Beige Book Report: St Louis
June 20, 1990
Summary
Contacts generally report slow economic growth throughout the
District, with few expecting any substantial decline in activity in
the near future. Manufacturing activity is flat. Many of the
District's largest commercial banks have tightened credit standards
for loans to small and mid-sized businesses. Excessive rainfall has
damaged crops and delayed planting.
Consumer Spending
Non-auto retail sales growth is described as weak-to-moderate by
contacts in most parts of the District. Survey responses indicate
that the number of retailers with larger-than-desired inventories,
though still a minority, rose substantially from a year earlier.
Most District contacts describe car sales as flat or below year-
earlier levels, despite the continued availability of sales
incentives. Moderate growth of truck and used car sales has been
reported for some areas.
Labor Markets and General Business Activity
District manufacturing employment has been flat in recent months; at
the same time, nonmanufacturing employment has grown at a moderate
pace, with the most growth occurring in wholesale and retail trades,
government and services. Medical services, in particular, have shown
moderate-to-strong job growth in most metropolitan areas. Only
slight increases in construction employment have been reported, with
slight declines occurring in the financial and the transportation,
communication and utilities sectors. Regional unemployment rates
have fallen slightly in recent months, in part because workers were
recalled to factories producing home appliances and autos. A recent
survey indicated that approximately one in five small businesses
were having difficulty filling some job openings, about the same
proportion as a year ago.
Military restructuring and defense spending cutbacks are affecting some parts of the District. One contact reports that the pending reduction of a military base in Kentucky has caused retail sales to decline locally and the inventory of unsold homes. to rise. A military installation that develops and tests equipment will eliminate approximately 260 jobs in St. Louis. A cut in military orders caused a sharp decline in production at a shoe factory in southern Illinois.
Manufacturing
Overall, manufacturing activity has been stable, with plant
shutdowns and layoffs roughly equaling expansions and new
operations. Makers of building materials are benefiting from the
improvement in the Texas economy. One tire factory laid off many of
its workers as orders diminished; in Arkansas, on the other hand,
three plants that will produce steal cord for tires are under
construction. Overall, growth in the construction of new plants
producing motor vehicle parts is slowing, but some existing
suppliers are expanding. Much of the District's manufacturing growth
is in the production of nondurables. Some paper and food processing
operations, for example, are expanding. New or expanding poultry
processing factories were reported in Arkansas, Mississippi and
Kentucky.
Banking and Credit
Senior loan officers at the District's five largest banks report
non-merger-related commercial and industrial (C & I) lending fell
from 1988 to 1989, but that no further slowing occurred in the first
four months of 1990. Most of these officers indicated credit
standards had tightened somewhat for small and medium-sized
businesses; a less favorable economic outlook, industry-specific
factors and deteriorating loan portfolios were mentioned as reasons
for the tightening. Credit terms for C & I loans to medium-sized
firms (annual sales of $50 to $250 million) have tightened more than
for smaller businesses. Both small and medium-sized firms are facing
tighter loan covenants and collateralization requirements for C & I
loans, with medium-sized firms also encountering lower maximum
credit lines and increased loan rates over base rates. The officers
also confirmed that credit standards for commercial real estate
projects, especially office buildings and industrial structures, had
tightened since late 1989.
Agriculture
Excessive rainfall over the District has delayed crop planting,
damaged crops and caused flooding. Crop planting has been delayed
the longest in northern portions of the District, where corn and
soybean plantings are three-to-five weeks behind normal. Diseases
stimulated by the cool, wet weather and insects have damaged the
wheat and cotton crops. One-quarter to one-half of these crops are
rated in poor-to-very-poor condition in several District states.
District logging activity also has been limited by the wet weather.
Areas adjacent to rivers sustained crop end livestock losses due to
flooding throughout the District, with Arkansas being hit the
hardest, Disaster assistance has been approved for almost half of
Arkansas' counties. The combination of poor weather conditions and
disease and insect problems indicate that 1990 District crop yields
may fall below normal in some areas.