Beige Book Report: St Louis
March 15, 1989
Summary
The Eighth District economy expanded moderately in recent months,
following several quarters of stagnation. Unemployment rates in most
District states edged downward. Employment gains in the services and
construction sectors were particularly strong. District banks report
improved profitability and asset quality in 1988.
Outlook
A January 1989 survey of 255 District small businesses revealed a
slightly more favorable outlook than a year earlier. In both
surveys, most respondents felt that general economic conditions
would not change substantially in the following two quarters, but
far fewer respondents in the most recent survey foresee a general
economic weakening. More respondents plan to increase their
workforces than in January 1988 (24 percent vs. 12 percent), but
there was no change in the percentage planning major capital
expenditures in the near future (4l percent). Both surveys found
that slightly more than 25 percent of the businesses had job
openings they were unable to fill. One quarter planned increases in
average compensation to workers in the near future, a slightly
smaller fraction than a year earlier.
Responses from the 42 manufacturers in the sample revealed that 48 percent plan to hire workers in the first quarter of 1989, double the percentage for the entire sample. The manufacturers were also having more difficulty filling current job openings (38 percent vs. 26 percent overall) and were more likely planning to increase compensation to workers (33 percent vs. 25 percent overall).
Employment
Payroll employment rose at a 3.4 percent rate in the fourth quarter,
following two quarters of stagnation. Strong job growth in services
(particularly business and health services), construction and trades
was largely responsible for the employment turnaround. Although
employment in the District transportation and public utilities
sector trended downward in recent quarters, it has continued to grow
in Memphis, where the expansion of three trucking firms has caused a
shortage of qualified truck drivers. These firms plan to hire 1,500
drivers.
Manufacturing
Manufacturing employment rose 2.2 percent in the fourth quarter.
Employment in the printing and publishing and the food products
sectors rose most rapidly. Producers of transportation equipment
continued to increase their workforces, Because of a substantial
backlog of orders and the development of new products, the
production of military aircraft remains strong in Missouri despite
an 8.2 percent drop in the state's defense contracts in the last
fiscal year. After falling in the previous three quarters, apparel
and textile employment has stabilized because of recent increases in
denim orders and gradual declines in textile inventories. Several
District lumber mills are expanding this year, in response to
sharply increased exports.
Construction
District construction activity has picked up in recent months. In
the three months through January, the value of residential and
nonresidential contracts rose 4.1 percent and 27 percent. The rise
in nonresidential building was partially due to large construction
contracts for manufacturing plants in Arkansas, office and medical
buildings in Missouri and various buildings in Kentucky. District
lumber associations note a slight softening in demand for
residential lumber in recent months.
Agriculture
District extension agents report farmer participation in government
programs is down from last year, indicating that farmers are more
confident about profitability in 1989. Favorable weather patterns
have brought soil moisture to near normal levels in most of the
District. Some portions of the District, however, are still
experiencing drought conditions, while others are facing excessive
moisture problems. Continuing drought conditions, in conjunction
with frigid temperatures in northeastern Missouri, may have damaged
the dormant winter wheat crop. February flooding in portions of
Kentucky and Tennessee has destroyed a small amount of the wheat
crop, and continued wetness has prevented farmers from applying
fertilizers and herbicides.
Banking
Preliminary data for year-end 1988 indicates that both profitability
and asset quality improved at Eighth District banks. Return on
assets averaged 0.93 percent in 1988, up from 0.80 percent in 1987.
Nonperforming loans dropped sharply in 1988, from an average of 2.10
percent of total loans in 1987 to 1.61 percent. Net loan losses as a
percent of total loans remained virtually flat in 1988 as the
reduction in net loan losses by smaller banks was offset by
increases incurred by banks with assets over $1 billion.