Beige Book Report: St Louis
September 19, 1990
Summary
District contacts indicate that the economy has weakened slightly in
recent weeks, implying that the District's growth rate borders on
zero. Higher oil prices and consumer uncertainty stemming from the
Persian Gulf crisis are expected to exacerbate the economic
slowdown. The level of District employment has fallen this summer.
Retail sales are reported as flat to up moderately and several
contacts have an optimistic outlook for the rest of the year.
Manufacturing activity has weakened in recent months, as have the
construction and real estate industries. Despite moderate deposit
growth, loan growth is flat at the District's largest banks. Most
District crops are in fair-to-good condition, although some are
being stressed by extreme heat and inadequate soil moisture.
Consumer Spending
Reports on recent District retail sales are mixed. Most contacts,
however, report sales as flat to up moderately from a year ago. Many
retailers report that recent sales met or exceeded their
expectations and were obtained without excessive price-cutting.
Inventories are generally at desired levels. Several contacts have
an optimistic outlook for the rest of the year, but some are
concerned about the potential negative effects of higher oil prices.
Most retailers expect retail prices to remain stable through the end
of the year, although a few think prices will rise this fall, in
part because of higher oil prices. It is feared that the deployment
of soldiers from a base in Kentucky will result in a sharp decline
in business activity in nearby communities. Contacts indicate that
sales of new autos are generally week while sales of used cars are
strong.
Manufacturing
District manufacturing activity has weakened since the first
quarter. Producers of home appliances, chemicals and electrical
equipment expect flat or weakening demand in the next few months, as
much of their demand is related to activity in the motor vehicle and
construction industries, sectors that have been weak and are not
expected to grow soon. One home appliance producer plans to lay off
more than a thousand production workers in September, partly because
of planned seasonal cutbacks, partly in response to a recent
weakening of demand that is expected to persist. A car manufacturer
recently announced that it will postpone the closing of a Missouri
assembly plant until May 1991, delaying the expected November layoff
of approximately 2,000 workers.
The conflict in the Persian Gulf has caused two manufacturers to be more cautious in extending credit to customers in the Middle East; one is holding up shipments of capital goods until previous bills are paid. No substantial price increases in chemical products due to higher oil prices are expected.
Construction and Real Estate
Residential real estate contacts in Little Rock, Memphis and St.
Louis report weakness in new and existing home sales. These contacts
believe residential real estate conditions will worsen in the next
few months and anticipate no increase in construction over the next
12 months. Residential construction unemployment is high relative to
historical levels in St. Louis and Little Rock and is expected to
increase in the next several months. Contacts in Louisville,
however, report that residential real estate conditions are better
than they had anticipated.
Banking and Credit
Despite moderate deposit growth, loan growth continues to be very
slow at the District's 11 largest banks. Although real estate and
consumer lending are up substantially from year-ago levels, overall
loan growth remains weak because of a marked decline in commercial
and industrial loans at Louisville and Memphis banks. Sluggishness
in the residential housing market appears to be more demand-driven
than supply-driven, as mortgage financing is plentiful.
Agriculture and Natural Resources
Most District crops are in fair-to-good condition. In some areas,
however, a lack of adequate soil moisture and extreme heat are
hammering crop development, especially soybeans and pastures.
District coal production is running about 7 percent above last year
because of strong exports, stockpile rebuilding and increased U.S.
electric output. Recent oil price increases are not expected to have
a significant effect on the demand for coal or coal prices. Contacts
report that exports of rice and Southern pine lumber will be lower
than previously expected because of the embargo of exports to Iraq
and recent increases in freight and insurance costs for shipments to
other Middle Eastern countries. Nonetheless, Southern pine lumber
mills report that orders, production and shipments are all up
compared to a year ago.