Beige Book Report: St Louis
December 1, 1987
Summary
The District's economy improved slightly in the most recent period.
Employment growth, particularly in the manufacturing sector, and an
agricultural turnaround are positive developments. Slowing
construction, flat retail sales and declining consumer loan demand
remain weak points in the economy. There is no evidence yet that the
stock market volatility has had a major effect on economic activity.
Employment
District unemployment rates edged downward in the third quarter,
with few reports of shortages in skilled trades. A shortage of
skilled construction workers in the St. Louis area eased this year
as a number of large projects were completed.
Regional nonfarm employment grew at a 2.2 percent annual rate in the third quarter, matching the national rate. While employment in most District sectors grew more slowly than the national average, the financial, government and manufacturing sectors grew more rapidly. District manufacturing employment grew at a strong 4.2 percent pace in the third quarter with gains concentrated in industries sensitive to foreign competition, particularly textiles and apparel, electrical equipment and transportation equipment. Several thousand auto workers began a layoff of indefinite length in late November.
Consumer Spending Reports indicate that District retail sales were flat in the third quarter. Spending in Memphis, however, has increased rapidly in recent months, especially on automobiles and other durables. Contacts reported little noticeable effect of the stock market downturn on subsequent retail sales. The outlook for District sales in the fourth quarter is mixed. Contacts in most areas anticipate only slight to moderate growth over last year's sales. Some retailers in western Tennessee expect fourth quarter sales to be slightly lower than a year earlier, as spending slows after a strong third quarter and shaken consumer confidence inhibits spending.
Construction
District construction activity continued to weaken. The seasonally
adjusted value of construction contracts awarded in the District
dropped 6.9 percent in the third quarter, compared with a 5.5
percent national gain.
Residential construction weakened in the third quarter with both single-family and multi-family building declining. Contacts noticed a few cancellations of upscale homes ordered before the October stock market plunge, but the overall effect has been minimal. The recent slowdown in existing home sales is attributed primarily to seasonal factors and only secondarily to declining consumer confidence.
Nonresidential building declined in the third quarter in most part of the region, with District contracts down 9.1 percent. Tennessee, however, has reported steady gains throughout the year.
Banking
A recent survey of five large District banks revealed a notable
slowing in consumer loan demand. Compared with last spring, home
equity loan applications are lower. After the stock market plunge,
however, one of the banks reported a significant increase in loan
applications. All respondents reported an increased willingness to
make consumer loans, in particular, home equity loans. Several banks
had implemented aggressive marketing campaigns to increase home
equity loan applications.
Agriculture
The District's Economic Advisory Council indicated that the region's
farm economy has stabilized and the value of high-quality farmland
has begun to rise. Low-quality land, however, continues to fall in
value. Farm income has recovered and farmers are paying down debt
due to large government price support payments. Farm loan
delinquencies at District agricultural banks in the third quarter
fell to 6.1 percent from 6.7 percent a year earlier. Loan charge-
offs at agricultural banks fell to .68 percent from .89 percent last
year.
The crop year has been a good one with abundant yields of most crops. Cotton and corn yields were far above previous records in many states, while rice yields matched last year's record. Dry weather has allowed farmers to harvest crops at a quick pace, but has harmed the soybean, tobacco, wheat and pasture crops in the southeastern parts of the District.