Beige Book Report: St Louis
November 1, 1995
Summary
The District economy is growing at a somewhat more moderate pace than was noted in the last report. Announcements of plant closings and employee layoffs, often attributed to increased foreign competition or declining domestic demand, have been more frequent. Reports of tight labor markets, though, still surface in some areas. Although the gap between this year's and last year's levels of residential construction permits continues to narrow, most contacts do not expect permits to reach last year's record levels. Nonresidential construction is picking up in most areas, as office vacancy rates decrease. District loan demand appears to be waning somewhat. Crop yields are well below last year's bumper levels because of weather and insect problems.
Manufacturing and Other Business Activity
District economic activity increased at a slightly slower pace during the past month, as evidenced by an increase in announcements of plant closings and employee layoffs. Continued accounts of scattered tight labor markets and sales increases in a number of industries, though, ameliorate some of the negative news.
An Arkansas poultry processor completed a major expansion and will add about 400 workers by year's end, with another 400 expected next year. Some companies in Missouri report record levels of exports that have helped offset a slowing of domestic demand. Contacts in western Tennessee and northern Mississippi continue to report tight labor markets, especially for skilled workers. One contact reports that seasonal help has been extremely difficult to find this year: "This market is noticeably tighter than in previous falls." A contact at a textile firm reports strong sales for towels, but denim sales have flattened out. A contact at a metal salvage company reports sales are up about 17 percent for the month of September and year-to-date. A company producing casters reports sales are up about 7 percent for the month of September and year-to-date because it has held its prices steady while its competitors' prices have increased. A video distribution firm that recently opened in central Arkansas plans to double its capacity, adding about 500 workers.
A major St. Louis-based shoe company announced that it is closing its remaining U.S. factories because of competition from lower-priced imports; about 900 jobs will be eliminated in Missouri and about 700 in Arkansas. A maker of household appliances let 200 workers go because of declining sales. A food producer will release about half of its 600-person work force at its Memphis plant because of its declining domestic market share. The southern Illinois coal industry continues to decline, as another mine closes later this month. A bus manufacturer is moving from southern Indiana to a newer, more efficient plant upstate; it currently employs about 400 people. Textile finishing operations in northern Mississippi are cutting employment because of competition from foreign firms. A contact reports that sales in the outdoor lighting industry are down about 20 percent year-to-date because of decreased housing starts.
Real Estate and Construction
Residential construction permits on a year-to-date basis continue to lag last year's levels in most parts of the District. Southern Indiana and western Tennessee are the only areas where year-to-date permits are up. The size of the gap between last year and this year, however, continues to shrink in most other areas. Nonresidential construction has been a bright spot in many parts of the District. Nonresidential construction permits are up in central Arkansas, southern Indiana, western Kentucky, and central and eastern Missouri. One contact reports that today's commercial and industrial real estate market in St. Louis is the healthiest in nearly a decade. Many areas, also report high occupancy rates for Class A office space, which is leading to higher rents.
Banking and Finance
District loan demand shows signs of softening. For example, total loans outstanding at 11 large District banks were unchanged in August and September after rising 3.1 percent in the prior two-month period. Commercial and industrial loans declined 1.1 percent in August and September after a 0.9 percent increase in June and July. Real estate loans rose just 0.6 percent in August and September following a 5.8 percent rise in June and July; this change is most likely due to seasonal factors, however. Consumer loan demand is also weakening, with loans outstanding declining 1.4 percent in August and September after a 0.2 percent decline in June and July.
Agriculture and Natural Resources
With harvesting complete or nearing completion in most areas, early reports suggest that yields and production will be down considerably from last year's record and near-record crops. In Illinois, Indiana and Missouri, corn and soybean yields are reportedly running below average because of early season planting problems, drought-like conditions in mid-summer and a light, early frost in late September. In fact, in isolated parts of southern Illinois, the frost caused significant damage to soybeans. In the Delta region, insects and hot, dry weather curtailed cotton, rice and soybean prospects dramatically, leading to a deterioration in the quality of the harvested crops in many instances. For example, some reports from Mississippi suggest that several thousand acres of cotton were abandoned because of insect damage. In Arkansas, one report suggests that insect-control costs more than doubled for this crop year. Most crop prices are considerably higher than they were earlier this summer, ameliorating some of these problems for farmers.