Beige Book Report: St Louis
October 19, 2016
Information received from business contacts suggests that economic conditions in the Eighth District have modestly improved since our previous report. Manufacturing and transportation activity continues to be mixed, while activity in other parts of the service sector remains positive. Employers reported moderate hiring. Wage pressures were also generally moderate, but with stronger growth for certain entry-level positions. Price pressures remain modest. Consumer spending grew modestly, with auto dealers noting improving sales and a somewhat optimistic outlook for the remainder of the year. Real estate activity improved for both residential and commercial property types. District bankers continued to report strong loan demand. Row crop farmers in the District are expecting record yields.
Employment, Wages, and Prices
Despite continued tightening in local labor markets, wage growth and employment growth has generally been moderate. Still, contacts across the District reported high demand for labor in some industries, particularly in manufacturing, construction, healthcare, and financial services. Wages for entry-level positions in these industries have also generally increased faster than wages in other sectors. A contact in Little Rock reported widespread difficulties in filling vacant positions, especially those in the skilled trades, while a contact in St. Louis reported difficulties in filling vacant information technology positions. Despite steady increases in wages, and labor costs more generally, business contacts report little change in prices charged to customers.
Consumer Spending
General retail and auto sales have grown modestly since the previous report. Most businesses contacts throughout the District expect sales to be higher or slightly higher in the fourth quarter. After a months-long slowdown in general retail sales, Arkansas sales seem to have picked up since our previous report. Multiple Arkansas auto dealers reported improved sales activity compared with 2015. Moreover, dealers anticipate sales will continue to increase toward the end of the year. A September survey of households in the Memphis area indicates they do not plan to increase their spending relative to a year ago.
Manufacturing and Other Business Activity
Manufacturing activity has been mixed since our previous report. Several manufacturers reported capital expenditure and facility expansion plans in the District, including firms that manufacture primary metals, furniture, and food products. In particular, a steel manufacturer announced a large expansion to meet demand from the automotive industry, and a furniture manufacturer opened a new facility to meet growing demand. In contrast, reports from manufacturers of electrical equipment were mixed. One manufacturer of electrical components announced that it would shut down a production line, while another announced it would close a facility. Similarly, a manufacturer of construction and mining machinery announced layoffs in response to weak demand.
Reports of plans in the District's services sector have been generally positive since the previous report. Several firms that provide healthcare, online retail, and education services reported plans to build new facilities and hire new employees. Reports from the transportation sector, however, were mixed. Two freight logistics providers reported a slowdown in outbound freight loads. In contrast, several providers of passenger transportation and package delivery services announced plans to expand.
Real Estate and Construction
Residential real estate activity improved moderately since the previous reporting period. August home sales were strong, increasing by 13 percent in Little Rock and St. Louis and 14 percent in Memphis. Louisville saw a much more modest 3 percent increase in home sales. Inventory of homes for sale continued to decrease in most areas even though residential construction activity increased moderately. August building permits were up in all four major MSAs compared with a year earlier; approximately two-thirds of all MSAs in the District saw an increase. A few Arkansas real estate contacts reported that much of the new construction in their area is for presold homes.
Commercial real estate activity continued to improve. Little Rock and northwest Arkansas multifamily markets remained strong, and a Louisville real estate contact indicated that the local industrial market is tight. On the other hand, a northwest Arkansas contact noted that it is taking longer to lease retail and office properties. Little Rock and Memphis also saw continued interest in multifamily construction. In contrast, a northwest Arkansas contact noted that construction has slowed recently, partly because multiple projects are already underway. Several projects for senior housing facilities in the District were announced or broke ground.
Banking and Finance
Banking conditions in the District were strong, and lending growth has continued pattern of robust growth in 2016. The pace of loan growth among District banks remains significantly higher than the national rate and was stable relative to last quarter. Total outstanding loans for a sample of approximately 80 small and midsized District banks rose by 23 percent over the past 12 months. Notably, real estate lending accounted for the largest fraction of total loan growth, expanding by 20 percent over the same period. Commercial and industrial loans rose strongly, up 28 percent compared with year-ago levels.
Agriculture and Natural Resources
Contacts expect yields of corn, cotton, and soybean crops to be at record levels across the District as a result of timely rains during the growing season. Meanwhile, rice yields are projected to increase only slightly. Sorghum is the only major District crop that is expected to have a production decline, but this stemmed largely from reduced plantings because of pest issues and lower prices in 2015. While the general outlook for the fall crops is strong, one contact has noted that some areas in the District have recently experienced flooding that may reduce yields and production by more than expectations. District coal production has continued to decline, as year-to-date production through August was down 26 percent.