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Beige Book Report: St Louis

January 24, 1990

Summary
Slow economic growth continues. Total District job growth has been sluggish in recent months, with declining manufacturing employment offset by moderate gains in other sectors. District retailers report that holiday sales generally met or exceeded expectations. Record cold weather in late December drove up energy consumption and, in some areas, energy prices. Total loans at the District's largest banks grew more rapidly in the fourth quarter than in the same period a year earlier, while deposit growth slowed. Most analysts expect continued slow regional growth in 1990. Contacts do not expect potential changes in defense spending to have much local impact in the early 1990s.

Manufacturing
Layoffs and production cutbacks continue at the District's vehicle assembly plants and related firms, such as tire manufacturers. All four St. Louis area vehicle assembly plants were idle in late December and three of the four plants will be shut down a week or more in January. The auto sales slowdown will also result in flat sales in the first quarter for one major chemicals producer, who produces a plastic used in windshields and a chemical used in tires, among other products.

A large home appliance plant in Arkansas, which laid off most of its work force in November because of slow sales and production line changes, is scheduled to resume production in February. A company official anticipates unit appliance sales in 1990 will be flat or slightly lower than last year. A home appliance firm in Louisville expects strengthening sales late in 1990 and plans to hire as many as 300 new production workers.

Construction and Real Estate
Several homebuilders in the St. Louis area anticipate steady growth in single-family homebuilding in 1990, especially in more expensive "move-up" homes; these builders suggest that relatively low interest rates will help sales. Other builders, however, anticipate continued weakening, since no backlog currently exists for new home construction and the median price of existing homes is declining. A real estate developer in northwest Arkansas expects continued strong residential construction growth in that area. A Little Rock developer anticipates some residential expansion this year, but notes that generally weak local economic conditions will limit growth.

Retail Spending
District retailers report that holiday sales generally met or exceeded expectations, with most retailers experiencing increases of 4 to 10 percent over last year. Because of the unseasonable cold snap, winter apparel sales were unusually strong, which retailers say could mean slower sales of these items in the first quarter. Toys, leather apparel and jewelry also sold well. Retailers report that the sales gains this year were achieved with about the same or less price-cutting than last year. Most are not concerned with inventories being too high and are expecting zero to moderate sales growth from the first quarter of 1989 to the first quarter of 1990. District auto dealers report that sales were down in December and first-quarter expectations are for sales to remain slow with imported models selling better than domestic.

Agriculture and Natural Resources
Low water levels and ice caused temporary suspensions of commodity movement in late December on both the Mississippi and Arkansas rivers. Warmer temperatures in early January allowed some barge movement to resume. Below-normal temperatures, in conjunction with dry soil conditions and no snow cover in parts of the District, may have damaged the winter wheat crop. The unusually cold weather also had a significant effect on District energy use and prices. Natural gas prices rose 20 percent or more between October and January in some parts of the District, while other areas experienced no price increases. In some rural areas propane prices have doubled since this summer. District gasoline and diesel fuel prices rose 6 cents to 12 cents per gallon during the last week of December. Despite record winter energy demand, electric utilities are not anticipating large price increases.

Banking
Total loans at the District's 11 largest banks grew at a more rapid pace in the fourth quarter than in the same period one year earlier. Consumer lending was up significantly at these banks from a year earlier, while real estate lending has slowed, both from its 1989 third-quarter rate and its 1988 fourth-quarter rate. Securities holdings rose sharply in the fourth quarter, with all of the increase coming from increased holdings of U.S. Treasury and agency issues. Total deposits increased in the fourth quarter at about the same rate as total loans, but that rate was down from the same period last year. Partially because of deposit outflows from thrifts, money market deposit accounts increased at almost three times the rate of a year earlier.