Eighth District - St. Louis
Beige Book
September 7, 2016


Information received from business contacts suggests that economic conditions in the Eighth District have slightly improved since our previous report. Manufacturing activity has been mixed, while activity in the service sector has been positive. Employers continued to report modest hiring, although with ongoing difficulties finding qualified workers, and wage pressures remain strong. Price pressures remain modest. Consumer spending was somewhat mixed with auto dealers noting that sales fell short of expectations. Real estate conditions weakened slightly but were generally strong. District Bankers reported strong loan demand. Conditions weakened according to the District’s row crop farmers.

Employment, Wages, and Prices

Contacts noted continued tightening in local labor markets with relatively strong wage growth and moderate employment growth. Among businesses surveyed during mid-August, 60 percent reported nominal wages were higher relative to the same time last year and 30 percent reported employment was higher or slightly higher. Contacts expect similar trends to persist over the next quarter. Contacts in manufacturing, construction, and wholesale trade continued to report difficulties in finding skilled or qualified candidates to fill job vacancies, citing either a shortage of applicants or candidates lacking the necessary skills. 

Contacts reported modest price pressures. Almost half of contacts reported that non-labor input prices were higher or slightly higher than one year ago. However, contacts reported limited movement on selling prices, as only 20 percent reported prices charged to customers were higher or slightly higher than one year ago.

Consumer Spending

Reports from general retailers and auto dealers paint a mixed picture of consumer spending activity in the District. Contacts in the restaurant and hospitality industry in Memphis reported that business continues to be strong, though contacts in Little Rock and eastern Arkansas indicated a slowdown in general retail sales since the previous report. Hotel occupancy rates in Louisville are stabilizing due to a deceleration in lodging demand. Multiple auto dealers indicated that sales fell short of expectations in recent months. The majority of dealers surveyed reported high inventories. Nevertheless, over half of dealers expect an increase in sales in the fourth quarter.

Manufacturing and Other Business Activity

Manufacturing activity has been mixed since our previous report. In a recent survey of manufacturers, roughly one-third reported that production, new orders, and capacity utilization increased in the third quarter relative to one year ago, while one-third reported no change and one-third reported a decrease. Several companies reported capital expenditure and facility expansion plans in the District, particularly among firms that manufacture transportation equipment and industrial machinery. However, reports from manufacturers of primary and fabricated metal products were generally weak. Two manufacturers of metal pipes for the oil and gas industry announced layoffs and cutbacks in production, and a manufacturer of mining equipment components reported that demand was weaker than expected.

Reports of plans in the District’s service sector have been positive since the previous report. In particular, several firms that provide business support services, information technology services, and education services announced plans to build new facilities and hire new employees. Despite growth in the sector, nearly half of service sector contacts reported that sales in the current quarter fell short of expectations. However, the majority reported an increase in the dollar value of sales relative to one year ago, and most expect an improvement in sales in the fourth quarter relative to the fourth quarter one year ago. Reports from the transportation sector were generally mixed; notably, a contact in the railroad industry reported that sales continued to trend downward as a result of fewer coal and crude oil shipments.

Real Estate and Construction

Residential real estate activity has weakened slightly since the previous report but has remained strong overall. Compared with a year ago, July home sales decreased across all four major MSAs, declining by 9 percent in St. Louis, 5 percent in Louisville, 4 percent in Memphis and less than 1 percent in Little Rock. Despite this slowdown, year-to-date sales are higher than one year ago and most real estate contacts reported that recent sales have met expectations. Some contacts noted that some of the sales shortfall was due to a lack of inventory, and approximately two-thirds of contacts indicated that inventory was slightly lower than a year ago. Residential construction activity continued to improve. Most residential real estate contacts reported that new construction was moderately higher than a year ago.

Commercial real estate activity strengthened slightly. Local commercial real estate contacts indicated that demand was either about the same or slightly higher than a year ago for most property types. Reports on inventory levels were mixed. Vacancy rates remained stable or decreased marginally across most property types and regions. Commercial construction activity improved slightly. Several commercial real estate contacts reported an increase in speculative industrial space, but many others reported little change in speculative building activity of other property types.

Banking and Finance

A survey of District banks indicates strengthening loan demand, and credit conditions have remained stable. Demand for mortgages and credit cards remained strong, especially in the St. Louis area. Bankers reported demand for mortgages has consistently increased since the start of 2016. Demand for commercial and industrial loans was mostly unchanged. Credit standards were unchanged in all loan categories. Creditworthiness of applicants was slightly lower for commercial and industrial loans and largely unchanged for all other loan categories. Delinquencies fell or remained stable across the District for all loan categories.

Agriculture and Natural Resources

While the quick return to low crop prices has weakened the near-term outlook for farm income, crop conditions bode well for strong yields. The proportions of corn, cotton, rice, and soybeans rated fair or better were roughly the same as in our previous report, but the proportion of crops rated excellent increased. Contacts also reported good conditions. Multiple contacts noted that expected strong yields, both in the District and elsewhere, are likely playing a role in the return of low prices. The sharp downward trend continues for coal production, with July production down 18 percent from a year ago, and year-to-date production down 27 percent.

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