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Beige Book Report: St Louis

September 18, 1991

Summary
The economy in the Eighth District is showing signs of growth, but contacts stress that any expansion is weak. Although manufacturing activity overall is stagnant, the stabilization of auto-related manufacturing and rising exports are encouraging signs. Residential construction activity has picked up slightly. Loan growth remains weak. Tourism has been marginally higher this summer than last in most parts of the District. Most crops are in fair condition as the fall harvest approaches.

Manufacturing
Most manufacturers surveyed expect to increase production in the next few months, but do not plan to increase the size of their workforce or invest in new plant or equipment. Most also report that inventories are at satisfactory levels, although an increasing minority indicate that inventory levels are higher than desired. Auto-related manufacturing has stabilized for the most part, with employees at some vehicle assembly plants working overtime. Nonetheless, a drop in orders has reportedly caused substantial layoffs at one steel factory that makes parts for railroad cars carrying new motor vehicles. A shoe manufacturer will close several factories and warehouses in Missouri permanently this fall, eliminating 1,400 jobs. According to a company spokesman, the national recession and strong import competition were the primary reasons for the closings.

Contacts generally report an increase in exports, though some mentioned that the rate of growth had slowed. Strong export growth was reported by producers of furniture and paper products in some rural parts of the District. As District exports to Mexico rise, a number of companies have begun to investigate similar export opportunities. Political instability has made exporters more cautious in pursuing sales to the Middle East and the Soviet Union, according to some contacts. Most respondents believed that the upward movement in the exchange value of the dollar since February has had little effect on exports.

Construction and Real Estate
Residential construction activity has picked up modestly in some parts of the District. Strong economic growth in northwest Arkansas has created construction jobs for workers from other parts of the state, where activity remains stagnant. Contacts describe western Kentucky homebuilders as "holding their own," largely because of lower interest rates and the ability of some builders to get construction loans now that they could not get several months ago. Despite increases in lumber prices, new home prices have remained relatively constant. Contacts do not anticipate a general recovery in the residential construction industry in 1991 and are split as to whether the recovery will occur in 1992 or 1993.

Tourism
Despite the recession, tourism in Missouri, Arkansas and western Kentucky has been somewhat stronger this summer than last. Contacts in Missouri and Arkansas attribute the increased activity to the desire for short, economical vacations close to home. Arkansas tourism also has been stimulated by an expanded advertising campaign. The recent level of tourism in Tennessee, however, is reportedly the same as last year. Some Missouri contacts fear the state has lost some tourism business because of the legalization of riverboat gambling in Iowa and will incur further losses when

riverboat gambling begins in Illinois in the near future.

Banking and Finance
Total loans outstanding at District banks remain substantially below year-ago levels as most loan categories show a decrease during recent months. For example, both business and consumer loans declined from mid-June through mid-August relative to the prior two months.

Agriculture and Natural Resources
Although soil moisture ratings in the District remain below optimal levels, most crops in the District are generally in fair condition. The lack of adequate moisture, however, has hampered development of the soybean crop and accelerated the maturation process of the corn crop. As a result, harvesting of the corn crop is well under way in the southern regions of the District and just beginning everywhere else. Early reports suggest that corn yields are mixed. The rice harvest is under way in Arkansas and Mississippi; rice growers expect to harvest a bumper crop in Arkansas, but poor weather conditions this past spring have diminished rice prospects in Mississippi. District cotton producers report that expectations of a record harvest have depressed prices. Livestock are mostly in good condition, but the dry weather has hurt pastures. Southern pine lumber producers report that production has picked up, though it still lags behind a year ago. Exports of Southern pine lumber, on the other hand, are running ahead of last year.