Beige Book Report: St Louis
September 6, 2017
Summary of Economic Activity
Economic conditions have improved at a modest pace since our previous report. District labor market conditions continue to improve, although employment growth has leveled in recent months as contacts report difficulties filling open positions. Price pressures remain modest, although fewer contacts reported increasing prices charged to customers in recent months. In general, business contacts surveyed in mid-August continued to hold an optimistic outlook for growth during the remainder of 2017. On net, 53 percent of contacts expect District economic conditions in 2017 to be better or somewhat better than last year. This outlook was generally unchanged since contacts were surveyed in mid-May.
Employment and Wages
Employment has increased modestly since the previous report. Of the business contacts surveyed in mid-August, on net, 29 percent reported that third-quarter employment was higher or slightly higher than a year ago. Contacts in a variety of industries continued to report difficulties finding skilled or qualified employees. Construction contacts across the District reported shortages of both skilled and unskilled workers. In addition, manufacturing contacts in Louisville noted that difficulties in finding qualified labor have led to longer lead times and an inability to fill additional orders.
Contacts reported moderate wage growth since the previous report, as tightness in the labor market has resulted in upward pressure on wages. On net, 61 percent of contacts reported wages were higher or slightly higher than a year ago, and a similar share reported increases in labor costs.
Prices
Price pressures have increased modestly since our previous report. Business contacts surveyed reported that prices charged to consumers and non-labor input costs increased modestly. On net, 22 percent of contacts reported that prices were higher than a year ago and 35 percent reported that non-labor input costs were higher than a year ago. Although prices continue to move upward, growth has slowed during the third quarter.
Reports on construction costs were mixed. Contacts in St. Louis and Louisville noted rising construction costs; however, several Little Rock contacts reported declines in construction costs. In particular, multiple contacts in the wood products sector in Arkansas reported that excess supply continues to drive down input prices.
Commodity price pressures have been mixed. Since the previous report, coal prices in Illinois, Indiana, and Kentucky have been flat. In the agricultural sector, corn prices increased modestly, while sorghum prices are unchanged. In Little Rock, cash prices of rice increased moderately. A Little Rock contact reported that soybean and wheat prices also increased. Prices of cottonseed in Memphis fell slightly, and soybean and wheat prices in St. Louis decreased moderately.
Consumer Spending
Reports from general retailers, auto dealers, and hoteliers portray a mixed picture of consumer spending activity. Although July real sales tax collections increased in Arkansas relative to a year ago, they declined in Kentucky, Missouri and Tennessee. Multiple auto dealers across the District reported a decrease in sales, which have failed to meet their expectations during 2017. St. Louis dealers indicated a shift in demand toward low-end vehicles.
Hospitality contacts in Missouri reported that business activity has increased since our previous report, whereas hoteliers in Kentucky and Arkansas indicated a decline in hotel occupancy rates.
Manufacturing
Manufacturing activity has increased modestly since our previous report, although the pace of growth slowed across the District. On net, about one-third of contacts reported that production, new orders, and capacity utilization increased in the third quarter relative to one year ago. The results are down from our previous survey, when more than half of contacts reported improvements in these areas. More contacts reported increases in capital expenditures than in the previous survey. Several companies reported new capital expenditure and facility expansion plans, including firms that manufacture food products, transportation equipment, and metal products. Contacts are less optimistic about the next quarter than in our previous report, with fewer than half expecting improvements, down from two-thirds last quarter. Some contacts expressed concerns about political uncertainty and a slowdown in the auto industry.
Nonfinancial Services
Reports of plans in the service sector have been positive since the previous report. More than two-thirds of transportation and service contacts reported that sales met or exceeded expectations in the current quarter. More than half of contacts reported higher dollar sales in the current quarter than this time last year, and slightly less than half expect sales to be higher in the next quarter than they were last year. Firms that provide transportation and information technology services reported plans to expand facilities and hire employees, particularly in the St. Louis region. Reports from healthcare firms remain mixed, but are more positive than earlier this year.
Real Estate and Construction
Residential real estate sales activity has been mixed since the previous report. Seasonally adjusted home sales for July ticked up slightly from the previous month in the District's four major MSAs. Year-to-date sales were generally in line with those from a year ago. Local real estate contacts continued to report that significant shortages in inventory have hindered sales, and, on net, nearly 40 percent of survey respondents indicated that sales fell short of expectations halfway through the third quarter. One industry contact noted that mortgage rates have been lower than expected, providing a positive impact on business.
Residential construction activity has been flat since the previous report. July permit activity dropped slightly relative to the previous month. However, most contacts reported an increase in residential construction compared with a year ago. Expectations are slightly less optimistic for the fourth quarter.
Commercial real estate activity has improved modestly since the previous report. Contacts reported relatively strong demand for most property types, particularly office and industrial. However, contacts indicated a decrease in multifamily demand relative to a year ago.
Commercial construction activity remained strong. Multiple contacts reported an optimistic outlook for the rest of 2017. Planning and development of new hotels continued throughout the District, particularly in Louisville and Memphis. Multifamily construction activity also remained robust.
Banking and Finance
Banking conditions in the Eight District have improved at a modest pace since the previous report. Loan demand rose at a moderate rate with continued signs of slight tapering. District contacts reported that commercial and industrial loan demand grew moderately relative to year-ago levels, while year-over-year auto loan demand experienced an unexpected and sharp decline. Delinquencies rose modestly across all loan categories and are expected to continue rise next quarter. Contacts reported that competition from other banks and credit unions has increased moderately, while competition from non-bank financial service providers has remained generally unchanged.
Agriculture and Natural Resources
District agricultural conditions were mixed in this reporting period. The conditions of the District's cotton and rice crops have improved since our previous report and are better than the same time last year. Although rice conditions have improved, early-season flooding pushed acreage down 25 percent from last year. The lost acreage will hurt rice farmers this year, but some of these farmers are optimistic that a recent trade agreement with China will boost profits. Meanwhile, corn and soybean conditions declined from the previous period.
Natural resource extraction conditions declined slightly from June to July, with seasonally adjusted coal production declining 3 percent. However, July production was 10 percent above a year earlier.
For more information about District economic conditions, visit: www.research.stlouisfed.org/regecon/