Beige Book Report: St Louis
May 27, 2020
Summary of Economic Activity
Economic conditions have declined since mid-April, but at a moderately slower pace. While a very small fraction of firms had closed permanently, around half of firms remain closed temporarily. Among the firms that are closed, about one-third expect to reopen in the next 3 weeks, one-quarter in the next 3 to 5 weeks, one-quarter in the next 5 to 10 weeks, and the remainder in more than 10 weeks. Firms that are reopening are often doing so for training and preparation purposes; less than one-fifth expect demand for their products or services to pick up in the next 5 weeks. Contacts' general outlook for regional economic growth during the remainder of 2020 is pessimistic, as about two-thirds of contacts expect growth to be slower than the same period in 2019.
Employment and Wages
Labor markets have continued to decline sharply over the reporting period, although the pace of decline has slowed considerably, with some contacts attributing employment stability to PPP funding. A payroll contact reported that new layoffs were driven predominantly by small firms, though many large employers have also furloughed workers since March—notably, several healthcare systems. Contacts reported that reopening firms were limited by labor shortages, which they ascribed to increased unemployment benefits, personal health concerns, and childcare responsibilities leading potential workers to stay home.
Wages and other benefits were lower than in our previous report; a payroll company reported a "second wave" of wage cuts, and reports across industries have mentioned cuts to benefits, including employer 401k matching. Some companies, especially those in competitive fields, have promised to repay lost wages at the end of the crisis; and others have increased wages to maintain morale and lure back hesitant workers.
Prices
Price pressures have decreased modestly since the previous report. On net, 16% of contacts reported that prices charged to consumers were lower in the second quarter relative to the same time last year. Nonlabor costs to businesses were generally unchanged, but some sectors did report significant increases: Wholesale, healthcare, and construction industries reported large net increases in nonlabor input costs. The healthcare industry in particular remains concerned about heightened prices for personal protective equipment because demand for these products has increased as other firms begin to reopen.
Consumer Spending
Consumer spending activity has been mixed but remains at historic lows. There have been slight upticks in activity for auto dealers and hotels in recent weeks. A furniture retailer expects to reopen in the coming weeks and expects that demand will pick up in the next month. A jeweler does not expect demand to pick up for another two months or longer and may not reopen. Hospitality contacts continue to report low or no activity throughout April. Tourism venues expect to remain closed for the next two months or longer.
Auto dealers reported mixed activity over the past month. Some contacts cited stay-at-home orders and lack of inventory as reasons for low sales, while others reported that current-quarter sales are about the same as they were this time last year, noting that stimulus money and financing deals have helped bolster sales. Some dealers reported that demand has already picked up since the shutdown, while others anticipate it will take two months or longer to see an upward trend in demand.
Manufacturing
Reports from manufacturing contacts were mixed. However, levels of production remain very low. A steel manufacturer reported a 30% reduction in production, and a machine products manufacturer reported a 50% reduction in production.
Both these contacts cited reduced demand as their biggest impediment. A printing company reported sharp increases in production from 15% to 80% of normal levels. Furthermore, several auto plants in the region have reopened or plan to reopen within a couple of weeks, but are working at 25% to 50% of normal production levels with supply chain disruptions.
Nonfinancial Services
Activity in the nonfinancial services sector has worsened moderately since the previous report. On net, about one-third of contacts expect that it will take more than 10 weeks for demand for services to begin to improve. Contacts in the healthcare sector reported severe drops in non-COVID-19 patient visits, by as much as 50% since March. Elective surgeries have been postponed by hospitals. Contacts reported furloughing between 5% to 33% of their workforce. Contacts in primary care note the use of telehealth to replace some, but not all, patient visits.
In the transportation industry, passenger activity in airports is significantly lower but has ticked up slightly in recent weeks. Contacts noted a 95% drop year over year in passenger traffic. Airports have been able to remain open by making use of their cash reserves and relief funding from the CARES Act, by postponing capital expenditures, and with increases in cargo traffic. Contacts in logistics and freight noted mixed activity. Contacts linked to foodstuffs and online shopping noted increased activity, while contacts linked to retail trade and other sectors noted a drop in activity since the previous report.
Real Estate and Construction
Residential real estate activity sharply declined in April as measured by existing home sales, new listings, and pending sales. Contacts reported drops in home sales between 8% and 50% in April relative to one year ago, despite sales conditions being generally unaffected by COVID-19 in March. Some brokers indicated that they have already experienced an uptick to near-normal sales. Home showings have rebounded from their lows in late March and early April. Inventory levels have decreased about 20% from the same time last year.
A majority of contacts reported lower new residential construction demand compared with the previous year. A contact in Memphis reported few new projects in the pipeline. Contacts in Louisville and St. Louis reported that homebuilding remained stable in April because of the continuation of in-progress projects.
Commercial real estate activity has moderately decreased since March. All contacts surveyed reported lower demand for retail space relative to the previous year. Contacts reported little change in the demand for industrial space and a moderate decrease in demand for office space. Some contacts expressed that despite sharp drops in the retail side of their business, continued industrial demand has been a bright spot for their firms. Contacts reported only a slight decline in rent collections.
Contacts reported clients have suspended or delayed commercial construction projects. Contacts also reported difficulties with the construction process due to supply chain issues and increased safety costs.
Banking and Finance
Banking conditions in the District have declined slightly after a surge in demand for emergency loans in April. Contacts reported the pipeline for PPP loans is now manageable. Demand for most consumer loans declined moderately, with the exception of credit cards loans, which modestly increased. Banks indicated a sharp increase in delinquencies, primarily in mortgages, credit cards, and auto loans; but they expect fewer delinquencies in the third quarter. Louisville area bankers reported increasing loan loss reserves.
Agriculture and Natural Resources
District agriculture conditions have been mixed since April. Contacts reported that transportation and warehousing costs have increased and supply chain issues are affecting many producers. Smaller meat processing plants experiencing higher demand due to closures of larger plants are constrained by regulatory requirements. Contacts reported significant variation in revenue as some industries such as rice producers have seen increased demand and prices for their goods.
Meanwhile, cotton and other row crop producers reported lessened demand and continued low commodity prices, making profitability a challenge. Planting has increased since the previous reporting period and is up modestly from this time in 2019. However, this is largely due to improvements in states that experienced historic flooding in 2019.
For more information about District economic conditions, visit: https://research.stlouisfed.org/regecon/