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Burgundy Book A report on economic conditions in the St. Louis zone Fourth Quarter 2014 The St. Louis zone of the Federal Reserve comprises central and eastern Missouri and southern Illinois and a total population of approximately 5.6 million people, including the almost 3 million who live in the St. Louis MSA. Yuletide Cheer in the St. Louis Zone: More Optimism and Lower Unemployment! Data Snapshot County unemployment rates (SA, Q3-14) 6.3% By Kevin L. Kliesen, Business Economist and Research Officer According to our November survey of business contacts, two-thirds of respondents expect that local economic conditions will improve in 2015. This is a marked upward shift in sentiment compared with three months earlier. In the St. Louis MSA, total nonfarm employment increased by 1.5 percent in the third quarter, a noticeable acceleration from the previous quarter. Among the zone MSAs, St. Louis’s employment growth was surpassed only by Springfield’s (2 percent). The St. Louis zone’s unemployment rate averaged 6.3 percent in the third quarter of 2014, its lowest level since the second quarter of 2008. In the third quarter, unemployment rates were lowest in these three Missouri MSAs: Columbia (4.3 percent), Jefferson City (5.3 percent), and Springfield (5.1 percent). Residential housing market activity slowed in the third quarter in most areas. For example, single-family building permits were below year-earlier levels in three of the four MSAs. In the St. Louis MSA, the apartment market continues to improve, as asking rents in the third quarter rose to new highs. For the first time since mid-2009, households increased their outstanding balances of mortgage and credit card debt. Delinquency rates in the St. Louis zone remained below the national average in the third quarter. less than 5% 7% to 8% 5% to 6% over 8% 6% to 7% Nonfarm payroll employment by industry Percent change from one year ago (Q3-14) -2 0 2 St. Louis US Total Nonfarm (100%) Trade, Trans., and Utilities (18%) Education and Health (18%) Prof. and Business Services (16%) Government (11%) Leisure and Hospitality (12%) Manufacturing (9%) Net interest margins rose at Missouri and Southern Illinois banks in the third quarter, and the ratio of nonperforming loans to total loans fell modestly from the previous quarter at Missouri banks. Financial Activities (7%) Missouri and Illinois farmers harvested bumper crops in 2014. However, with prices falling, a majority of agricultural bankers expect net farm income to decline over the near term. Other Services (3%) Nat. Res., Mining, and Construction (5%) Information (2%) This report is published by the Federal Reserve Bank of St. Louis 4 6 8 Fourth Quarter 2014 How to read this report Table of Contents Unless otherwise noted, city names refer to the metropolitan statistical areas (MSAs), which are geographic areas that include cities and their surrounding suburbs, as defined by the Census Bureau. Labor Markets ........................................................................... 3 Statistics for the St. Louis zone are based on data availability and are calculated as weighted averages of either the 116 counties in the zone or the five MSAs. As of 2012, approximately two-thirds of the zone’s labor force was located in an MSA. Specifically: 52 percent in St. Louis, 8 percent in Springfield, 3 percent in Jefferson City, 3 percent in Columbia, and 2 percent in Cape Girardeau; one-third of the zone’s labor force was located in nonmetropolitan areas. Banking and Finance ................................................................. 7 Arrows in the tables are used to identify significant trends in the data. The direction of the arrow indicates the sign (up/down) and the color indicates the economic significance (green = good, red = poor). Arrows appear only when the change from the previous quarter is greater than 1 standard deviation. For example, the standard deviation of the change in the US unemployment rate is 0.4 percent. If the US unemployment rate declined from 8.4 percent to 8.2 percent, no arrow would appear; but if it declined from 8.4 percent to 7.9 percent, a green down arrow would appear in the table. Selected variable definitions are located in the appendix. Selected quotes from business contacts are generally verbatim, but some are lightly edited to improve readability. Manufacturing and Transportation ........................................... 