Beige Book Report: St Louis
December 6, 1995
Summary
The District economy continues to grow at a pace similar to our last
report. Retail sales grew at a moderate pace in recent months, and
most contacts expect this holiday season to be slightly boner than
last year's. Many contacts continue to report slow but steady growth
in their industries and firms. The pace of residential construction
slowed slightly in the past month, but multifamily construction is
picking up in some areas. Nonresidential construction continues to
be a bright spot in many parts of the District. Though overall loan
demand remains strong, most contacts note some recent softening. A
survey of small firms in the District reveals that more expect
business conditions to improve over the next six months than expect
them to worsen.
Consumer Spending
Retail sales grew at a moderate pace in September and October in
most area of the District, with increases averaging 2 to 6 percent.
Some contacts in Louisville and Memphis, however, noted declines in
September and October, especially for women's apparel and other
"soft" goods. For the holiday season, most contacts expect a 3 to 5
percent increase in nominal sales over last year, although many
hedged these expectations with worries of potential downsizings in
their areas. Although most contacts do not expect to offer unusual
discounts to move merchandise, one Louisville contact will use
"severe discounting" this holiday season, especially for apparel, if
merchandise does not move well.
Slightly more than half of District auto dealers contacted report fall sales levels below those of last year. Shortages of popular trucks and minivans at a number of dealers have dampened sales. Rebates and other incentives have been used by about half of the respondents to spur sales. Although moat dealers are not expecting stronger sales through year-end, they anticipate a pick-up in sales in early 1996.
Manufacturing and Other Business Activity
Reports from District firms indicate that the pace of economic
activity has remained relatively unchanged from the previous
reporting period. Although some major firms announced plant closures
that will affect the District, many contacts continue to report slow
but steady growth in sales and do not expect any severe downturns.
A contact in the heating and cooling industry reports a record year for the industry on the cooling side. Warm weather during the summer and a recent increase in residential construction have helped air conditioning sales; however, some slowing has occurred recently and sales of heating equipment have not yet materialized. A defense subcontractor reports business is picking up because of recent contracts secured by a major St. Louis-based defense contractor. Sales in its home health care division, though, are down about 15 percent this year over last; much of this decline stems from uncertainty about the growth rate of Medicaid and Medicare spending. The nation's largest thrift is opening a new processing center in St. Louis that will employ more than 200 people. A furniture manufacturer reports a recent pick-up in orders. A contact at a wire company notes that his firm's decline in domestic demand has been offset by a comparable increase in foreign demand.
The District's apparel industry is contracting because a national manufacturer is closing two District plants and scaling back production at a third. A total of 1,265 people will lose their jobs. Another apparel firm is also closing three District plants, which will affect 700 people. In both cases, slack demand and fierce foreign competition are the causes. The southern Illinois mining industry will shrink again as three more mines close, eliminating about 700 jobs. Depleted reserves and declining demand for high- sulphur coal are being blamed for the shrinkage. A District shoe producer has announced it will leave the production aide of the business and focus solely on marketing and sales. This plant closure, which affects 195 people, is part of the company's cost- cutting and reorganization plan.
Real Estate and Construction
Monthly residential construction permits declined somewhat in most
parts of the District. On a year-to-date basis, only four of the
District's 12 metropolitan areas report permit levels above last
year's. Multifamily construction in Little Rock and St. Louis is
beginning to increase. Nonresidential construction continues to be a
bright spot for most areas of the District. Among metropolitan
areas, Columbia, Mo., and Little Rock are experiencing the
District's strongest year-to-date growth in nonresidential
construction permits. Tunics County, Miss.--where riverboat casinos
have fueled much growth in the last few years--has recently seen new
construction fall off sharply.
Banking and Finance
Although loan demand is still reported to be strong in most parts of
the District, most respondents note demand has softened somewhat in
the past several months. Loan competition is still reported as
brisk, and loan pricing is described as very aggressive by a number
of respondents. Ax the same time, deposit growth has slowed
somewhat, putting downward pressure on net interest margins.
Although most respondents reported some uptick in consumer loan
delinquencies, current levels are not considered worrisome.
Outlook
According to a recent survey of 245 small businesses in the Eighth
District, nearly two-thirds expect little change in business
conditions in the next six months, with those who expect an
improvement slightly outnumbering those who expect conditions to
deteriorate. This is in stark contrast with three months earlier,
when those expecting conditions to worsen outnumbered those who
expected an improvement by nearly two to one.