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Beige Book Report: St Louis

September 4, 2019

Summary of Economic Activity
Economic conditions have been mixed but generally unchanged since our previous report. Labor market conditions remained tight as firms continued to note difficulties finding qualified workers. While nonlabor input costs increased moderately, contacts reported only a slight uptick in prices charged to consumers. Construction activity improved slightly; however, some developers reported delaying projects due to economic uncertainty. In transportation, barge activity continued to improve, while airport cargo traffic declined. Farming conditions remained strained. Across all industries, the outlook among contacts turned slightly pessimistic. On net, a slightly greater share of contacts expect conditions during the remainder of 2019 to be worse or somewhat worse than the same period in 2018.

Employment and Wages 
Employment has grown slightly since our previous report. On net, 12 percent of survey respondents reported that employment was higher than a year ago. Labor market tightness has persisted throughout the District, including in transportation, healthcare, and manufacturing. Firms reported increasing benefits, loosening hiring requirements, and more aggressively marketing themselves to attract workers.

Wages have grown moderately since our previous report. On net, 40 percent of contacts reported that wages were higher than a year ago; one contact in Little Rock reported that new graduates applying to jobs at an engineering firm were expecting $10,000 to $15,000 more than their offered starting salary. Numerous firms saw rising wages as a consequence of the tight labor market, with several businesses—due to their size, location, or budget—especially struggling to keep up with wage gains and attract potential employees.

Prices 
Prices have increased slightly since our previous report. On net, 13 percent of contacts reported that prices charged to consumers increased in the current quarter relative to the same time last year. This is the fourth consecutive quarter in which the share reporting higher selling prices has declined. Despite the reported softness in prices charged to consumers, input costs continue to increase at a moderate rate. On net, 32 percent of contacts reported higher nonlabor costs.

Business contacts continued to note the effects of tariffs and the current trade negotiations with China on price pressures, although the magnitude and direction of these effects vary greatly by product. Agricultural commodity prices generally remained depressed relative to the same time last year and have fallen since our previous report. On the other hand, several contacts noted moderate increases in the prices of steel, construction materials, and automobiles.

Consumer Spending 
Reports from general retailers and auto dealers indicate consumer activity has been mixed since our previous report. July real sales tax collections increased in Missouri, Tennessee, and Kentucky, but decreased in Arkansas relative to a year ago. Most general retailers and auto dealers reported that sales have increased since the same time last year, in line with expectations. However, District auto dealers noted seeing customers purchase more used and low-end vehicles, and their outlook for the rest of 2019 has turned pessimistic. Many cited concerns about higher new vehicle prices, elevated interest rates, and trade uncertainty.

Manufacturing
Manufacturing activity has been mixed since our previous report. A majority of contacts reported declines in production, new orders, and capacity utilization relative to one year ago. Respondents have noted slowdowns in the growth of manufacturing activity over the past few quarterly surveys, but this is the first time that they have reported declines for all three of these measures since 2016. Multiple contacts reported that tariffs and general uncertainty with regard to the ongoing trade negotiations with China contributed to declines in activity. On net, most contacts expect manufacturing conditions to stay at a similar level next quarter. However, several local manufacturing firms across a variety of industries, including automotive and food manufacturing, recently announced plans to expand operations. Likewise, other survey-based indexes indicate that activity in Arkansas and Missouri increased at a modest pace from one month earlier, with new orders and production increasing in both states.

Nonfinancial Services
Activity in the services sector has been mixed since our previous report. The number of posted vacancies for nonfinancial services occupations increased from June to July in St. Louis but decreased in Louisville and Memphis. Transportation activity was mixed. Cargo traffic at District airports decreased slightly year over year, which some contacts attributed to a general slowdown in global trade. However, passenger traffic remained above year-ago levels. Barge traffic continued to improve from the holdup of business caused by the severe flooding in the spring, and contacts expect a rebound of activity through the rest of the year.

Real Estate and Construction
Residential real estate activity has been stable since our previous report. Seasonally adjusted home sales increased modestly across the four largest MSAs in the District. Conversely, a slight majority of contacts reported weaker demand for single-family homes relative to a year ago, and nearly 40 percent noted that third-quarter sales have fallen short of expectations. Contacts continued to report inventory shortages, particularly for lower-end homes.

Residential construction activity increased slightly. There was a slight increase in June permit activity across the four largest MSAs in the District. On net, 14 percent of respondents reported higher construction activity relative to the same time last year, and 7 percent expect continued growth in the next quarter.

Commercial real estate activity has improved slightly since our previous report. Survey respondents reported a slight increase in year-over-year demand for office and industrial space and a modest decrease in demand for retail space. Demand for multifamily properties was unchanged.

Commercial construction activity improved slightly. Survey respondents reported healthy demand for construction of industrial property types and stated that several projects are lined up for the next few months. However, there are some reports of developers deferring future projects due to recent economic uncertainty. Local contacts continued to report labor shortages.

Banking and Finance
Overall loan demand in the District has weakened slightly since our previous report. Demand for mortgages slightly increased relative to one year ago, while demand for auto loans and commercial and industrial loans fell modestly. Bankers expect little to no change to overall loan demand in the fourth quarter. Credit standards tightened slightly compared with year-ago levels. Delinquencies fell slightly on a year-over-year basis and are expected to continue declining into the fourth quarter.

Agriculture and Natural Resources
District agriculture conditions were down modestly from the previous reporting period. Compared with mid-July, the percentages of cotton and rice rated fair or better declined modestly, while those for corn and soybeans declined slightly. Relative to the previous year, the percentage of all four crops rated fair or better declined moderately. District contacts indicated that farming conditions remained strained due to low commodity prices and lingering effects from the unusually wet weather and flooding in the spring. New government assistance to farmers is expected to provide some short-term alleviation.

Natural resource extraction conditions rose slightly from June to July, with seasonally adjusted coal production increasing 1.8 percent. Additionally, July production was 0.8 percent above that of a year ago.

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