4 Real Estate and Construction .................................................... 5 Household Sector ...................................................................... 6 Agriculture and Natural Resources ........................................... 8 Appendix ................................................................................... 9 Join Our Panel of Business Contacts The anecdotal information in this report was provided by our panel of business contacts, who were surveyed between November 3 and November 14. If you’re interested in becoming a member of our panel, follow this link to complete a trial survey: http://research.stlouisfed.org/outlooksurvey/ or email us at beigebook@stls.frb.org. For more information contact the St. Louis office: Charles Gascon charles.s.gascon@stls.frb.org Media inquiries: mediainquiries@stls.frb.org Federal Reserve Bank of St. Louis — St. Louis Zone Views expressed do not necessarily reflect official positions of the Federal Reserve System. 2 Labor Markets Fourth Quarter 2014 Lower Unemployment Rates, Moderate Employment Growth Across St. Louis Zone By Maria A. Arias, Research Associate Labor market conditions continued to improve throughout the majority of the St. Louis zone during the third quarter. Overall employment growth was positive in all MSAs and was stronger than during the second quarter in St. Louis, Jefferson City, and Cape Girardeau (see table). Business contacts surveyed are moderately optimistic about labor market conditions through the fourth quarter and first quarter of 2015. About 35 percent of contacts expect employment will be somewhat higher or higher than it was during the same time last year, while about 60 percent expect employment to remain unchanged. The rest expect a slight decline. Private service employment growth in Springfield declined significantly from the second quarter, slowing overall growth in the MSA despite stronger growth in the goods-producing and government sectors. Similarly, government employment growth declined significantly from the previous quarter in Columbia, slowing overall growth (see table). The unemployment rate declined in all of the zone's MSAs, with St. Louis experiencing a decline of 0.5 percent, the largest across the zone (see figure). “Labor has been difficult to find for construction now that the economy is approaching normalization.” Hourly earnings growth has remained slow so far. Business contacts expect labor costs will remain about the same or increase slightly going into the first quarter of 2015. —Columbia area banker “Competition for higher-educated employees is driving up labor costs.” —St. Louis area real estate broker “We see modest increases in labor expenses.” —St. Louis area farmer Unemployment rate in St. Louis declined significantly in Q3 Unemployment rate, percent 12 10 8 6 4 St. Louis 2 US 0 2007 2008 2009 2010 2011 2012 2013 2014 Source: BLS. St. Louis Springfield Jefferson City Columbia Cape Girardeau US Unemployment rate (Q3-14) (%) 6.6 ▼ 5.1 5.3 ▼ 4.3 6.2 ▼ 6.1 Nonfarm employment (Q3-14) 1.5 2.0 0.7 0.7 ▼ 0.2 1.9 Goods-producing sector 2.4 -1.2 1.8 -1.3 0.5 ▲ 2.4 Private service-providing sector 1.9 1.9 2.9 0.9 2.2 -4.7 0.2 Government sector -1.4 2.8 ▼ 0.7 -1.4 -2.9 ▼ Note: Unl es s otherwi s e noted, va l ues a re percent cha nge from one yea r a go. Arrows i ndi ca te a s i gni fi ca nt (± 1 s ta nda rd devi a ti on) cha nge from the previ ous qua rter. See a ppendi x for notes a nd s ources . Federal Reserve Bank of St. Louis — St. Louis Zone 3 Manufacturing and Transportation Fourth Quarter 2014 Manufacturing Conditions Mixed in St. Louis Zone By Daniel Eubanks, Research Associate Aggregate weekly hours among St. Louis production employees declined for the third consecutive quarter. Missouri manufacturing employment grew by 1.8 percent, led by moderately above-average growth in both durable and nondurable goods manufacturing employment (see figure). Business contacts in Missouri were more optimistic about manufacturing conditions in the fourth quarter than the same time last year. Illinois manufacturing employment contracted 0.7 percent, with declines in both durables and nondurables. Transportation employment increased in both Missouri and Illinois, but by less than the national average. “Manufacturing activity is doing well and I expect this to continue.” – Southeastern Missouri banker Manufacturing employment in St. Louis grew slightly in the third quarter. Above-average growth