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Beige Book Report: St Louis
September 2, 2020
Summary of Economic Activity
Reports from District contacts suggest economic activity has increased modestly, but losses sustained during the pandemic have yet to be fully recouped. Activity was also highly variable across sectors. Employment increased modestly while wage growth was mixed. Auto dealers reported strong sales, and restaurants reported some improvement. Tourism and hospitality contacts reported that higher COVID-19 cases over the past month have reduced demand. The outlook among contacts remains pessimistic but has improved slightly since our previous report. While some contacts reported strong demand for their products and services, about half of contacts expect sales to return to pre-crisis levels in less than 12 months and one-third of contacts expect it will take more than 12 months.
Employment and Wages
The labor market has improved modestly since the previous report. Contacts across many industries reported hiring or rehiring workers, though they frequently reported difficulty doing so, citing potential workers' continuing health concerns and childcare obligations. A manufacturing contact reported that it was challenging to hire enough workers to staff half the plant's usual number of shifts. An employment agency stated that it was "not uncommon" for those it matched to jobs to quit within 48 hours. Service, hospitality, and healthcare firms continued to report more mixed employment trends, as did smaller firms. Some larger firms also reported laying off furloughed workers in the face of slower recovery.
Wage growth has been mixed, with wages at small firms remaining especially stagnant. On net, 15% of contacts reported that wages were up since this time last year—less than half the number who usually report such increases. Some firms reported increasing pay to attract scarce workers: One peach farmer reported that a 10% pay increase for his packaging workers still left him so short-staffed he had to leave some of his crop unharvested.
Prices have increased slightly since the previous report. A significant share of contacts reported higher input costs; however, many contacts continued to report lower prices charged to consumers. Contacts noted increased prices for lumber and other building materials. The increase in food costs is causing restaurants to increase menu prices. Healthcare contacts noted that the costs of personal protective equipment remain elevated. In contrast, certain goods experienced price declines since the previous report. Contacts noted that prices for gasoline, chemicals, crops, and livestock have declined.
Consumer spending activity has been mixed since our previous report. Seasonally adjusted credit and debit card spending in early August increased or stayed the same compared with average spending in July. General retailers and restaurants reported mixed business activity over the past six weeks. Some retailers reported comparable or increased current-quarter sales compared with last year, and restaurants indicated that business has increased since they have been able to open up fractional seating capacity; however, some retailers and restaurants expressed concerns about their ability to stay open. Most auto dealers reported strong sales, some indicating year-over-year increases in current-quarter sales. Dealers cited that sales continue to be bolstered by low interest rates, but their outlook for the coming months is mixed due to an uncertain economic outlook. Hospitality contacts reported that business activity, which remains significantly below typical levels, has declined since early July as reported COVID-19 cases have increased. Restaurants that cater to business-travel continue to struggle.
Manufacturing activity has moderately increased since our previous report. Multiple steel manufacturing contacts reported that they are now working at full capacity. Plastics manufacturers in southern Indiana reported a surge in production. Contacts in Louisville reported that the automotive production continues to lag, but that most automotive plants are in the process of resuming operations due to the resolution of supply chain problems. Survey-based indices indicate that production, new orders, and capacity utilization are on average still slightly lower than they were a year ago. On average, contacts expect production, new orders, and capacity utilization next quarter to be nearly back to their levels from one year ago.
Activity in the nonfinancial service sector has improved slightly since the previous report. Airport passenger traffic has nearly doubled month over month, although levels are still down roughly 80% relative to this time last year. Cargo traffic has remained stable, increasing moderately month-to-month and year-over-year. A logistics firm was able to raise wages and expand its workforce. Hospital contacts noted that in-patient and ambulatory volumes have reached 90% of pre-crisis levels. However, hospitals indicate that they continue to deal with large numbers of COVID-19 patients. As a result, research remains sidelined and wholly devoted to COVID-19. Moreover, fellowship and residency programs are temporarily on hold. Hospital contacts noted that furloughed staff have begun to return in phases and hiring for physicians and nurses continues. Dentists and optometrists have reported increased activity, as patients who delayed care are now seeking treatment.
Real Estate and Construction
Residential real estate activity increased slightly since the previous report. Total home sales have improved slightly since early July. Home sales in most of the largest District MSAs are up through early August relative to the same period last year. Contacts cited high demand for housing and low interest rates as drivers of sales. However, a contact in St. Louis noted a recent downturn in demand after record-breaking sales in the later months of the second quarter.
Contacts reported a continued shortage of housing on the market and homes selling quickly once listed.
Residential construction increased modestly. Contacts noted higher demand for new homes, with a contact in Louisville noting that the shortage of housing inventory contributed to demand for new home construction. However, builders reported higher costs and shortages of input materials.
Commercial real estate activity has been mixed since the previous report. Contacts reported a lack of demand for retail and office real estate due to the pandemic. Contacts noted that existing tenants in retail spaces have been struggling due to consumer concerns over safety. Some contacts observed higher demand for industrial real estate.
Commercial construction activity has been unchanged. Construction activity has generally been sustained for projects that were ongoing prior to the pandemic. Contacts reported little to no speculative building for office or retail space and that uncertainty surrounding the pandemic has disrupted their ability to obtain and plan for future projects.
Banking and Finance
Banking conditions have slightly worsened since the previous report. Overall business loan demand slowed after the surge of emergency lending through July. Consumer loan demand has increased, particularly for credit cards. Low interest rates continue to spur stronger-than-expected mortgage lending, refinancing, and new construction loans. Banks reported high levels of deposits and increasing loan loss reserves. Overall delinquencies have declined primarily in consumer products such as credit cards, mortgages, and auto loans. However, bankers continue to express some concern for loans in the leisure and entertainment industry.
Agriculture and Natural Resources
Agriculture conditions have improved slightly from the previous reporting period. Relative to early July, the percentage of District corn, rice, and soybeans rated fair or better has increased slightly while the percentage of cotton decreased slightly. Contacts indicated that, while crop conditions look promising, low crop prices will reduce profitability and there is still concern over trade disputes with China and the effects on commodity pricing.
Natural resource extraction conditions continued to fall moderately from June to July, with seasonally adjusted coal production decreasing 7%. Production is down 31% from a year ago.