 percent in Memphis, and 16 percent in St. Louis. June monthly single-family building permits increased 34 percent in Little Rock, 12 percent in Louisville, and 7 percent in St. Louis, while permits decreased 19 percent in Memphis. Contacts noted that residential construction activity is expected to continue to increase through the fourth quarter.

The commercial and industrial real estate market conditions were positive throughout the District. Most survey contacts reported higher demand for office and industrial properties. Class A office vacancy rates remain low in Memphis and St. Louis. Commercial and industrial construction activity was positive throughout most of the District. Contacts in St. Louis noted a large increase in speculative construction of industrial properties. There was an increase in speculative retail areas in Little Rock, catering to smaller build-to-suit retailers and restaurants.

Banking and Finance

A survey of District banks showed improvement in overall lending activity over the past three months. Loan demand was stronger, especially for residential mortgage and commercial and industrial loans. For auto loans, demand was mostly unchanged. Credit standards were unchanged for most loan categories; however, a small number of bankers noted tightening standards for residential mortgages. Creditworthiness of applicants remained unchanged to slightly better in most loan categories. Loan delinquencies were lower for all loan types. Several respondents noted improved loan performance as the job market tightens and local businesses experience increased demand.

Agriculture and Natural Resources

District crop conditions have been mixed since our previous report. Conditions deteriorated slightly for corn and soybeans but improved for cotton and rice. The share of District corn and soybean crops rated in good or excellent condition declined slightly since our previous report. However, close to 20 percent of both the corn and soybean crops across Illinois, Indiana, and Missouri was rated in very poor or poor condition. The outlook for many row-crop farmers remains negative as a result of lasting damage from record rainfall. As of late July, approximately 20 percent of the Missouri sorghum and soybean crops remained unplanted. In contrast, since our previous report, there was a slight increase in the percent of the District cotton and rice crops rated in good or excellent condition. Most of the improvement for the District cotton crop was driven by an improvement in Tennessee. District coal production continued to fall short in July, with 8.7 percent fewer tons produced than in the same month last year. Year-to-date coal production is 5.2 percent lower than at the same time last year.

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