in durable goods manufacturing employment was offset by a decline in nondurables. Transportation employment growth remained below the national average despite a significant increase to 3.0 percent. “Manufacturing is one of the bright spots in our market. For a small market, we are diversified in the manufacturing sector and all of our manufacturers appear to be doing well.” – Southwestern Missouri banker Manufacturing exports increased for both Missouri and Illinois in the third quarter. Missouri’s above-average growth was led by petroleum and coal products and primary metals. Illinois saw strength in printing and primary metals. Durable and nondurable goods manufacturing both contribute to employment growth in Missouri Percent change from one year ago 3 0 -3 Durable goods contribution Nondurable goods contribution Total manufacturing -6 -9 -12 -15 2006 2008 2010 2012 2014 Source: BLS. St. Louis Transportation employment (Q3-14) 3.0 Manufacturing employment (Q3-14) Durable goods Nondurable goods Manufacturing exports (Q3-14) Missouri ▲ Illinois US 3.0 1.2 3.4 0.2 1.8 -0.7 1.4 3.0 2.3 -1.0 2.1 -4.1 1.2 -0.1 0.2 -- 7.8 2.6 3.1 Note: Va l ues a re percent cha nge from one yea r a go. Arrows i ndi ca te a s i gni fi ca nt (± 1 s ta nda rd devi a ti on) cha nge from the previ ous qua rter; s ee a ppendi x for notes a nd s ources . Federal Reserve Bank of St. Louis — St. Louis Zone 4 Real Estate and Construction Fourth Quarter 2014 Promising Signs from the Commercial Real Estate Market in St. Louis By Diana Cooke, Research Associate “Businesses that have been reluctant to commit to a long-term lease have finally taken the steps to enter into longer-term commitments.” — St. Louis area realtor The residential market remained slow in the third quarter. Compared with last year, home prices are up, but growing at a significantly slower rate than the previous quarter. St. Louis home sales continue to decline. Single-family building permits displayed negative yearly growth rates in St. Louis, Jefferson City, and Columbia (see table). Contacts partly attributed the low supply of new homes to the severe shortage of quality lots and high costs of construction materials. “Many buyers are looking only at existing homes because the cost of construction is too high.” — St. Louis area realtor The commercial real estate market remained stable in the third quarter. For the multi-family sector, asking rents continue to climb as vacancy rates fall (see figure). Office vacancy rates did not change compared with the second-quarter rates, while retail and industrial vacancy rates both declined. The commercial construction market is active in St. Louis. In the apartment market, ground was recently broken in Midtown St. Louis for two new apartment buildings. Realtors in the St. Louis area predict that, as unemployment falls, the office market will continue to tighten. In St. Louis city, a new mixed-use project is in the first phase of development. Apartment asking rents increase, vacancy rates decline % Vac. Rate Asking Rent $ 8% $800 7% $790 6% $780 $770 5% $760 4% $750 3% $740 2% $730 1% $720 0% Q3-11 Source: Reis.com. $710 Q3-12 Q3-13 Q3-14 Non-residential market (St. Louis, Q3-14) Apartment Industrial 17.6 12.2 6.3 2.7 1.3 1.6 1.0 Springfield Asking rent Retail 4.5 Vacancy rate (%) Office Jefferson City Columbia US Percent change from one year ago Note: Apa rtment, offi ce, a nd reta i l va l ues a re from Rei s .com. Indus tri a l va l ues a re es ti ma tes from Ca s s i dy Turl ey. Residential market (Q3-14) St. Louis CoreLogic Home Price Index 5.2 ▼ 1.2 -- 5.5 6.0 Single-family building permits -3.0 0.2 -12.6 -8.2 1.2 New and existing home sales -4.6 -- -- -- ▼ -4.5 Note: Sa l es a nd permi ts da ta a re yea r-to-da te percent cha nge. Pri ces a re percent cha nge from one yea r a go. Arrows i ndi ca te a s i gnfi ca nt (±1 s ta nda rd devi a ti on) cha nge from previ ous qua rter. See a ppendi x for notes a nd s ources . Federal Reserve Bank of St. Louis — St. Louis Zone 5 Household Sector Fourth Quarter 2014 Households in St. Louis Zone Accumulate Debt for First Time Since 2009 By Peter B. McCrory, Research Associate “Low borrowing costs along with increased consumer confidence appear to be helping purchases in our market.” – St. Louis area auto banker “Whether consumers feel safe enough to go shopping is a key factor driving holiday spending this year.” – St. Louis area retailer Households increase auto, mortgage, and credit debt