Beige Book Report: St Louis
January 17, 2018
Summary of Economic Activity
Reports from contacts indicate that economic conditions have continued to improve at a modest pace since our previous report. Labor market conditions remain tight, the pace of hiring remains slow, while wage growth has been moderate. Reports on consumer spending were positive. Residential real estate conditions have improved modestly after a few months of sluggish home sales. District bankers reported moderate loan growth across most categories. Unseasonably cold weather has negatively impacted the quality of winter wheat in the District.
Employment and Wages
Anecdotal evidence suggests little change in employment since the previous report. Contacts continued to report difficulties finding experienced or qualified employees. Construction contacts in Louisville and Little Rock reported labor shortages, while manufacturing contacts reported difficulties hiring for both skilled and unskilled positions. Labor demand in Missouri was particularly high in healthcare services, leisure and hospitality, retail, and wholesale trade.
Contacts reported moderate growth in wages since the previous report. A contact in Louisville reported increasing starting salaries multiple times a year to attract new hires, as well as increasing wages to retain skilled employees in information technology. Construction and manufacturing contacts across the District reported increasing wages to attract new employees.
Prices
Price pressures have increased moderately since the previous report. Residential real estate prices rose moderately, with especially strong growth in northwest Arkansas. Construction materials price pressures increased as well. Steel prices rose moderately throughout the District, and a Louisville contact reported an uptick in construction costs. A contact in Arkansas reported solid wood products prices increased moderately but saw-timber and pulpwood prices were flat or decreased.
In the energy sector, coal prices were flat. In the agricultural sector, prices generally rose at a moderate pace. Corn feed, sorghum, and rice prices increased moderately, soybean prices were flat, and wheat and cornmeal prices decreased slightly. Contacts in Memphis reported strong increases in cotton prices, and Little Rock contacts reported rapid increases in large egg prices.
Consumer Spending
Reports from general retailers, auto dealers, and hoteliers indicate consumer spending has grown modestly since our previous report. November real sales tax collections increased in Arkansas, Kentucky, Missouri, and Tennessee relative to a year ago. Consumer confidence continued to increase in West Tennessee, as households indicated their willingness to spend more in the next few months relative to a year ago. Reports from auto dealers were mixed: While multiple auto dealers from Louisville and Little Rock reported improved traffic and sales, Memphis auto dealers reported that sales have softened the past two months. Auto dealers throughout the District hold an optimistic outlook for 2018. Louisville hoteliers continued to report weaker occupancy rates in the fourth quarter.
Manufacturing
Manufacturing activity has increased modestly since our previous report. Overall manufacturing activity was stronger than one month earlier in both Arkansas and Missouri, although the pace of growth slowed in Missouri. Production increased in both states, but at a slower rate than previously. Several companies in the District reported new capital expenditure and facility expansion plans, including firms that manufacture food and beverage products, chemical products, and transportation equipment. Sales to auto manufacturers, however, were flat to slightly down, according to contacts that supply the auto industry. Most manufacturing contacts expect conditions in 2018 to be similar to those in 2017, although a contact in the plastic products manufacturing industry expects a decline in business in 2018, citing increased foreign competition.
Nonfinancial Services
Activity in the service sector has expanded modestly since the previous report. Firms that provide transportation, logistics, and information technology services announced plans to increase employment, open new facilities, and renovate existing facilities. Demand for commercial trucking remains elevated because of Hurricane Harvey relief efforts, exacerbating a shortage of drivers. Reports from healthcare firms remain mixed. One major healthcare employer is cutting employees to improve operational management, while other healthcare providers began capital expansions.
Real Estate and Construction
Residential real estate activity has improved moderately since the previous report. Seasonally adjusted home sales for November increased sharply from the previous month across the District's four major MSAs. Local contacts continued to report shortages in inventory.
Residential construction activity was flat. November permit activity within District MSAs was unchanged relative to the previous month. Local contacts continued to report that a shortage of labor is limiting new construction.
Commercial construction activity improved slightly. November nonresidential construction starts increased moderately within the District relative to the previous month while multifamily permits dropped slightly. Little Rock construction contacts reported healthy levels of activity that they expect will continue through the first half of 2018 at least.
Banking and Finance
Banking conditions in the Eighth District have improved at a moderate pace since the previous report. District banking contacts report that outstanding loan volumes expanded by 7 percent relative to year-ago levels, indicating that loan growth, which had been slowing since the start of 2017, levelled off in December. Year-over-year growth in residential mortgage lending continued at 4 percent for the second consecutive quarter while commercial real estate lending grew by 9 percent. Commercial and industrial credit growth was also strong as loan volumes rose by 9 percent compared with 6 percent nationwide. Lending activity in open-ended home equity loans declined by 1 percent relative to year-ago levels and was the only major loan category that experienced negative growth.
Agriculture and Natural Resources
District agriculture conditions declined moderately from the previous reporting period. Due to unusually low temperatures across much of the District, the percentage of winter wheat rated fair or better fell 4 percentage points from the middle of November to the end of December; it is now 89 percent. Contacts are concerned that crop conditions worsened further during the first week of January, when temperatures plunged.
Natural resource extraction conditions declined slightly from October to November, with seasonally adjusted coal production falling 2 percent. November production was also down by 4 percent from a year ago.
For more information about District economic conditions, visit: www.research.stlouisfed.org/regecon/