Beige Book Report: St Louis
April 18, 2018
Summary of Economic Activity
Reports from contacts suggest economic conditions have continued to improve at a modest pace since our previous report. Labor market conditions remain tight: Employment grew slightly and wage growth was modest. Overall inflation strengthened slightly, held down by a slight decline in commodity prices. Reports on consumer spending were generally positive. Residential real estate activity improved modestly while construction activity was little changed. District banks reported increased lending activity driven by robust growth in commercial and industrial loans. Agriculture and natural resources conditions have remained generally unchanged since the previous report.
Employment and Wages
Anecdotal evidence suggests employment has grown slightly since the previous report. There were reports of modest increases in manufacturing employment in Arkansas and Missouri as well as a modest increase in small business employment in Missouri. Contacts continued to report difficulties finding qualified employees. For example, a construction contact in Little Rock reported difficulties filling skilled positions, and a used-auto retailer reported trouble hiring mechanics and technicians. Several organizations in Little Rock have undertaken initiatives to create training opportunities to address the skills gap.
Wages have increased modestly since the previous report. Reports from contacts in Little Rock indicate that wages have risen for workers such as truck drivers, warehouse workers, and skilled mechanics. One used-auto retailer noted plans to use some of their tax savings to increase compensation for some employees.
Prices
Price pressures have increased slightly since the previous report. Building materials prices rose. A contact in northwest Arkansas reported an increase in construction costs, and steel and scrap metal prices increased moderately throughout the District. Flooding throughout the Midwest led to a significant increase in barge freight rates along the Mississippi River.
After modest to moderate increases through the first two months of the year, commodity prices have declined slightly since the previous report. Wheat, sorghum, corn, and soybean prices decreased moderately, and coal, cotton, and rice prices were unchanged.
Consumer Spending
Reports from general retailers, auto dealers, and hoteliers indicate that consumer spending has modestly increased since our previous report. Real sales tax collections decreased in Missouri relative to a year ago but increased in Arkansas, Tennessee, and Kentucky. Consumer confidence surveys continued to show improvements in West Tennessee, although households expect no change in their level of spending over the next few months. Reports from Little Rock auto dealers were mixed. Hospitality contacts in St. Louis reported that sales increased year-over-year and that their outlook remains positive over the next few months.
Manufacturing
Manufacturing activity has increased modestly since our previous report. Overall manufacturing activity was stronger than one month earlier in both Arkansas and Missouri, and the pace of expansion increased in both states. Several companies in the District reported facility expansion and hiring plans, including firms that produce auto parts and aviation equipment. In addition, steel and aluminum manufacturers announced plans to reopen facilities and call back workers. Contacts at economic development agencies in central Arkansas reported growing interest from manufacturing firms looking for locations to build new facilities.
Nonfinancial Services
Activity in the service sector has been mostly unchanged since the previous report. The number of vacancies posted by firms for non-financial services occupations in March remained flat since the prior month, with the exception of St. Louis area vacancies, which moderately declined. In Arkansas, river barge traffic was much lower in the beginning of 2018 compared with a year ago, while air passenger volume remained unchanged.
Real Estate and Construction
Residential real estate activity has improved modestly since the previous report. Seasonally adjusted home sales increased modestly in February across the District's four major MSAs. Local contacts reported that demand remains strong but shortages in inventory continue to hinder sales.
Residential construction activity remained unchanged. February permit activity was flat within District MSAs. Local contacts continued to report that a shortage of labor is limiting new construction.
Commercial construction activity was flat. February nonresidential construction starts remained unchanged relative to the previous month, although multifamily permits declined moderately. Little Rock construction contacts reported healthy levels of commercial construction activity across most sectors and expect this trend to continue through the second quarter of 2018.
Banking and Finance
Banking conditions in the District strengthened at a moderate pace relative to the previous reporting period. According to reports from District bankers, overall loan volume has accelerated since our previous report, increasing by 9 percent on a year-over-year basis in the first quarter of 2018, up from 7 percent growth for the previous quarter. Stronger loan growth was driven by robust activity in commercial and industrial lending, where loan volumes grew by 17 percent relative to year-ago levels. In addition, outstanding loans for commercial real estate increased by 11 percent, more than double the national rate. Meanwhile, mortgage lending slowed slightly as loan volumes rose by 3 percent, down from 4 percent the prior quarter.
Agriculture and Natural Resources
District agriculture conditions were unchanged from the previous reporting period and the same as a year earlier. District corn acreage for 2018 is expected to decrease 2 percent from last year. Planned soybean acreage is about the same as 2017 acreage. Cotton and rice acreages are expected to increase 2 percent and 16 percent, respectively, due to expectations of improved profitability. Overall, District acreage for the four major crops is expected to be roughly the same as in 2017.
Natural resource extraction conditions improved modestly from January to February, with seasonally adjusted coal production increasing 9 percent. However, February production was down 6 percent from the same month last year.
For more information about District economic conditions, visit: www.research.stlouisfed.org/regecon/