Beige Book Report: St Louis
August 3, 1987
Summary
The District's economy continued to weaken in the most recent
period. Employment and construction slowed since the last report.
The outlook for consumer spending, however, was positive. Favorable
farming conditions suggest large harvests of District crops.
Employment
District employment has stagnated in recent month after rapid growth
in early 1987. Nonfarm employment grew at a 0.4 percent annual rate
in the three months through May compared with the nation's 2.6
percent pace. Kentucky and Missouri posted declines during the
period. The District labor force dropped in May for the fourth
consecutive month.
District manufacturing employment declined at a 3.3 percent rate in the March-May period with losses concentrated in Missouri auto production. It was recently announced that $563 million will be invested to expand a Louisville assembly plant and produce a new line of light trucks. The expansion will directly create several hundred jobs.
Reports indicate that price increases for imported goods have allowed expanded sales of regionally produced textiles and apparel, electronic parts and metal-cutting equipment. Continued cost-cutting and automation, however, are expected to slow employment increases in these industries. Employment in the region's textile and apparel sector leveled off in recent months following gains since last fall. Jobs in electrical and nonelectrical equipment have declined since 1985.
Consumer Spending
Reports from District retailers suggest that sales were quite strong
in April and May but weakened in June. Most report that sales of
durables were recovering from first quarter softness. Several
respondents reported sharply higher clothing prices for both foreign
and domestically produced clothing. There was a general feeling of
cautious optimism among retailers regarding third quarter sales
because consumers have been readily accepting fall clothing in early
July and consumer debt levels have dropped lately. Of 67 small
retail businesses in the District surveyed in April and May, 60
percent expected an increase in their real volume in the near
future.
Construction
Despite strong growth of nonresidential building, overall building
activity slowed in the region as residential construction activity
declined. The value of District residential building contracts
dropped 10 percent in the second quarter, following a moderate first
quarter gain. Residential activity remained strong in the Louisville
and St. Louis areas, however. District nonresidential contracts grew
20.6 percent in the second quarter. Nonresidential building was
particularly vigorous in Arkansas and Missouri.
Despite the recent slowing, general construction activity remained stronger in the District than in the nation in the second quarter, due to the strength of the region's nonresidential sector.
Banking
Total loans outstanding at large District banks grew at a 9.7
percent annual rate for the second quarter compared with a 7.4
percent rate for the same period last year. Second quarter loan
activity saw an acceleration in real estate lending being partially
offset by slower commercial loan growth. Real estate loan volume
grew at a 21.6 percent annual rate in the second quarter versus a
0.6 percent rate for the same period in 1986. In contrast,
commercial loans grew at a 7.3 percent rate during the second
quarter compared to an 11.6 percent rate over the same period last
year.
Agriculture
District crop development is as much as two weeks ahead of average
due to early planting and recent widespread rains. The District's
corn crop has already passed its critical stage which guarantees a
large crop even with dry weather in the future. The soybean crop's
critical growth period falls in early August when additional rains
will be needed.
The volume of farm operating loans continued to fall both at commercial banks and at Production Credit Associations during the first quarter of the year. Overdue farm loans at agricultural banks improved from 10.4 percent in the first quarter of 1986 to 9.0 percent one year later. Net loan losses at agricultural banks also improved from .28 percent to .20 percent over the same period.