Beige Book Report: St Louis
September 14, 1994
Summary
District firms continue to report moderate growth, although some
sectors have experienced a recent slowing. Many firms report minimal
wage pressures, but some price pressures are apparent, as prices for
raw materials have increased between 1 percent and 3 percent on
average over the past six months. Recent retail sales increases were
below expectations, but car and truck sales were robust. Residential
construction continues at a brisk pace in most parts of the
District, though rising interest rates are beginning to pinch
residential housing sales. Total loans outstanding at a sample of
District banks declined from mid-June to mid-August after rising in
the prior two-month period. Crops are generally in good condition
throughout the District, although dry weather has hampered growth in
some areas.
Consumer Spending
District retailers report average year-over-year sales increases of
4 percent to 5 percent, but this was below expectations.
Nonetheless, expectations are for a strong fourth quarter, with good
volume in the coming holiday season. No price pressures were
reported.
District car dealers report robust year-over-year sales growth of 7 percent to 10 percent. Shortages of many models, especially trucks, restricted sales growth to some extent. The use of rebates and other incentives to move inventory has declined dramatically. Expectations are that strong sales will continue as long as inventories can keep up with demand.
Manufacturing and Other Business Activity
District firms, particularly in manufacturing, report moderate
growth and employment increases. Some contacts, especially in the
Memphis area, have mentioned that they are having trouble finding
qualified workers. Even so, employment increases continue at many
District firms. For example, a rail car manufacturer will open a new
plant in northeast Arkansas, bringing 400 jobs into the area. Little
Rock will be home to an airline's newest and largest customer
service center, employing 900 people. A maker of kitchen products is
expanding in Memphis, initially adding 150 to its current workforce.
Firms also report sales growth. A contact in the heating and cooling industry reports the industry is having its best year ever, with production up 15 percent over last year. Sales of air conditioning units are up about 600,000 units over last year. A manufacturer of oil filtration and reclamation equipment reports that business has rebounded in the third quarter after a sluggish start earlier in the year, as contracts from South America and Pacific Rim countries, in particular, have increased.
Some industries noted a slowing. A contact in the farm equipment industry reports that sales are down 16 percent from one year ago. A maker of rubber compounds reports slowing because of reduced orders from auto makers. A garment manufacturer will close its west central Arkansas plant because of increased global competition.
Prices
Reported wage increases, for the most part, have been minimal. Raw
materials prices over the past six months have increased moderately,
between 1 percent and 3 percent. One contact in the aluminum
products industry has seen input prices increase between 10 percent
and 12 percent, while a contact in the paper industry has seen input
prices decline. Most contacts have not passed these cost increases
through to customers. In one case, a paper industry contact reports
that product prices have fallen slightly in response to intense
competition. A metal manufacturer, though, does report a cost
passthrough to customers; about four months ago this industry was
unable to pass increased costs along as price increases.
Construction and Real Estate
Residential construction remains robust in most areas of the
District. Builders in Memphis and St. Louis report that labor
shortages are putting them further behind schedule. Contacts in
Memphis attribute the labor shortage to continued casino building in
the Tunica, Mississippi, area. Although sales of new and existing
homes hit a record in Louisville in June, realtors in other parts of
the District report a slight downturn in homebuyer traffic and
sales, which they attribute to rising interest rates and a lessening
of pent-up demand.
Banking and Finance
Total loans outstanding at a sample of 102 large, mid-size and small
District banks declined 0.6 percent between mid-June and mid-August,
after rising 1.1 percent between mid-April and mid-June. Commercial
and industrial loans declined 0.8 percent from June to August, after
increasing 1.6 percent from April to June. Real estate loans
declined 1.3 percent compared with a 0.7 percent increase in the
prior period. Consumer loans were the only major category to show
continued growth, rising 1.9 percent after a 2.2 percent increase in
the prior two months.
Agriculture and Natural Resources
Despite much-needed rainfall recently, soil moisture is inadequate
in many areas, particularly Missouri. Nevertheless, crops appear to
be generally in good condition across much of the District.
Substantial increases in crop yields are expected, with near record
crops predicted in some areas. For example, Mississippi farmers
expect to harvest their largest rice crop ever this fall, while
Illinois farmers expect to harvest their second-largest corn and
soybean crops. The rice harvest is under way in Arkansas and
Mississippi with early reports indicating good yields and high
milling quality. Hot, dry weather has stressed the soybean crop in
parts of Arkansas, Kentucky, Mississippi and Missouri. Southern pine
lumber producers report that orders and production so far this year
are up about 3 percent to 4 percent over last year.