Beige Book Report: St Louis
May 8, 1996
Summary
District economic activity has increased since the last report. Most
contacts report stronger growth recently relative to the first two
months of the year. Noticeable cost pressures are reported for
several industries because of tight labor markets and substantial
increases in fuel and feed grain prices. Residential and
nonresidential construction have picked up after a slow January.
Home sales have also improved in most parts of the District. Recent
District loan growth is on par with that of last year, and many
respondents report strong loan demand and aggressive competition for
loans. A large percentage of the District's weather-damaged winter
wheat crop will be plowed under and replanted with other crops.
Manufacturing and Other Business Activity
Reports from District contacts are more upbeat than they have been
in the past few months. Expansions and new plant openings are
leading to increased employment, and, once again, reports of tight
labor markets are prevalent. Some firms have cut back production,
however, usually because of company consolidation or cost cutting.
A snack food maker is expanding into northeast Arkansas where it will initially hire 200 to 400 workers by early next year. A large Missouri manufacturer of chemicals and related products reports a noticeable uptick in demand for materials used in the housing and auto sectors; an even larger increase is noted for agricultural- related products. A bank card processing center is expanding to southwest Missouri, bringing 750 jobs by year's end. A new Tunica County, Miss., casino has already hired 600 workers and is looking for 3,000 more. A concern, though, is that there are not enough workers in the area to satisfy this demand.
Other contacts also report tight labor markets. Restaurant and other food service establishments are having a difficult time finding staff. One restaurant delayed its opening for two months because it could not find enough help, and a Tennessee hotel had to hire labor from overseas. The temporary employment industry is also encountering staffing problems.
Production has slowed at some firms, though, usually because of company consolidation or cost cutting. A national railroad is shutting a diesel shop in Missouri to cut costs; most of the 240 workers will be offered transfers, however. A contact in the paper industry reports that production of coated paper has been halted because of excess inventory. Sales of bleached paper, used in milk and juice cartons, are strong, though.
Wages and Prices
Contacts continue to report increasing costs for raw materials and
labor. In contrast to previous reports, however, some contacts have
indicated that these higher costs are being successfully passed
along to consumers. Most of the cost increases are between 2 and 3
percent. One contact notes that his firm is able to increase prices
now because the government has restricted foreign competition and
his firm's major domestic competitor has left the market.
Substantial increases in wheat and feed grain prices have caused
most large poultry producers in the District to curtail planned
production by about 7 percent. Because stocks of poultry meat are
already high, retail price increases are not expected in the near
term. The recent uptick in oil prices has boosted fuel costs for the
transportation industry and increased consumer gasoline prices. An
industry analyst notes that, through negotiated contracts, some
trucking firms have been able to pass along a portion of this
additional cost. A large manufacturer of synthetic materials reports
that there has been a modest rise in petrochemical prices over the
last month or so; however, it has been unable to pass along this
price increase.
Real Estate and Construction
After a slowdown in January because of bad weather, residential
construction activity picked up in February and March. In some parts
of western Kentucky, there is still a backlog of houses under
construction, which is keeping contractors busy. Most contacts
report that sales activity has also picked up; in some cases,
existing homes are selling better than new homes. Mid-priced homes
($125,000 to $165,000) are the strongest sellers in most markets.
Average sale prices in most District areas have remained stable,
though. Contacts in most parts of the District continue to report
strong nonresidential construction.
Banking and Finance
Total loans outstanding at 11 large District banks increased 2
percent between mid-February and mid-April, just slightly less than
the increase in the same period last year. Commercial and industrial
loans declined 0.1 percent, and consumer loans declined 0.8 percent,
while real estate loans rose 3.6 percent. District banking contacts
still describe loan demand as moderately strong and competition as
aggressive, with one noting that loan pricing is "predatory."
Several contacts note a slight increase in nonperforming consumer
loans, but indicate that current levels are not troublesome.
Agriculture and Natural Resources
Harsh winter weather conditions caused substantial damage to much of
the District's winter wheat crop, with the crops in Illinois,
Indiana and Missouri generally in poor to very poor condition.
Reports from Illinois suggest that as much as half of the state's
crop will be plowed under and planted with corn, soybeans or milo,
while a quarter or more of the Missouri crop will be replanted. An
early spring freeze in Arkansas caused an estimated 50 to 75 percent
loss of the peach crop. Corn planting is generally proceeding ahead
of schedule. Heavy rainfall across Missouri, southern Illinois and
southern Indiana in late April caused isolated flooding in low-lying
areas and along minor rivers and streams. As a result, some farmers
may be forced to replant portions of their corn crops.