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St Louis: July 2019

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Beige Book Report: St Louis

July 17, 2019

Summary of Economic Activity
Reports from contacts suggest economic conditions have improved slightly since our previous report. Labor market conditions remained tight, with slight growth in employment and a moderate increase in wages. Price pressures strengthened slightly. Multiple contacts cited tariffs as a contributing factor to higher input prices, but responses were mixed as to whether they would pass these costs on to their customers. Manufacturing activity improved moderately. Barge traffic began to pick up after being halted by the severe spring flooding in the region. Outstanding loan volumes continued to increase, but growth slowed slightly compared with three months prior. Crop quality is noticeably below that of a year ago, mainly due to the recent flooding.

Employment and Wages 
Employment has increased slightly since the previous report. Survey-based measures of employment indicated slight-to-modest growth in manufacturing employment in Arkansas and Missouri. Small business employment declined slightly throughout the District. Contacts continued to report labor market tightness for employees across a broad range of skill levels. To attract and retain workers, firms reported offering a wide array of benefits, including extended parental leave, teleworking opportunities, and assistance with student loans. Furthermore, local governments and companies announced several new education and training initiatives as part of long-term efforts to fill skilled trades, transportation, and tech positions.

Wages have grown moderately since the previous report, in part due to upward pressure from the tight labor market. Contacts in healthcare and the public sector in particular reported pay increases resulting from increased competition for workers. However, small business wage growth was more modest.

Price pressures have increased slightly since the previous report. Grain crop prices have risen sharply due in large part to recent flooding that has limited the quantity and quality of planted crops. Soybeans, sorghum, wheat, and corn prices have increased 10, 4, 17, and 22 percent, respectively, since the previous report. Local contacts noted that increased feed prices will likely translate into higher meat prices in the future. On the other hand, cotton prices showed slight decreases over the same time period and year-over-year losses in excess of 20 percent. The price of coal also fell modestly.

Local contacts in retail and manufacturing held that tariffs affecting access to China and the EU continued to place upward pressure on input prices. However, there were significant differences among firms in their ability to pass elevated costs on to consumers, with some noting that online competition was a limiting force.

Consumer Spending 
Reports from general retailers and hoteliers indicate consumer activity has slightly improved since the previous report. May real sales tax collections increased in Arkansas, Kentucky, Missouri, and Tennessee relative to a year ago. Consumers in West Tennessee, on net, expect to spend slightly more than they did last year. However, the consumer outlook in the region has fallen since March. Missouri contacts reported that tourism spending was slightly lower than a year ago.

Manufacturing activity has increased moderately since our previous report. Overall manufacturing activity in May was stronger than one month earlier in both Arkansas and Missouri, although the pace of growth slowed. Both production and new orders increased in each state. Several companies across a variety of industries announced new capital expenditure and hiring plans throughout the District.

Nonfinancial Services
Activity in the services sector has improved slightly since the previous report. The number of posted vacancies for nonfinancial services occupations increased from April to May in Louisville, Memphis, and St. Louis. Transportation activity improved modestly. Both freight and passenger traffic at District airports increased year over year. Barge activity began to recover after being halted by severe flooding in the spring, but overall traffic levels remained depressed.

Real Estate and Construction
Residential real estate activity has improved slightly since the previous report. Seasonally adjusted home sales increased slightly in May across Louisville, Memphis, and St. Louis but dipped slightly in Little Rock. Inventory levels remained low.

Residential construction activity was unchanged. May permit activity was mixed across District MSAs relative to the previous month but increased slightly overall. Local contacts continued to report that labor shortages are restricting construction activity. Builders in St. Louis expect increased permit numbers in the summer as they make up for muted activity earlier in the year caused by wet weather.

Banking and Finance
Banking conditions in the District have improved modestly since the previous report. According to reports from bankers, outstanding loan volumes grew by 4 percent relative to year-ago levels in the second quarter, which was a slight decrease from the first quarter of 2019. District growth remained below the national rate for the third consecutive quarter. Commercial and industrial lending continued to expand, but growth slowed significantly to 5 percent year-over-year from 9 percent in the previous quarter. Commercial and residential real estate lending maintained positive, and slightly lower, growth rates compared with the previous quarter.

Agriculture and Natural Resources
District agriculture conditions have declined modestly since the previous reporting period and have deteriorated moderately relative to a year ago. Compared with one month prior, the percentage of corn and cotton rated fair or better at the end of June declined modestly, the percentage of soybeans rated fair or better declined slightly, and the percentage of rice rated fair or better increased slightly. The percentages of all four crops rated fair or better were moderately below those from the same time last year. Contacts have frequently attributed the decline in crop quality to the historic flooding along the Mississippi River this spring.

Natural resource extraction conditions declined slightly from the previous reporting period, with seasonally adjusted coal production falling by less than one percent. Similarly, year-to-date coal production was relatively unchanged compared with this time in 2018.

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