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Beige Book Report: St Louis

January 16, 2019

Summary of Economic Activity
Reports from contacts indicate that economic conditions have slightly improved since our previous report. Firms continued to report difficulties finding qualified workers. Overall, wage pressures have increased moderately, with contacts citing minimum wage increases as a contributing factor. Reports on consumer spending were positive. Activity in the manufacturing sector has increased in recent months, although at a slower rate than noted in the previous report. District banking contacts reported positive but slower growth in loan volumes during the fourth quarter. Agricultural conditions improved slightly thanks to higher crop prices; however, overall conditions remain weak in this sector.

Employment and Wages
Employment has grown slightly since the previous report. Contacts in Arkansas and Missouri reported slight growth in manufacturing employment, and small business employment increased modestly. Information technology firms in the St. Louis area reported plans to increase hiring in early 2019. Contacts throughout the District continued to cite difficulties finding qualified employees. The labor market was particularly tight for technical jobs, with some firms lowering education requirements to attract more candidates. Schools and firms also continued to develop training programs to alleviate shortages in skilled trades.

Wages have increased moderately since the previous report. Pay raises were especially strong for entry-level positions. Contacts in information technology and manufacturing reported that labor market tightness led to increases in starting wages. Furthermore, minimum wage increases in healthcare and the public sector were either announced or took effect throughout the District. Small business wages in Missouri and Tennessee grew moderately.

Prices
Prices have remained unchanged on net since the previous report. Metal prices have decreased slightly. Steel prices showed some of the largest declines, but remain elevated in year-over-year terms. Coal prices have risen slightly since the previous report.

Broadly, agricultural prices have risen slightly since the previous report. Prices for soybeans and soybean meal have risen around 3 percent but remain lower than one year ago. Corn, corn meal, and sorghum all have posted particularly strong gains since the previous report.

Consumer Spending
Reports from general retailers, auto dealers, and hoteliers indicate that consumer spending activity has increased modestly since our previous report. November real sales tax collections increased in Arkansas, Tennessee, and Kentucky, but decreased in Missouri relative to a year ago. The West Tennessee consumer outlook remains positive, albeit less positive than earlier this year. On net, West Tennessee consumers expect to spend more compared with last year. Reports from Louisville auto dealers indicated that auto sales do not seem to have been affected by rising interest rates. Arkansas tourism sales tax revenue increased year over year.

Manufacturing
Manufacturing activity has increased at a moderate pace since our previous report. Survey-based indexes showed that Arkansas and Missouri manufacturing activity continued to expand from November to December, but the pace of growth slowed. New orders and production also increased in both states, but at a slower pace than in the previous report. Several contacts expressed an optimistic outlook for the next quarter, including manufacturers of commercial vehicle parts and primary metals. An aluminum producer reported running at nearly full capacity and is considering additional expansion options. Similarly, contacts in the vehicle parts manufacturing industry noted strong sales in October. On the other hand, several manufacturers noted increases in wages leading to higher costs and higher turnover rates, making it difficult for them to recruit engineers and staff.

Nonfinancial Services
Activity in the nonfinancial services sector has been unchanged since the previous report. The number of vacancies for nonfinancial services occupations in December has decreased over the previous month. This can be attributed to a slowdown following the holiday rush; however, year-to-year vacancies are also down. The transportation industry continues to experience growth. Major logistics firms continue to make investments in distribution centers across the District. Growth is limited in the river transportation industry as barges dependent on coal transportation continue to experience a slowdown in this line of business.

Real Estate and Construction
Residential real estate activity has improved slightly since the previous report. Seasonally adjusted home sales for November increased slightly from the previous report across most of the District's four largest MSAs. Inventory levels remained low.

Residential construction activity was flat. St. Louis builders reported a slight decline in year-to-date single-family permits, but were optimistic that the recent decline in mortgage rates would increase construction activity in the near future. Contacts in Louisville expressed concern regarding rising interest rates and the rising cost of building homes.

Commercial real estate activity has improved slightly since the previous report. Louisville contacts reported increased demand for retail property types compared with this time last year. Commercial construction activity was flat. Louisville contacts noted that multi-family construction is robust while there is a lack of new warehouse construction.

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 fourth quarter, which was a slight dip from the third quarter, continuing the steady decline in the rate of loan growth since the end of 2016. Commercial and industrial lending continued to be robust, but took a slight downward turn from the third quarter. Residential real estate lending in the District continued to grow slowly and lagged behind national rates for the fourth consecutive quarter. Commercial real estate maintained a positive, but slightly lower, growth rate compared with last quarter. Bankers reported a slight increase in deposits growth.

Agriculture and Natural Resources
District agriculture conditions have improved slightly since the previous report. The percentage of winter wheat rated fair or better remained approximately unchanged from the end of October to the end of November and remains at 93 percent. This is an increase from 89 percent of winter wheat rated fair or better at the end of 2017. Contacts continued to report very high crop yields for 2018. However, farmers still face headwinds due to low crop prices and continued trade concerns.

Natural resource extraction conditions improved slightly from October to November, with seasonally adjusted coal production increasing slightly. November production was also up slightly from a year ago.

For more information about District economic conditions, visit: https://research.stlouisfed.org/regecon/