Beige Book Report: St Louis
June 21, 1989
Summary
Employment growth has declined because of slower job growth in manufacturing and services and job declines in construction. Current agricultural conditions indicate that normal crop yields are possible this year. The rise in the value of the dollar has not had a significant effect on District exporters. District banks report stronger profits propelled by lower loan loss provisions and lower loan losses.
Labor Markets
District employment growth has slowed. In the three months through April, District nonagricultural employment rose at a 2.3 percent annual rate, less than half the rate for the previous three months and slightly slower than the national average. The District slowdown was particularly sharp in Missouri and Tennessee.
Manufacturing employment growth has slowed throughout the District. In Missouri, manufacturing employment in the February-April period declined slightly from the previous period largely due to job declines in food processing and a layoff in an auto assembly plant to reduce inventories. Automobile employment will decline this summer as two St. Louis auto assembly plants close for one month. Although auto assembly plants typically close for one or two weeks each summer to retool assembly lines for the next model year, analysts suggest the longer shutdowns this year are to reduce inventories.
Exports
A District bank and exporters involved in plastic production, food processing, electrical motor manufacturing and grain handling report that the recent rise in the dollar has not significantly affected exports. Long contract periods were frequently cited as the reason for the minimal impact. One large lumber products manufacturer, however, noted that exports to Europe, especially plywood, have dropped by as much as 25 percent from a year ago, largely due to the rise in the value of the dollar. In addition, some exporters expressed concern about future export sales if the dollar continues to rise.
Construction
The value of residential construction contracts issued in the three months through April has fallen 3.7 percent from the same period last year both regionally and nationally. During the same period, nonresidential contracts dropped 14.5 percent in the District and 2.7 percent nationally.
In St. Louis, labor strikes shut down most commercial and residential construction projects for two weeks. St. Louis metropolitan area office vacancy rates, currently below the 1988 national average, are expected to rise sharply in 1989. The quantity of new space demanded in 1989 is expected to decline from 1988 levels while the volume of new space will almost triple.
Outlook
A recent survey of District small businesses reveals a more pessimistic outlook than a year earlier. Almost twice as many businesses think economic conditions will worsen rather than improve in the next six months, while in April 1988, roughly equal numbers expected a worsening or expected improvement. Consistent with these views, more respondents expect declines in their real sales volume than a year earlier and fewer plan to increase the size of their workforce. Finally, even though a smaller proportion planned to increase average compensation to their employees than in the earlier survey, a larger proportion planned to raise their prices in the following three months.
Agriculture and Mining
Topsoil moisture conditions are reported as adequate in most of the District, while subsoil moisture conditions are still short in some areas, most notably in northern Missouri. Most of the District's wheat, corn and cotton crops are in fair to good condition. District coal production for the four months ending in April was 3.5 percent higher than the same period last year. Industry analysts expect annual coal production to run about 2 percent to 3 percent ahead of last year.
Banking
First quarter data indicate improved profitability and asset quality for Eighth District banks. With net earnings rising 10.3 percent over first quarter 1988, annualized returns on assets and equity improved. Nineteen fewer banks reported negative earnings during this year's first quarter in comparison to the same period last year. Helping to boost earnings were lover loan loss provisions and lower loan chargeoffs. First quarter loan losses decreased 80 percent from the same period in 1988. Nonperforming loans, however, increased slightly as banks reported growing problems in commercial real estate loans.