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St Louis: October 2018

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Beige Book Report: St Louis

October 24, 2018

Summary of Economic Activity
Economic conditions in the District have improved slightly since our previous report. Firms reported slight increases in employment and modest growth in wages. Price pressures have increased modestly primarily due to higher transportation costs. Reports from consumer spending contacts remained mixed. Manufacturers reported modest growth with increases in production and new orders. Residential real estate activity improved slightly while construction activity declined slightly. Commercial real estate markets were somewhat weaker than in previous reports. District bankers reported that loan volumes remain healthy but the rate of growth continues to slow. Agriculture and natural resources conditions have improved slightly since the previous report.

Employment and Wages
Employment has increased slightly since the previous report. Manufacturing employment grew modestly. Contacts in Arkansas reported slight growth while contacts in Missouri reported modest growth. Transportation employment also increased, as multiple distribution centers announced expansions. However, firms continued to report challenges attracting workers. Contacts in Memphis and Arkansas in particular noted difficulties filling high-wage, technical positions. Firms continued to use a variety of strategies, such as business partnerships and non-wage benefits, to recruit employees. One contact reported the launch of programs that teach foreign-born workers English to prepare them for jobs in the medical field and in manufacturing.

Wages have increased modestly since the previous report. Multiple contacts reported wage increases for entry-level workers. Furthermore, wages grew in manufacturing and trucking sectors and were generally flat in the hospitality sector. Wages for small business in St. Louis rose slightly.

Price pressures have increased modestly since the previous report. Business contacts across the District reported moderate growth in fuel costs, contributing to rising trucking and transportation costs. A Louisville contact noted seeing an increase in rail prices. Coal prices in the region have increased moderately. Meanwhile, steel prices decreased slightly but remain elevated compared with a year ago.

Agricultural commodity prices were mixed. Prices for cotton and rice have decreased slightly since the previous report while still remaining slightly above their price last year. Corn and soybean prices have increased slightly since the end of August. Wheat prices showed next to no change over the same time frame, but are up 25 percent from last year.

Consumer Spending
Reports from general retailers, auto dealers, and hoteliers indicate mixed consumer spending activity. Real sales tax collections increased in Arkansas, Tennessee, and Kentucky relative to a year ago and decreased in Missouri. Louisville auto dealers reported that sales decreased year over year, and they indicate that higher interest rates may be affecting their business. Hospitality contacts in Missouri reported that sales were lower compared with the same time last year. They also expressed a pessimistic outlook for the remainder of 2018. Arkansas tourism sales tax revenue slightly increased year over year.

Manufacturing activity has increased modestly since our previous report. Survey-based indexes indicate that Arkansas and Missouri manufacturing activity continued to expand from August to September but at a slower pace than in the prior month. New orders and production also increased in both states. Several firms across a variety of industries reported facility expansion and hiring plans, including manufacturers of paper products, automotive parts, and primary metals.

Nonfinancial Services
Activity in the service sector has improved modestly since the previous report. The number of posted vacancies for nonfinancial services occupations increased in September in Louisville, Memphis, and St. Louis. The transportation sector continues to exhibit strong growth with higher demand for rail traffic and increased investment in delivery and fulfillment centers. However, growth is somewhat constrained by increased freight and fuel costs. The trucking industry's shortage in drivers is further compounded by limitations on driving hours for current drivers. Firms in the healthcare industry are reporting higher demand for services and increased investment in hospitals.

Real Estate and Construction
Residential real estate activity has improved slightly since the previous report. Seasonally adjusted home sales for August were mixed across the District's four largest MSAs but were relatively flat overall. Inventory levels remained low.

Residential construction activity has declined slightly since the previous report. August permit activity decreased modestly across the District's MSAs. However, St. Louis builders reported an optimistic outlook for the rest of the year because of robust demand for single-family homes.

Commercial real estate activity has declined slightly since the previous report. Louisville contacts reported decreased activity in office and retail property markets, and they noted that demand for office space has been relatively stagnant.

Commercial construction activity has decreased slightly since the previous report. August multifamily permits were unchanged relative to the previous month in most of the District's MSAs. However, Louisville contacts reported a robust level of new construction underway for multifamily property types. They also indicated that there is a lack of new construction projects for warehouses.

Banking and Finance
Banking conditions in the District have improved moderately since the previous report. According to a survey of small and mid-sized banks, outstanding loan volumes grew by 6 percent in the third quarter relative to a year ago, which is a slight decrease from the growth rate reported in the prior quarter. District loan growth has now slowed in seven straight quarters but remains above the national rate. Commercial and industrial lending continued to be robust, growing by 11 percent from one year ago. In contrast, residential real estate lending remained slow and lagged behind that of the nation for the third consecutive quarter. Bankers continued to report slow growth in deposits growth.

Agriculture and Natural Resources
District agriculture conditions improved slightly compared with previous reports. Production and yield forecasts increased from August to September for corn and soybeans. Expected production levels also improved for cotton and rice during the same period, but yield forecasts decreased. Relative to 2017, District corn, cotton, and soybean yields are expected to increase, but rice yields are projected to decline. Production levels of all four crops are expected to be greater than those from last year.

Natural resource extraction conditions declined slightly from July to August, with seasonally adjusted coal production decreasing 0.6 percent. August coal production was 1.4 percent higher than a year ago.

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