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Beige Book Report: St Louis

December 4, 1991

Summary
Consumer spending on general merchandise and automobiles continues to be weak. Local retailers are generally optimistic, however, about sales prospects for the holiday season. Additional layoffs at District durable goods manufacturers have been announced in recent weeks. Overall conditions in the District's manufacturing sector are decidedly mixed. Residential construction and existing home sales have picked up. Loan demand remains weak. Favorable cotton, rice and soybean harvests have boosted District agricultural prospects.

Consumer Spending
Retail sales of general merchandise in the Eighth District are reported to be up a modest 2 to 3 percent, although in real terms, sales are believed to be nearly flat. Among major District cities, Louisville reports the largest gains. In most other regions of the District, low consumer confidence was identified as playing a significant role in the continuing weakness of retail sales. In the Louisville area, retailers report higher-than-normal advertising and a sharp increase in price-cutting to attract hesitant consumers. Although retailers are concerned about the shortened holiday season, most are generally optimistic; contacts report, however, that consumers seem inclined to delay their Christmas purchases, few of which are likely to be luxury goods.

New vehicle sales continue to decline and lower-priced models are selling better than luxury cars. Used car sales are stronger than those of new cars. Some dealers expect no significant increase in sales until mid-1992.

Manufacturing
Manufacturing activity continues to be mixed. A number of large layoffs and plant closings have been announced in recent weeks, with the biggest job losses occurring in the defense, computer and consumer electronics industries. The planned closing of a major Mississippi apparel plant with 600 employees, however, has been averted because of a management buyout. Weak demand in the housing and automobile sectors has depressed the price received by a major District metals producer, but capital spending plans and employment have remained stable. A chemical manufacturer in the District attributes a recent leveling off of sales to the lull in the national economy. A pulp and paper manufacturer in Arkansas reports weak demand for paper used in advertisements. Two St. Louis area firms report that demand for their food and beverage products has declined.

Strong demand for some vehicles produced at Louisville and St. Louis plants has stabilized employment in the District's auto industry. Production at footwear manufacturer in Arkansas is at its highest level in several years. A cosmetics maker reports increased sales and has begun to add employees. Likewise, a heavy equipment distributor in Memphis reports strong demand.

Construction and Real Estate
Homebuilders report a modest improvement in single-family home starts over the previous year, although year-to-date starts are still substantially below 1990 levels. New home prices are flat to declining. One Little Rock contact noted that, despite lower interest rates, many first-time homebuyers were being kept out of the market because of a lack of savings for a downpayment and difficulty qualifying for loans. The average prices of existing homes sold recently have risen slightly in most parts of the District.

Banking and Finance
Total loans outstanding at large District banks declined less in the last two months than they had in the prior two months, with all major categories except consumer loans showing improvement. Continued weakness in new car sales and a reluctance to incur additional debt are blamed for soft consumer loan demand. A large residential mortgage operation in St. Louis is laying off about 700 workers, one-third of its staff, over the next several months.

Agriculture
Contacts in Arkansas and Mississippi report bumper rice and cotton crops; some of the cotton in Mississippi is reported to be of exceptionally high quality. Although cotton prices have declined recently, mill demand is reported as strong. Soybean yields throughout the District states have improved from mid-summer estimates. Tennessee farmers report that mild fall weather and late season rains have significantly helped their cotton and soybean crops. The fall apple crop in the District is reported to be abundant, but concerns about quality persist. Catfish prices at the farm level continue to tumble, reaching their lowest level in several years. Poultry producers in Arkansas report reduced profit margins.