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St Louis: June 2019

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Beige Book Report: St Louis

June 5, 2019

Summary of Economic Activity
Economic conditions have been unchanged since our previous report. Firms continue to report that difficulties finding employees is the main constraint on growth. Wages continue to increase moderately, with relatively stronger growth for low-wage and entry-level positions. Overall inflation pressures continue to weaken, consistent with firms' prior expectations. Most firms see some ability to raise prices over the next few months. Overall, the outlook among contacts remained slightly optimistic, but notably weaker than the same time last year. On net, a slightly greater share of contacts expect conditions during the remainder of 2019 to be better or somewhat better than the same period in 2018.

Employment and Wages
Employment has grown slightly since our previous reporting period. On net, 10 percent of contacts reported that employment was higher or slightly higher than a year ago. Reports of labor market tightness persisted across several industries, including, but not limited to, transportation, construction, and healthcare. Furthermore, multiple manufacturing contacts reported that the shortage of qualified workers has worsened, and a contact in St. Louis reported that many employees left the firm before completing their first week in their new job. However, several contacts in Louisville reported employment gains in skilled trades, in part due to successes in recruiting recent high-school graduates.

Wages have increased moderately since our previous report. On net, 36 percent of contacts reported that wages were higher or slightly higher than a year ago. Firms reported that increased competition for workers continued to put upward pressure on wages. In St. Louis, contacts reported that larger firms were offering higher pay to attract workers, particularly for entry-level positions, but that small businesses were struggling to raise wages at the same rate.

Prices have increased slightly since our previous report, although overall inflation pressures have continued to soften. On net, 34 percent of contacts reported higher input prices, and 16 percent reported higher prices charged to consumers. However, the share of contacts reporting higher labor and non-labor costs declined for the second consecutive quarter. Similarly, the share reporting higher prices charged to consumers declined for the third consecutive quarter.

The softening inflation pressures seemed to be expected: Among those respondents responsible for setting prices, most noted that their price changes over the past three to six months met expectations. On net, the ability of business contacts to increase consumer prices was unchanged over the past three to six months: 57 percent felt that they would have some ability to increase prices over the next three months.

Consumer Spending
Reports from general retailers, auto dealers, and hoteliers indicate consumer activity has slightly increased since our previous report. April real sales tax collections increased in Kentucky and Missouri but decreased in Arkansas relative to a year ago. March real sales tax collections slightly increased in Tennessee relative to a year ago. Auto dealer contacts generally reported flat sales; however, multiple dealers have seen new vehicle sales decline, citing higher lending rates. March Arkansas tourism sales tax revenue was flat year over year.

Manufacturing activity has been mixed since our previous report. Several firms across a variety of industries reported new capital expenditure and facility expansion plans, while several manufacturers announced plans to close. Contacts in the corrugated packaging industry reported slow growth attributed to the current trade dispute with China. In a recent survey, contacts reported weakening manufacturing conditions: On net, a slight majority of contacts reported that production and capacity utilization were lower in the second quarter relative to one year ago, while new orders remained at the same level. This follows a trend from our previous reports of weaker activity but is the first reported decline. However, contacts are slightly optimistic about the next quarter, with net majorities expecting growth increases in production, orders, and capacity utilization. Other survey-based manufacturing indexes indicate that activity in Arkansas and Missouri continued to expand from March to April. New orders and production also increased in both states.

Nonfinancial Services
Activity in the nonfinancial services sector has improved slightly since our previous report. On net, 19 percent of survey respondents reported higher sales since the same time last year, and 28 percent expect this growth to continue into the third quarter. However, over half of contacts noted that sales midway through the second quarter have fallen short of expectations. Transportation contacts generally reported a pessimistic outlook, noting the adverse effects that weather has had on business. Traffic volume across major waterways, highways, and airports has been generally unchanged since our previous report. However, flooding of the Mississippi River has negatively affected barge traffic. Airport passenger volumes were higher in both St. Louis and northwest Arkansas relative to a year ago.

Real Estate and Construction
Residential real estate sales have declined modestly since our previous report. Seasonally adjusted home sales decreased modestly across the four largest MSAs in the District. On net, around 7 percent of survey respondents reported a decrease in demand for single-family homes relative to a year ago, and most noted that second-quarter sales have fallen short of expectations. Contacts continued to report inventory shortages, although inventories have increased slightly.

Residential construction activity declined slightly. There was a slight decline in April permit activity across most of the District's MSAs. On net, respondents reported no change in activity relative to the same time last year but expect a slight increase in the next quarter.

Commercial real estate activity was mixed. Survey respondents reported a slight decrease in year-over-year demand for retail property space and a slight increase in demand for industrial and distribution property space. They expect these trends to continue into the next quarter. Contacts in Little Rock noted that demand for multifamily properties remains strong.

Commercial construction activity improved slightly. Contacts reported a healthy level of construction activity, propped up by a few large projects. However, their outlook has weakened somewhat, as they expect the average size of new projects to decline over the next twelve months. Local contacts continued to report labor shortages.

Banking and Finance
Banking conditions in the District have weakened slightly since our previous report. Demand for mortgages slightly increased relative to one year ago, while commercial and industrial loans remained constant, and demand for auto loans slightly decreased. Bankers expect a slight increase in overall loan demand in the third quarter. Credit standards were generally unchanged compared with year-ago levels but continued to tighten for commercial and industrial loans. Overall delinquencies rose on a year-over-year basis but are expected to remain unchanged in the third quarter.

Agriculture and Natural Resources
Agriculture conditions declined moderately from our previous report and have significantly worsened relative to the same time last year. The number of acres planted experienced significant declines compared with previous years, which contacts have attributed to significant flooding along the Mississippi River. As of mid-May, the percentages of planned acreage planted for corn and soybeans were around 50 percent lower than this time last year and about 30 percent lower for rice and cotton. Contacts have continued to report concerns over depressed crop prices and the effects of renewed trade tensions with China.

Natural resource extraction conditions have improved modestly since our previous report. Seasonally adjusted coal production increased 15 percent from March to April. However, April production was down 18 percent from a year ago.

For more information about District economic conditions, visit: