Beige Book Report: St Louis
September 16, 1985
Summary
A large majority of representatives of both small and large
industries foresee unchanged or improved business conditions for the
remainder of the year. District employment growth continues to lag
behind national trends. Business loans in the District have begun to
decrease from earlier levels while consumer lending has maintained a
pace well above that of last year. Large expected harvests and the
resulting decline in commodity prices portend increasing
difficulties for farm lenders.
Outlook
A recent poll surveyed executives of large midwestern firms and
found that half expect business conditions to improve in the next
six months, while 39 percent anticipate no change. The results of
another survey indicate a majority of the District's small firms
expect business conditions to be unchanged for the remainder of
1985. Approximately one-third of those in the manufacturing and
service industries perceive an improved business outlook for the
next six months. These findings represent no change in the outlook
of small businesses in the District since the previous survey during
the second quarter of this year.
Half of the small businesses surveyed anticipate sales volume to increase slightly, while one fourth of the respondents expect no change for the next three months. Prices near current levels are planned by 60 percent of the respondents, while almost 20 percent, primarily those in the retail sector, anticipate price increases of 3 percent or less over current levels. Fifty percent of the respondents plan to maintain the same inventory level over the next three to six months while approximately 25 percent, primarily those in the retail and wholesale industries, plan to increase inventory levels by 6 to 10 percent.
Employment
District payroll employment increased at a 1.9 percent annual rate
for the first seven months of 1985, compared with a 3.0 percent rate
nationally. Year-to-date employment growth for Kentucky has been
particularly strong, increasing at approximately a 5 percent rate.
The District unemployment rate went from 7.5 to 7.7 percent in June
due to slight increases in unemployment in Arkansas and Kentucky.
Kentucky's unemployment rate rose due to growth in the labor force
which exceeded the employment growth.
Consumer Spending
Slower growth in retail sales continued throughout the District,
particularly in the Kentucky and Tennessee markets as expenditures
on durable goods fell from previous levels. Automobile dealer
associations in the District report continued strong sales with
several dealers reporting increases over last year's pace. One
Kentucky domestic car dealer indicates that current sales are the
best since 1979. Scheduled auto production in the St. Louis area for
1985 reflects a 14.6 percent increase over the 1984 model year.
Construction
Total construction contracts in July increased 5.8 percent from the
July 1984 figure. District residential contracts have decreased 2.8
percent from year-ago levels, while nonresidential contracts have
increased 21.7 percent.
Banking and Finance
Total loan growth over the three month period ending August 1985
(4.2 percent) was less than half the rate of growth over the same
period last year (11.6 percent). Consistent with earlier periods,
consumer loan growth has remained very strong (22.2 percent)
relative to last year (5.7 percent). Commercial and industrial
loans, which showed only slight growth earlier in the year,
exhibited a sharp 10.9 percent rate of decline over the past three
months. Over the same period last year, C&I loans posted growth of
9.7 percent in outstanding volume.
Total deposits decreased at a 1.8 percent rate over the most recent three months compared to a 12 percent rate of growth last year. The fall in total deposits can be attributed mainly to large denomination time deposits, which declined at a 27.2 percent rate compared to last year's 58.5 percent rate of growth over the same three month period.
Agriculture
All major crops continue to progress in good-to-excellent condition.
Indications are for large harvests. To the extent prices decline
further in response to large market supplies and weak demand, debt
repayment problems are likely to worsen, both for commercial banks
and the Farm Credit System. Farmers continue to increase cattle
marketings and reduce placements of new cattle on feed. These events
suggest continued low red meat prices through the end of 1985 with
higher prices possible early next year.