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Beige Book Report: St Louis

September 8, 1993

Summary
The District economy continues to grow slowly. Floodwater has receded in many areas, allowing the cleanup to begin. Our flood damage estimate for the District now stands at $2 billion to $3 billion, up from the $1.5 billion to $2 billion stated in the last report. The Coast Guard has reopened the Missouri River and is allowing restricted traffic on the Mississippi River between St. Louis and Cairo, Illinois. Residential construction has picked up in areas where it was lagging and continues to be strong elsewhere. Total loans outstanding at a sample of District banks rose less from mid-June to mid-August than they had in the prior two-month period. Hot, dry weather has hurt crop prospects in the southern parts of the District.

Consumer Spending
Most retailers throughout the District, except in St. Louis, report that sales are up between 1 percent and 7 percent over last year. Retailers in St. Louis have not fared as well, reporting that sales have been flat. Some department stores in Little Rock and Louisville report double-digit increases. Stores in Little Rock, Louisville and Memphis also report that back-to-school sales are above expectations, although some say that it is still too early to report. Contacts in Little Rock and Memphis expect sales this holiday season to be as good as, if not slightly better than, last year. Some contacts in Louisville and St. Louis were less optimistic though, expecting sales this holiday season to just match last year's.

Car dealers report that sales of both new and used domestic cars are up, in many cases by more than 10 percent, over the same period last year. Import sales, especially of Japanese cars, however, continue to decline. Most dealers expect that as the model year changes and the usual year-end incentives are offered, sales over the next few months will continue their increase from one year ago. Dealers in Louisville, on the other hand, expect this year's total sales to be slightly lower than last year's because of the decline in import sales.

Manufacturing and Other Business Activity
Most District firms contacted continue to report slow, steady growth. Many firms that had suspended operations because of flooding are returning to normal operations. At the height of the flooding, about 31,500 workers in Missouri were displaced, including about 10,700 workers in the St. Louis area. As of August 23, approximately 11,000 people statewide, including about 5,000 people in St. Louis, were still believed to be out of work because of flooding. Most of the displaced workers in St. Louis are from the Chesterfield area, where the Monarch Levee broke on July 30, flooding about 300 businesses, the second-busiest airport in Missouri and a county jail. Preliminary damage estimates for this area are between $150 million and $200 million. In Illinois, about 200 of the 500 displaced nonagricultural workers were still believed to be out of work.

While a few reports from District firms not affected by the flooding are negative, most are upbeat. A mine in southeastern Illinois will close permanently by late September, eliminating 365 jobs. At the same time, another mine in southern Illinois reopened, calling back almost 350 workers from a layoff in March. A domestic airline announced that its corporate headquarters will move to St. Louis from New York. This relocation, along with one by a medical supply company from Chicago, will bring about 500 jobs into the area.

A contact in the oil-extraction equipment industry reports that, for the first time in about a year, orders from domestic firms have picked up. In Tennessee, a shirt manufacturer that closed in early July has reopened, calling back 350 employees, and a furniture manufacturer will open two new plants, creating 400 new jobs. A major telecommunications firm, which recently announced widespread reductions in its workforce, will close its Louisville office, affecting about 120 employees. Many of these employees will receive other positions within the company, although not necessarily in the District. In a July survey of District firms by the National Federation of Independent Businesses, only 13 percent believed that now is a good time to expand.

Construction and Real Estate
Residential construction has picked up some of the momentum it had lost in areas of the District this spring because of adverse weather conditions. In St. Louis, for example, single-family home permits rose 8.4 percent in June and 10.1 percent in July from their year- ago levels, compared with small declines or no increases in prior months. Elsewhere, single-family home construction continues to buoy area economies: In Memphis and Little Rock, year-to-date, single- family home permits are up more than 25 percent from 1992.

Banking and Finance
Total loans outstanding at a sample of 104 large, mid-size and small District banks increased 0.6 percent between mid-June and mid- August, after increasing 1.9 percent between mid-April and mid-June. Commercial and industrial loans fell 0.8 percent from June to August, after posting a 1.8 percent drop from April to June. Real estate loans rose 2.2 percent compared with a 3.5 percent increase in the prior period, and consumer loans declined 1.4 percent compared with a 2.2 percent increase in the prior period.

Agriculture, Natural Resources and Transportation
Weather conditions remain mostly hot and dry in the southern portions of the District, adversely affecting the region's crops. Cotton producers in certain areas of Mississippi and Tennessee continue to apply pesticides actively; many believe that production costs for this year's cotton crop will be much higher than normal. Barge movement on the Mississippi River is slowly returning to its normal pace, although certain restrictions remain in effect. One concern is that a logistical problem may develop in the fall with so many boats and barges moving to New Orleans at the same time. Southern pine lumber producers are reported to be rebuilding their inventories; however, they expect only a modest increase in demand associated with the rebuilding efforts from the flood.