Beige Book Report: St Louis
September 8, 2021
Summary of Economic Activity
Economic conditions have continued to improve at a moderate pace since our previous report. Contacts reported that ongoing labor and raw material shortages are holding back growth. Customer spending has been unchanged since the previous report. The rise in COVID-19 Delta variant cases was cited as a reason for increasing consumer wariness. Cost pressures remain high, with around half of firms reporting increased prices and additional increases anticipated. The residential real estate sector saw volumes slow slightly, but home and rental prices remained high. Despite high demand, new construction projects continued to be hampered by supply disruptions. Banks reported a slight decline in overall loan demand. Contacts remained optimistic, although less so than the last time they were surveyed in mid-May. On net, 11 percent of contacts expect economic conditions during the remainder of 2021 to be better or somewhat better than the same period one year ago.
Employment and Wages
Employment has increased slightly since our previous report, though smaller firms reported more mixed trends. Worker scarcity was frequently cited as the limiting factor in firm growth; contacts reported a net decline in applicants per job since May. Firms struggled to hire and retain workers; contacts reported offering on-the-job training, sign-on and retention bonuses, and other benefits. Firms again presented mixed evidence that some states' discontinuation of federal UI enhancements affected their pool of applicants.
Wages have grown strongly, though small firm wages continued to rise more slowly. On net, 60% of contacts reported raising wages—well above historical values. One manufacturer reported attracting few workers despite increasing starting wages above $17 per hour.
Prices
Prices have increased moderately since our previous report. About half of contacts have increased prices to consumers this quarter. Half of contacts plan to increase prices to consumers in the near future. A regional boat dealer reported new boat prices have increased 10% on average since last year and will likely increase another 10% over the next year. Over two-thirds of contacts reported increased input costs, including robust year-over-year increases specifically in the transportation and construction industries. Several construction contacts reported pausing some projects until the rapid increases in materials costs decline or stabilize. A contact reported that the price for concrete has increased about 20% over the past few months and the price for electric wire has rapidly increased. Contacts reported that lumber prices have recently declined. A contact in the auto repair industry reported price increases in the range of 30-60% for certain auto parts. A contact that sells electrical signs and billboards reported that prices for input materials such as polycarbonate, aluminum, steel, wood, and electrical parts are "skyrocketing." A regional brewery reported that their supplier increased prices twice between order and delivery for a pallet of aluminum.
Consumer Spending
General retailers, auto dealers, and hospitality contacts reported mixed business activity since our previous report. July real sales tax collections decreased slightly in Arkansas, Kentucky, and West Tennessee and increased in Missouri relative to June. General retailers reported mixed sales over the past six weeks. Auto dealers reported mixed sales, with continued high demand but low inventories and limited availability of low-cost units. Restaurants reported severe supply and staffing shortages. A St. Louis hotel contact reported that business is slightly down relative to early July. In August, an outdoor concert venue in Arkansas held its first significant event since 2019. The venue was pleased with ticket sales but surprised only half of tickets were punched for entry, which they attributed to the rise in coronavirus cases.
Manufacturing
Manufacturing activity has strongly increased since our previous report. Survey-based indices suggest production, capacity utilization, and new orders have strongly increased. Production continues to be below operating capacity due to labor shortages, and retailer order windows have lengthened as a result. Worker scarcity has also led to issues in quality control, with surges in retail returns and auto repairs due to product defects. Firms have increased their focus on technological innovation to increase labor productivity and product quality. On average, firms reported they expect strong increases in production, capacity utilization, and new orders in the coming quarter.
Nonfinancial Services
Activity in the nonfinancial services sector has been mixed since our previous report. Airport passenger traffic has increased slightly since our previous report. Several large health care providers have increased their minimum pay rates for workers. Nursing shortages have been an issue as COVID cases rise. A hospital contact reported increased cancelations of elective procedures. Several contacts reported increased transportation costs; a distribution contact noted that it has been difficult to find trucks and hire new drivers. A health and wellness contact noted that COVID concerns continue to hurt business. A large public university in Arkansas reported record enrollment this fall due to a large freshman class and increased graduate student enrollment.
Real Estate and Construction
Residential real estate activity has decreased slightly since our previous report, with some contacts reporting the residential market is cooling off. Total home sales have dipped slightly, and available inventory has increased. Home prices and median days on the market remain stable. Most contacts expect the market to improve slightly or remain roughly the same in the next quarter. Demand for multifamily homes increased and is expected to continue. Rental prices continue to increase across the District. The overall average rent in Memphis is up 17% since last year. A contact in St. Louis observed that the eviction moratorium has prevented landlords from removing problem tenants with past due rent.
Commercial real estate activity has remained mixed since our previous report. Demand for and speculative building of industrial properties continued to increase, while the office and retail markets remain mixed. Industrial property inventories remained high in Memphis and Little Rock. While demand for new industrial properties remains elevated, supply chain issues, increased prices for building materials, and labor shortages are preventing projects from continuing. One contact reported that steel joists ordered now will not arrive until roughly the middle of the second quarter of 2022. Some contacts report that previously planned projects are being put on hold or cancelled due to these problems.
Banking and Finance
Banking conditions have been unchanged since our previous report. Banking contacts reported a slight decrease in overall loan demand since the past survey period. Auto loan demand declined modestly and demand for credit cards fell moderately. But contacts noted a continued modest growth in real estate lending. Creditworthiness improved slightly in mortgage and commercial and industrial lending. Delinquency rates also declined modestly across all major loan types and credit standards remained largely unchanged. District banks reported that about three-quarters of PPP loans have been forgiven. Outlooks were positive, although the spread of the Delta variant has increased uncertainty.
Agriculture and Natural Resources
Agriculture conditions have remained unchanged from our previous report. Relative to early July, the percentage of corn and soybeans rated fair or better has decreased slightly while the percentage of rice increased slightly and cotton experienced no change. Contacts indicated that both nonlabor and labor costs have increased but income is up as well. One contact noted the drought in South America has raised grain prices. They also noted COVID-related shortages of maintenance parts.
Natural resource extraction conditions fell slightly from June to July, with seasonally adjusted coal production decreasing just under 2%. But production is up 14% from a year ago.