Beige Book Report: St Louis
October 23, 1986
Summary
District economic conditions have improved since the last report
with stronger growth in employment, retail sales and construction
activity. Most indicators of economic activity suggest more rapid
growth in the District than in the nation. Real estate and consumer
lending accelerated in the third quarter while commercial lending
slowed. Heavy rains and flooding in parts of Missouri have damaged
crops and delayed harvests and wheat planting.
Employment
District employment growth accelerated since the last report. The
number of workers on nonfarm payrolls grew at a 2.8 percent rate in
the three months through August, double the corresponding national
rate; growth in construction employment was particularly sharp.
Employment in the District's manufacturing sector continued to
decline in the June-August period (2.6 percent rate), but at a
slower pace than in the last report. While 14,300 workers entered
the District labor force in August, total employment expanded by
30,100 allowing the seasonally-adjusted unemployment rate for the
District to fall from 7.9 percent in July to 7.7 percent in August.
Consumer Spending
District retail sales in the May-July period increased at an 8.1
percent rate, outpacing the nation's 6.2 percent rate. More current
reports indicate that the latest round of cut-rate financing for
domestic autos, announced in late August, has drastically stimulated
sales and reduced dealer inventories. A contact in Arkansas,
however, reports that payments for new autos have cut consumers'
discretionary income end will reduce consumer spending in the near
term.
Construction
Residential construction fell in the most recent period but still
performed better in the District than in the nation. The value of
contracts issued decreased by 1.8 percent in the three months
through August, but was 11.9 percent above the level of the same
period last year. The value of contracts fell by 2.8 percent in the
nation over the most recent period and rose by 9.7 percent over the
past year.
District nonresidential construction activity expanded moderately, spurred by vigorous growth in Arkansas, Kentucky and Missouri. The value of nonresidential construction contracts grew by 9.6 percent in the June-August period compared with a 1.6 percent national decline. Compared with a year ago, nonresidential contracts were 11.6 percent higher in the three-month period in the District, but 2.0 percent lower nationally.
Local contacts report that the volume of office space in the St. Louis area currently available or under construction surpasses the anticipated growth of demand for the space; thus, vacancy rates, now slightly below the national average, are expected to rise in the next few years. In the longer run, however, the recent changes in the federal tax code are expected to curtail the growth of nonresidential building and reduce excess space.
Banking
Total loans outstanding at large District banks grew at a 14.2
percent annual rate for the third quarter compared with a 5.2
percent rate for the same period last year. Third quarter activity
saw an acceleration in real estate and consumer lending while
commercial lending was slower, real estate loan volume grew at a
21.8 percent rate over second quarter levels versus a 7.1 percent
rate for the same period in 1985. Consumer lending also gained
momentum during the third quarter, growing at a 19.3 percent rate
over second quarter levels. In contrast, commercial loan volume has
slackened, declining at a 0.2 percent rate primarily due to slow
landing in both the Louisville and Memphis markets.
A recent survey of District banks and thrifts found that most respondents have tightened lending policies for nonresidential real estate loans. With the exception of a few savings and loans in St. Louis and Little Rock, most institutions reported low delinquency and loss rates on this type of lending but indicated increasing caution on new loans due to rising vacancy rates in some markets.
Agriculture
Recent heavy rains have caused flooding, lowered yields due to crop
damage, reduced crop quality, and slowed planting of the winter
wheat crop. While the extent of the damage is not yet known, most
analysts expect the losses to lower total crop production only
slightly. Over 50 counties in Missouri were declared disaster areas
to allow farmers access to emergency federal loans.