Beige Book Report: St Louis
March 10, 1993
Summary
District manufacturing and nonmanufacturing firms report increases
in both production and sales since the beginning of the year. Some
cite strong export activity as a major source of demand. Many
manufacturers are comfortable with current employment levels.
Residential construction activity and both new and existing home
sales remain above their year-ago levels. Business and consumer
loans outstanding have increased since the beginning of the year,
while real estate loans have declined, primarily because of
refinancing activity and pay-downs. Southern pine lumber producers
report that orders are up substantially from year-ago levels.
Manufacturing
More than three-fourths of District manufacturing contacts report
that sales are up since the beginning of the year. Sales increases
range from 5 percent for plumbing and heating and cooling equipment
to more than 13 percent for an aerospace-related equipment business
that has converted some of its defense technologies into consumer
goods. A maker of hydraulic parts and equipment reports that exports
are booming, especially for oil reclamation equipment. A contact in
the food distribution industry, however, is concerned that the
recent increase in sales is another false start.
Orders have exceeded expectations for many firms. Another maker of hydraulic parts reports a current backlog equal to about 80 percent of current annual volume.
Many contacts say they currently are comfortable with employment levels but see some prospects for hiring in the near future. Producers of hydraulic equipment expect to hire as demand, especially from foreign firms, increases. An Indiana appliance producer will add 1,800 hourly employees this spring because of increasing foreign demand. A Kentucky poultry processor announced an expansion that will add 300 jobs.
Some firms continue to contract, however. Large defense-related firms continue to reduce employment as government and foreign demand fall. St. Louis will lose one of its three auto plants, which employs about 3,800 workers, by the end of this year. In addition, a pharmaceutical company in Indiana eliminated more than 200 jobs as it reduced the size of its company. Many small manufacturers report difficulty obtaining bank financing. In particular, they are concerned about their dwindling lines of credit; as they pay down credit lines, banks are concurrently lowering their caps.
Nonmanufacturing
Several District nonmanufacturing firms report increased sales as
well. Retailers have seen consistent gains in year-over-year sales,
with some department stores reporting double-digit increases. This
has translated into higher levels of retail employment, especially
in St. Louis. In addition, a retail holding company will relocate
its headquarters to the St. Louis area, bringing about 400
employees. Since the beginning of the year, plumbing contractors
have experienced close to a 5 percent increase in sales after two
years of decline. Most of this increase has come from residential
and public works projects. Public utilities also expect steady
growth over the coming months from increased residential
construction. Employment in the St. Louis health care industry has
continued to expand in recent months. In addition, a mortgage
company in Missouri, after reducing employment by almost 2,100
during 1991 and 1992, has been rehiring and is now 500 workers below
the company's peak level of employment. The District mining
industry, however, sustained more losses as a Missouri mine closed,
eliminating 340 jobs.
Construction and Real Estate
Single-family home construction and new home sales continue to be
above year-ago levels in most parts of the District. Prices of both
new and existing homes are rising. Contacts note that first-time
homebuyers are still the largest segment of the market, but that
move-up buyers are increasing in number. Builders are increasingly
concerned about rising lumber prices, which are reducing their
profit margins. These higher prices will likely be passed on to
consumers this spring when lumber stocks are exhausted and activity
picks up further.
Banking and Finance
Loan demand appears to be strengthening. Business loans outstanding
have increased 1.3 percent since the start of the year at a sample
of small and mid-sized District banks but have been flat at a sample
of large District banks. Consumer loans, in contrast, have been flat
at the small and mid-sized banks and up 1.9 percent at the large
banks during the same period. Real estate loans outstanding have
fallen at both groups of banks; contacts attribute the decline to
the continuation of refinancing activity and the pay-down of
mortgages by consumers. Mortgage origination activity continues to
be unseasonably high.
Agriculture and Natural Resources
The winter wheat crop in the District is reported to be in mostly
fair to good condition. In a few areas, however, substantial amounts
of precipitation may have caused damage to the crop. District rice
producers expect prices to remain at current low levels through the
first half of the year because of weak export prospects. In general,
both crop and livestock prices are higher across the District than
they were in the previous month; crop prices generally remain below
last year's levels, while livestock prices are somewhat higher than
a year ago. Southern pine lumber producers report orders are up
nearly 15 percent from one year ago. Tight supplies are expected to
keep lumber prices relatively high for the foreseeable future.