Beige Book Report: St Louis
November 1, 1989
The District economy continues to grow slowly. Despite record low unemployment levels in several District states, manufacturing employment has fallen in several sectors, and both residential and nonresidential construction are showing signs of weakness. Exports of manufactured goods, however, have been strong in recent months. Cool, wet weather has slowed the harvest of some District crops. Total lending by large commercial banks, especially for real estate, increased in the third quarter.
Employment
Unemployment rates in Arkansas, Kentucky and Missouri dropped to
their lowest levels of the decade. While the drop in Missouri was
the result of its labor force falling more rapidly than total
employment, the declines in Arkansas and Kentucky reflected moderate
employment growth. Largely because of the recall of 4,000 auto
workers, the St Louis unemployment rate also hit a 10-year low of 5
percent. Contacts report, however, that the Louisville economy has
been weakening for several months.
Manufacturing
District manufacturers report varied business conditions, with most
expecting flat to slow growth through year-end 1989. None of the
District apparel manufacturers contacted reported unusually large
increases in Christmas-related production. In fact, many apparel
manufacturers are experiencing declines in orders, but most expect
business to increase in early 1990. A fleecewear manufacturer plans
to open a plant in Arkansas that will hire 600 workers immediately
and 1,400 more in the future.
In the durables sector, most manufacturers report satisfactory inventory levels. Many are experiencing declining backlogs and slowdowns in new orders. Most manufacturers have no plans to hire new workers or make additions to physical capacity over the next three months. Several industries have laid off workers in recent months to reduce inventories, and more layoffs are scheduled through year-end. One auto assembly plant in St. Louis will lay off approximately 3,000 workers for four weeks beginning October 20 to reduce inventories of slow-selling models. Several analysts expect total District employment in the automobile sector to hold steady or decline through the rest of 1989 as higher prices for 1990 model cars depress sales. District home appliance manufacturers report declining sales and layoffs, citing higher 1989 interest rates, lagging home sales and economic uncertainty as the reasons consumers are postponing major purchases. Most manufacturers who export indicated that exports were up over last year and that sales have not been affected by recent exchange rate changes.
Construction
Considerable weakening in single-family homebuilding was noted by
contacts in August and September in the Louisville and St. Louis
markets. with further weakening expected through the end of the year
and into 1990. Industry contacts report that some home builders in
St. Louis are cutting sales prices by as much as 15 percent. The
construction of multi-family dwellings in St. Louis and Louisville
also continues to be weak. Using comparable periods, 1989
construction has been less than half of 1988 construction.
Consequently, vacancy rates are declining and fewer incentives for
renters are available. No further decline is expected in multi-
family building in the St. Louis area next year. Despite a recent
surge, the growth of District nonresidential building contracts was
weaker than at the national level compared with last year.
Agriculture and Natural Resources
The harvest of the District's corn, tobacco and sorghum crops is
keeping pace with the average rate of harvest over the past five
years, but cotton and soybean harvesting are behind normal over most
of the District. Cool, wet weather has slowed soybean maturity in
most District states and caused harvest delays in some of the
District's southern states. Industry contacts expect that low water
levels on the Mississippi River will cause only a slight slowdown in
grain movement this fall. District coal production is down slightly
compared with a year ago, while U.S. coal production continues to
run slightly ahead of last year's pace.
Banking
Total loans at the 12 largest District banks increased more rapidly
in the third quarter than for the same period one year ago. Spurred
by exceptionally strong real estate growth in August and September,
real estate loans passed commercial loans as the largest component
of total loans at these banks. For the third quarter, real estate
lending grew at almost twice the rate registered during the same
period last year, while commercial lending declined over the period.
Finally, consumer lending increased during the three months ending
in September, showing continued recovery from the declines of one
year ago.