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Beige Book Report: St Louis
December 2, 2020
Summary of Economic Activity
Reports from District contacts suggest economic activity has continued to increase slightly since the previous report; however, conditions deteriorated toward the end of the reporting period. The pace of activity continues to remain highly variable across sectors. Employment has increased slightly, while wages have increased modestly. Consumer prices increased slightly; however, nonlabor input costs have experienced stronger increases. The overall outlook for business conditions over the next 12 months has improved but remains slightly pessimistic.
Employment and Wages
Employment has increased slightly since the previous report. The strongest growth was reported in manufacturing, transportation, and healthcare. Expanding firms continued to note labor supply shortfalls, ascribing it to workers' childcare and health concerns. One firm sought new employees in neighborhoods without adequate transportation by expanding a bus system to and from its warehouses. However, half of contacts reported remaining below pre-pandemic employment levels. Staffing contacts noted that many firms remained hesitant to hire or re-hire workers in the face of policy uncertainty and COVID-19 resurgences. Some firms—particularly small firms and those in the leisure and hospitality industry—exhibited more mixed employment trends.
Wages have grown modestly. Two-thirds of contacts reported raising wages for new and existing employees due to labor shortages, especially for low-wage and high-contact positions; one staffing firm instituted a minimum wage at which it would hire industrial workers for clients, believing it impossible to fill vacancies otherwise. Small-firm wage growth remained more mixed, with many reportedly unable to compete with larger firms' raises.
Input prices have increased strongly. However, contacts reported only a slight growth in prices charged to consumers, indicating that very little of the increased input cost is being passed on to consumers. Raw materials prices have increased moderately overall; agriculture contacts noted that prices are at a yearly high, which contacts attributed to low yields nationally paired with healthy demand for staple crops such as corn and wheat both domestically and from China. Coal and lumber prices have declined since the previous report. A lumber yard contact noted that with inventories back to normal levels, lumber prices have declined 40% after spiking in recent months, putting them back at average levels compared with prices in previous years. A real estate contact noted that the price of plumbing materials has increased. Another contact noted increases in containerboard prices due to higher demand from online shopping coupled with lower supply from COVID-19 and natural-disaster-related production delays.
Reports from general retailers, auto dealers, and hospitality contacts indicated that consumer spending activity has been mixed since our previous report. Over the course of October, seasonally adjusted credit and debit card spending generally declined across the District. As of early November, general retailers and restaurants reported mixed business activity. Auto dealers reported that current-quarter sales have met or exceeded expectations. Dealers cited low interest rates and gas prices helping to bolster sales. Tourism and hospitality contacts reported that current-quarter sales fell short of expectations and continued to be much lower than they were during the same period last year. Hospitality contacts expect business activity to decline in the coming months.
Manufacturing activity has strongly increased since our previous report. Survey-based indices suggest that manufacturing activity moderately increased in Arkansas and strongly increased in Missouri. In both states, firms reported a strong uptick in new orders and production. Auto manufacturers in south central Kentucky and southern Indiana reported high levels of production. Firms reported that supply chain issues that were previously constricting production have mostly been resolved. One contact noted that containerboard paper manufacturers are seeing increased demand, but some mills are experiencing slowed back production due to minimal crew schedules in response to COVID-19 precautions.
Activity in the nonfinancial services sector has been mixed since our previous report. Airport passenger traffic appears to be declining further relative to last year as business travel remains minimal and rising numbers of COVID cases lead to holiday travel cancellations. A parcel services contact indicated that business has improved, and the firm is already experiencing holiday-level activity. Several trucking contacts were optimistic about the industry going into 2021, as fewer competitors remain in business. Feedback from other logistics contacts was mixed regarding both sales in the previous quarter and the outlook for the next quarter, with one citing a lack of demand. A healthcare contact reported lower-than-expected sales last quarter, given increased apprehension about seeking health services.
Real Estate and Construction
Residential real estate activity has increased modestly since our previous report. Home sales remain robust for this time of the year and inventory levels remain low. A St. Louis-based contact noted that lower interest rates are a major factor in the increased demand for homes and thus why selling prices are rising.
Residential construction activity has remained unchanged since the previous report. Contacts noted that high demand for residential real estate is driving new residential construction, as there continues to be low residential inventory. Contacts also noted that construction is limited by lack of building materials, and a contact in St. Louis reported that the spike in COVID-19 cases is forcing them to regularly quarantine workers due to outside exposure.
Commercial real estate activity has been mixed since our previous report. Demand is down for both retail and office space, with contacts reporting a loss of retail tenants. Contacts in Memphis expect a loss of tenants as leases come to an end. However, demand for industrial space remains high, particularly for warehouse and manufacturing space, with demand expected to remain high or increase in the next quarter.
Commercial construction activity has been mixed. Contacts observed that most speculative activity in the office and retail space has ceased. However, construction for industrial space remained strong due to high market demand, with multiple active projects across the region. Contacts reported that large distribution companies are buying up new speculative inventory in order to quickly expand capacity.
Banking and Finance
Banking conditions in the District have experienced little change since the previous report. Overall loan demand remained low due to the pause in business activity following the recent surge in COVID-19 cases in the District. Residential real estate loans increased slightly, led by elevated refinancing activity to lock-in favorable rates. Banking contacts continued to report high levels of deposits despite lower rates paid on interest-bearing accounts. Delinquency rates remained generally low; however, some contacts observed a slight uptick in deferred payments among hospitality and commercial real estate clients. Competition for new loans and lower interest rates continued to narrow net interest margins.
Agriculture and Natural Resources
District agriculture conditions have remained unchanged since our previous reporting period. Production forecasts for corn, cotton, and soybeans have decreased, while cotton production forecasts have increased. Production levels for corn, rice, and soybeans are expected to be significantly higher than in 2019, while cotton production is expected to see a moderate decline. District contacts expressed optimism, citing higher-than-expected yields due to excellent weather conditions and a strong rebound in prices.
Natural resource extraction conditions declined modestly from September to October, with seasonally adjusted coal production declining around 3%. Production is still struggling overall, declining 24% from a year ago. Contacts reported reducing employee hours and offering early retirement options as a result of the industry struggles.