Beige Book Report: St Louis
June 22, 1994
Summary
District economic activity continues to expand vigorously as
contacts report growth in both employment and sales. Defense-related
firms, though, reported some layoffs. Contacts also report minimal
cost pressures and see future price increases as unlikely. Retailers
and auto dealers report generally brisk sales and are optimistic
about the second half of the year. While recent increases in long-
term interest rates have slowed residential construction activity
somewhat, they have not had much effect on home sales, which remain
robust. Consumer and business loan demand continues to rise at
District banks. Favorable crop conditions are reported in most areas
of the District.
Manufacturing and Other Business Activity
District firms report strong growth, citing plant expansions and
sales increases. In some places, particularly in St. Louis, contacts
are beginning to report shortages of available workers, forcing some
to offer higher wages. This shortage is reflected in St. Louis' low
April unemployment rate, 4.8 percent, its lowest since July 1979.
One contact said that his firm had trouble retaining newly hired
employees.
Growth is occurring in both manufacturing and nonmanufacturing firms in all parts of the District. For example, two poultry processors report new plants opening in Kentucky, one initially bringing 850 jobs, and the other bringing 1,300. An apparel maker will also move to Kentucky and employ 600 by year's end. Contacts in western Tennessee report the opening of a new auto parts plant, employing 500 workers, and the expansion of a paper factory, adding 200 workers. A greeting card company, expanding into northeast Arkansas, will employ 250 workers. Because of a new contract, a St. Louis corporate services firm hired an additional 400 workers. A heavy equipment dealer says demand has outpaced supply, creating severe shortages but leading to sales increases of more than 20 percent over last year. Other contacts also report sales increases over last year and expectations that this will continue at least through next quarter. For example, a building supplies company and a pallet manufacturer both report sales increases of 15 percent, while a die casting company's sales grew 10 percent.
Domestic markets remain strong for most products, particularly animal feed, although some slowdowns in the hospitality and metal plate products industries were noted. Reports about foreign markets vary with company and destination. Most say that overall exports are weak with only the Pacific Rim countries as a source of rising demand.
Most reports of layoffs in the District are defense-related. An army base reports it will lay off about 250 civilian employees by the end of September because of restructuring within the military. An electronics company producing engines and other parts for defense aircraft laid off 100 white-collar employees because of spending cuts, and a missile producer will eliminate about 240 positions because of scheduled production decreases. Separately, the catfish industry reports that nationwide shortages of catfish are causing firms to release workers. One firm laid off its entire night shift of 295 people.
Most discussions with area business people suggest that cost pressures are minimal. In general, the largest average reported increase was about 3 percent. Many of these contacts state that increased foreign competition prevents them from increasing prices on their products. Some even stipulated that when presented with opportunities to raise prices, they decided not to. In addition, some claim they can now find their raw materials overseas when there is a shortage domestically, which helps to keep prices down. The consensus among contacts was that District wage increases are running between less than 1 percent and 3 percent.
Consumer Spending
Retailers throughout the District report moderate to strong sales in
recent months, with some contacts reporting increases as large as 25
percent over one year ago. Most contacts report that recent sales
have met or exceeded their expectations, and most are optimistic
about the second half of 1994. Auto dealers also report strong
sales, and most expect sales growth at or above its current pace
over the remainder of 1994. Rising interest rates have had a minimal
effect on sales thus far. Truck and sport utility vehicle sales are
particularly strong. In addition, sales of imports have picked up
some of the momentum they had lost in recent years.
Construction and Real Estate
Though residential construction activity remains brisk in most parts
of the District, some areas are reporting a slowdown, which contacts
attribute to recent increases in mortgage rates. Still, the single-
family housing market can be characterized as strong, with sales of
new and existing homes at or above last year's pace. A shortage of
homes for sale, rising prices and quick turnaround are reported in
many areas. Some areas also report a shortage of skilled tradesmen
for construction jobs, which is further adding to backlogs
previously built up because of weather delays and strong demand.
Banking and Finance
District bankers report continuing improvement in consumer and
commercial loan demand. While refinancing activity has come to a
standstill, mortgage lending is still relatively strong, with
consumers increasingly showing a preference for adjustable-rate
mortgages. Commercial loan demand from small businesses is
especially strong. Some bankers report that deposit growth is not
keeping pace with loan demand growth, which is increasing funding
costs.
Agriculture and Natural Resources
Crops appear to be in mostly fair-to-good condition across the
District. In parts of Illinois and Missouri, however, an outbreak of
insects has affected the wheat crop, and in parts of Arkansas the
cotton crop has suffered some herbicide damage. Moreover, some
contacts report a significant upsurge of European corn borer
activity in parts of the Midwest. In general, soil moisture seems
adequate, although drier conditions are becoming increasingly
prevalent in many areas.