Percent change in debt balances from one year ago 8 6 4 2 0 -2 -4 Auto -6 Mortgage -8 Credit Card -10 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Source: FRBNY Consumer Credit Pa nel and Equifax. St. Louis Zone Per capita personal income (Q2-14) Relative to one year ago, personal income in Missouri grew by 2.8 percent and in Illinois grew by 3.1 percent—rates essentially unchanged from last quarter. Both states saw slightly slower personal income growth in the second quarter when compared with the nation (see table). For the first time since the middle of 2009, households in the St. Louis zone increased their balances of mortgage and credit card debt (see figure). While auto debt accumulation began again in early 2011, households continued for the next three years to unwind their non-auto debt balances in an effort to repair their balance sheets. The deleveraging of non-auto debt has apparently ended. Protests and destruction of property occurred in the St. Louis region following a grand jury decision in the Michael Brown case. Area businesses closed early the evening of the announcement. Roughly 60 businesses (including restaurants, auto parts dealers, and groceries) were vandalized and looted; 12 were destroyed by arson. Black Friday sales were negatively affected by protesters disrupting holiday shopping, and some retailers report concern that continuing unrest will further dampen holiday spending. Illinois 2.8 -- Missouri 3.1 US 3.3 Per capita debt balances (Q3-14) Mortgage 0.3 ▲ 0.2 ▲ -0.5 ▲ 1.3 ▲ Credit card 1.3 ▲ 1.5 ▲ -0.8 ▲ -0.2 ▲ Auto loan 6.8 8.7 ▲ 8.5 8.8 ▲ Mortgage 1.5 1.5 3.4 2.8 Credit card 6.2 6.9 6.4 7.2 Auto loan 2.5 2.9 2.5 3.0 90+ day delinquency rates (Q3-14) (%) Note: Unl es s otherwi s e noted, va l ues a re percent cha nge from one yea r a go. Arrows i ndi ca te a s i gni fi ca nt (±1 s tanda rd devi a tion) cha nge from the previ ous qua rter. See a ppendi x for notes a nd s ources . Federal Reserve Bank of St. Louis — St. Louis Zone 6 Banking and Finance Fourth Quarter 2014 Banking Conditions Steady in St. Louis Zone By Michelle Neely, Economist and Hannah Shell, Research Analyst All banks surveyed in the St. Louis zone expect loan demand to increase or stay the same during the next three months. Return on average assets (ROA) did not change at Missouri and southern Illinois banks between the second and third quarters, and it hovered near the US average of 1.01 percent at both sets of banks (see table). Average ROA is above its yearago level at Missouri, southern Illinois, and District banks. Net interest margins (NIMs) improved again in the third quarter. The average NIM rose 1 basis point to 3.41 percent at Missouri banks and 7 basis points to 3.60 percent at southern Illinois banks between the second and third quarters. Average St. Louis zone NIMs still trail District and U.S. averages, however. Asset quality remains a bright spot in the St. Louis zone. The ratio of nonperforming loans to total loans fell 5 basis points at Missouri banks in the third quarter while it ticked up just 1 basis point at southern Illinois banks. Nonperforming loan ratios are well below their year-ago levels across the District and the nation (see figure). —Southeastern Missouri banker “The economy has improved and borrowers are better off. Industry has rebounded from the loan losses of five years ago.” Some St. Louis-area bankers expect higher delinquency rates in the fourth quarter of 2014. However, they note that the problem is contained among a few customers and is not widespread. Almost all bankers surveyed expect delinquencies to either hold constant or decline in the first quarter of 2015. “Competition between banks has intensified. Banks are stealing loans from each other.” —Southern Illinois banker “The economy is improving, more people are getting back to work, inflation is in check, interest rates are low, and the residential market is picking up.” —Southern Illinois banker Asset quality near pre-crisis levels Nonperforming loan ratio at commercial banks, percent 4.5 4.0 US 3.5 Missouri 3.0 So. Illinois 2.5 2.0 1.5 1.0 0.5 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: FRED. Banking performance (Q3-14 ) Missouri Return on average assets 0.99 0.75 1.02 1.10 1.01 Net interest margin 3.41 2.67 3.60 3.81 3.85 Nonperforming loans / total loans 1.10 1.92 1.25 1.40 140.00 72.92 108.00 106.43 Loan loss reserve coverage ratio Illinois So. Illinois 8th District US Peer Banks ▼ 1.48 99.32 Note: