Beige Book Report: St Louis
March 14, 1990
The Eighth District economy is still expanding slowly. Health and business services are experiencing moderate growth while manufacturing, especially durables production, continues to contract. Agricultural real estate values are rising. Large District banks report that credit standards for commercial lending for certain loan types and customers have tightened somewhat.
Outlook
A recent survey of small businesses in the District indicates that
little change is expected in overall economic conditions in the next
few months. Most plan no substantial changes in workforce size or
product prices. Although the majority of firms report inventories at
satisfactory levels, more than a quarter of the retailers report
excess inventories, twice as many as a year ago. Manufacturers
generally were more pessimistic than other respondents. The number
of manufacturers who said it was a good time to expand their
operations fell sharply from a year ago, and substantially fewer
manufacturers plan major investments in plant and equipment in the
near future.
Labor Markets
Moderate job growth continues in medical and business services while
retail and wholesale trade shows little change. Manufacturing
employment continues to decline. Layoffs of auto workers caused St.
Louis' unemployment rate to rise to its highest level in nearly two
years. The building of a jet maintenance facility, which was to
employ 800 Memphis workers, was postponed indefinitely. A survey of
small businesses indicate the shortage of qualified workers for
nonmanufacturing jobs has eased slightly over the past few quarters
while the shortage of manufacturing workers, particularly skilled
labor, has lessened substantially. Louisville and St. Louis
businesses, however, report increasing difficulty in finding
qualified workers.
Manufacturing
Plant closings and temporary layoffs, mostly in small plants, have
accelerated in recent months according to contacts. Employment
levels in plants making machinery, fabricated metals and textile and
apparel have dropped recently. After inventories of its products
rose steadily, a Missouri auto assembly plant laid off almost 2000
workers and will close indefinitely this fall, eliminating 4000
jobs. Louisville workers who assemble medium- and heavy-duty trucks
were laid off for one week in early February. Later this year,
however, production of a cargo truck will be shifted to Louisville
from Brazil, stabilizing employment levels. A large producer of
electrical components for consumer durables reports that orders have
weakened in recent months and are expected to remain flat through
1990. Sluggish auto demand and slow growth in construction and
consumer durable goods production have weakened steel sales,
resulting in a softening of steel prices. An upturn in orders is
anticipated by year's end, however.
Construction
Aided by mild weather, homebuilding has picked up recently. One
Missouri contact notes, however, that some developers are receiving
relatively low prices for their new homes. Contacts in Memphis
anticipate a decline in apartment building following moderate growth
last year, but expect a substantial increase in single-family
homebuilding. Western Kentucky is experiencing a stagnant market for
higher-priced homes, but sales of moderate- and lower-priced houses
are strong. Louisville homebuilders say building will be strong this
year because housing construction has not kept pace with job growth.
Agriculture
Contacts report that District agricultural land values are rising,
with faster appreciation in the District's northern states. Contacts
estimate current agricultural land values are 2 percent to 10
percent higher than six months ago. Recent rains have brought
topsoil moisture conditions to levels ranging from excessive in
southern parts of the District to adequate in northern regions.
Subsoil moisture levels, however, remain deficient over most of
Missouri. The winter wheat crop is reported to be in good condition
over most of the District.
Banking
Five of the District's largest banks indicate that their willingness
to extend credit to new and existing commercial and industrial
customers has not decreased during the past six months. Most
respondents say credit standards for loans related to mergers and
acquisitions, however, have tightened somewhat during the past six
months. Standards for non-merger-related loans have not changed for
investment-grade commercial and industrial customers but have
tightened somewhat for below investment-grade customers. The banks'
willingness to make construction and land acquisition and
development loans has declined over the last six months. Real estate
lending at the 11 largest District banks slowed considerably during
the three months ending in February from its pace of one year ago.