Beige Book Report: St Louis
August 6, 1985
Summary
District indicators suggest a mixed economic outlook for the region,
which represents some improvement from the last report. Employment
growth and construction activity have both lagged national trends
while retail sales have improved recently and are expected to remain
strong, particularly in the automobile sector. Consumer lending has
continued vigorously while commercial lending has maintained a weak
pace. Prices of District agricultural commodities are expected to
remain weak.
Employment and Business Activity
District payroll employment has increased at a 2.1 percent annual
rate through the first five months of 1985, compared with a 3.3
percent rate nationally. Employment growth has been particularly
strong in Kentucky (6.1 percent), but decreased at a .5 percent rate
in Arkansas. Kentucky's employment strength was attributed to job
gains in the construction, service, and trade sectors by an official
from the state's Office of Economic Security. Indices of general
business activity show Kentucky growing at a 3.9 percent annual rate
in 1985, while the Arkansas index has fallen at a 0.7 percent rate;
the indices for Missouri and Tennessee rose at 1.8 and 2.4 percent
rates, respectively.
Consumer spending
Reports from the District indicate generally strong levels of retail
sales in June after more mixed results in earlier months. The
Memphis area reported a 2 percent increase in sales from May to June
after declines in consumer spending earlier in the year. A local
respondent projects continued sales strength in the Memphis area
through the 3rd quarter due to the currently low interest rates.
Automobile dealer associations in the District report first-half 1985 sales to be up 5 to 10 percent over first-half 1984 levels. Most dealers feel the sales strength will continue through the second half of 1985, although one large St. Louis domestic car dealer believes second half sales will fall from current levels. The strong sales are reported to be evenly distributed among car and truck sales; foreign car dealers are posting 10 to 20 percent sales increases over last year's levels.
Construction
Total construction contracts in the District through the first half
of 1985 were down 1 percent from the first half of 1984. Total
construction contracts in the U.S., however, were up slightly by 0.1
percent over the same period. District nonresidential construction
in the first half of 1985 grew by 12 percent from last year while
residential construction fell by 9 percent. Reports from Memphis
suggest that nonresidential construction will be 30 percent higher
this year. Respondents from the city's banking and insurance
communities feel there may be overbuilding, especially in hotels,
apartments and commercial space. The St. Louis area, on the other
hand, reports nonresidential construction to be down by 13 percent
from year-ago levels.
Banking and Finance
The lending experience among Eighth District banks has closely
paralleled the national trends of strong consumer loan growth and
declining overall loan demand, especially among commercial lending.
Total loans at large District banks grew at a 13.6 percent rate in
the first half of this year, compared with a much faster rate of
28.3 percent over the first half of last year. This slowdown is
largely the result of the 5.9 percent growth rate in commercial and
industrial loans. Consumer loans, however, continue to exhibit
strength, posting a 27.9 percent growth rate in the first half of
this year, compared with a 16.5 percent rate in the first half of
1984.
Agriculture
Cash prices for most crops are at least 20 percent lower than a year
ago and the best option for many producers appears to be the
placement of their harvests under CCC loan. Expected large domestic
crops and continued weak export demand are responsible for the
ongoing decline in prices. Cotton is particularly affected by weak
export demand with USDA projections for 1984-86 showing a two
million bale decline in exports and a four million bale increase in
stocks. Red meat prices also should continue to decline over the
next several months as both cattle and hog supplies increase;
deteriorating pasture conditions and poor calf prices are
encouraging cow slaughter while larger slaughter of heavier hogs has
increased pork supplies by 2-3 percent.