Va l ues a re percenta ge poi nts . Arrows i ndi ca te a s i gni fi ca nt ( ± 1 s ta nda rd devi a ti on) cha nge from the previ ous qua rter. See a ppendi x for notes a nd s ources . Federal Reserve Bank of St. Louis — St. Louis Zone 7 Agriculture and Natural Resources Fourth Quarter 2014 Another Bountiful Harvest Slashes Commodity Prices & Farm Income By Lowell R. Ricketts, Senior Research Associate Crop production levels in 2014 were higher than levels seen last year across the major crops of Illinois and Missouri (see left table). These gains are surprising since last year’s harvest was bountiful. Area row crop farmers attributed the phenomenal yields and production levels to good weather and the use of genetically engineered seeds. Tremendous crop yields have driven commodity prices down at a time when they were still weak from last year’s harvest (see figure). Compared with the same time last year, corn prices have declined close to 35 percent for both Illinois and Missouri farmers. Meanwhile, soybean prices have declined by 13 and 21 percent in Missouri and Illinois over the same period, respectively. “If commodity prices remain depressed beyond next year, I expect land values will start to feel downward pressure and weaker producers will experience significant financial difficulty.” A majority of agricultural bankers surveyed expect farm income to decline in the near-term (see right table). Lower farm income will likely stress the balance sheets of area farmers and could force highly leveraged operations to conduct distressed sales of farmland. Accordingly, almost two-thirds of agricultural bankers surveyed expect farmland values to decline over the fourth quarter relative to the same time a year ago. — St. Louis area agricultural banker “Low commodity prices will affect highly leveraged borrowers. This will lead to reduced land prices.” — Central Missouri real estate lawyer Weak commodity prices plummet to new lows 3-Month MA of $/BU, indexed value (Jan. 2012=100) 145 135 125 115 105 95 85 75 65 55 Q1-12 Q3-12 Source: USDA/NASS. IL: Soybeans IL: Corn MO: Soybeans MO: Corn Q1-13 Q3-13 Q1-14 Q3-14 Illinois Natural resources (Q3-14) Mining and logging employment Coal production Production (2014) Corn Cotton Rice Sorghum Soybean Missouri US 3.5 2.4 5.7 12.8 -15.7 -1.9 11.4 ▼ ----6.1 16.4 38.5 5.8 34.0 37.2 24.8 St. Louis zone Ag. bankers' expectations Q4-14 vs. Q4-13 Lower 61 20 20 28 68 73 Higher 4 36 8 16 5 9 Net -57 16 -12 -12 -64 -64 Farmland Values Loan demand 3.5 Available funds 27.0 ▲ Loan repayments 16.4 ▲ Farm income 4.9 Capital spending 17.9 Note: Percenta ge of res pons es . Net va l ues ma y not Note: Va l ues a re percent cha nge from one yea r a go. Arrows i ndi ca te a a dd up due to roundi ng. See a ppendi x for s ource. s i gni fi ca nt (± 1 s ta nda rd devi a tion) cha nge from the previ ous qua rter or yea r. See a ppendi x for notes a nd s ources . Federal Reserve Bank of St. Louis — St. Louis Zone 8 Appendix Fourth Quarter 2014 Cover Page Sources Bureau of Labor Statistics Unemployment rate, nonfarm payroll employment. Labor Markets Nondurable goods manufacturing sector is defined by the Bureau of Labor Statistics as industries with a NAICS classification code of 311 (Food Manufacturing); 312 (Beverage and Tobacco Product Manufacturing); 313 (Textile Mills); 314 (Textile Product Mills); 315 (Apparel Manufacturing); 316 (Leather and Allied Product Manufacturing); 322 (Paper Manufacturing); 323 (Printing and Related Support Activities); 324 (Petroleum and Coal Products Manufacturing); 325 (Chemical Manufacturing); and 326 (Plastics and Rubber Products Manufacturing). Table Sources Bureau of Labor Statistics Unemployment rate. Nonfarm employment and contributions by sector. Notes Goods-producing sector comprises the manufacturing and natural resources, mining, and construction sectors. Private service-providing sector includes the following: Trade, Transportation, and Utilities industry, Information, Financial Activities, Professional and Business Services, Education and Health Services, Leisure and Hospitality, and Other Services. Unemployment rate data are seasonally adjusted. Manufacturing and Transportation Real Estate and Construction Table Sources CoreLogic Home price index, including distressed sales. Census Bureau Year-to-date single-family building permits. Bureau of Economic Analysis Year-to-date new and existing home sales, US. St. Louis Association of Realtors Year-to-date new and existing home sales, St. Louis. Table Sources Notes Bureau of Labor Statistics Asking rent is the publicized asking rent price. Data are in current dollars. Transportation employment: includes transportation and warehousing industries. Manufacturing employment: total, durable, and nondurable goods. Vacancy rate is the percentage of total inventory physically vacant as of the survey date, including direct vacant and sublease space. New and existing home sales consist of single-family home sales. World Institute for Strategic Economic Research Manufacturing exports: dollar value. Notes Manufacturing labor input is defined as the average weekly hours worked by production and nonsupervisory employees in the manufacturing industry multiplied by the monthly average of total number of production and nonsupervisory employees in the manufacturing industry. Transportation employment in St. Louis covers transportation, warehousing, and utility industries. About 90 percent of the reported jobs are contributed by transportation and warehousing industries. Manufacturing exports is defined as total dollar amount of exports by the manufacturing industries. Durable goods manufacturing sector is defined by the Bureau of Labor Statistics as industries with a NAICS classification code of 321 (Wood Product Manufacturing); 327 (Nonmetallic Mineral Product Manufacturing); 331 (Primary Metal Manufacturing); 332 (Fabricated Metal Product Manufacturing); 333 (Machinery Manufacturing); 334 (Computer and Electronic Product Manufacturing); 335 (Electrical Equipment, Appliance, and Component Manufacturing); 336 (Transportation Equipment Manufacturing); 337 (Furniture and Related Product Manufacturing); and 339 (Misc. Manufacturing). Federal Reserve Bank of St. Louis — St. Louis Zone Household Sector Table Sources Equifax based on authors’ calculations All figures are based on a 5 percent sample of individual credit reports. Balances are geographical averages of various debt categories. The mortgage category includes first mortgages and home equity installment loans, but home equity lines of credit are omitted. Auto loans include those financed by finance companies or bank loans. Credit cards are revolving accounts at banks, bankcard companies, national credit card companies, credit unions, and savings and loan associations. Haver Analytics Per capita income. Notes Delinquency rates are calculated as the percentage of payments past due by more than 90 days, weighted by the dollar value of the loan. More information about the Michael Brown Case and protesting in the St. Louis region is available at http://online.wsj.com/articles/ ferguson-businesses-face-rebuilding-effort-1417039397 9 Appendix Fourth Quarter 2014 Banking and Finance Table Sources Federal Financial Institutions Examination Council Return on average assets: USL15ROA. Net interest margin: USL15NIM. Nonperforming loans: USL15NPTL. Loan loss reserve/ Total loans: USL15LLRTL. Net loan losses/Average total loans: USL15LSTL. Note: The data available in the table can be found in the Federal Reserve Bank of St. Louis Economic Database FRED®. Notes Loan loss provisions are expenses banks set aside as an allowance for bad loans. Nonperforming loans are those loans managers classify as 90 days or more past due or nonaccrual, which means they are more likely to default. Loan loss coverage ratio is loan loss reserves divided by nonperforming loans. So. Illinois refers to the portion of Illinois within the Eighth District. US peer banks are those commercial banks with assets of less than $15 billion. Due to the seasonal nature of bank return on average assets and net interest margin, the arrows in the table denote significant changes from one year ago. Agriculture and Natural Resources Table Sources Federal Reserve Bank of St. Louis Agricultural Finance Monitor Agriculture bankers’ expectations of loan demand, available funds, loan repayment rates, farm income, and capital spending are relative to one year ago. Respondents can answer “increase,” “decrease,” or “no change.” Energy Information Administration (EIA) Coal production. Note: Production trends identified in report may be inconsistent with previous reports due to data revisions. Bureau of Labor Statistics (BLS) Mining and logging employment. United States Department of Agriculture (USDA) Crop production and commodity prices. Federal Reserve Bank of St. Louis — St. Louis Zone 10
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