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Burgundy Book A report on economic conditions in the St. Louis zone First Quarter 2015 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. Surging Missouri Exports Fuel Gains in Durable-Good Manufacturing Employment Data Snapshot County unemployment rates (SA, Q4-14) 5.6% By Kevin L. Kliesen, Business Economist and Research Officer Our February survey of business contacts revealed continued optimism about the outlook for local economic conditions in 2015. Only 1 in 10 respondents expect conditions to worsen in 2015. In the St. Louis MSA, nonfarm employment increased by 0.9 percent in the fourth quarter, about unchanged from the previous two quarters. Employment growth was modestly stronger in Springfield, but weaker in the zone’s remaining three MSAs. Growth of transportation employment was especially brisk in Missouri and Illinois. The St. Louis zone’s average unemployment rate fell by nearly 0.75 percentage points to 5.6 percent in the fourth quarter of 2014. Unemployment rates were below 5 percent in Missouri’s Columbia (4.0 percent), Jefferson City (4.8 percent), and Springfield (4.6 percent) MSAs. Business contacts appear upbeat about the outlook for labor market conditions. After a weak first half of 2014, new and existing home sales in the St. Louis MSA over the second half of 2014 showed signs of stabilizing. Still, sales in 2014 were 2 percent below those in 2013. Several automotive dealers reported that falling gasoline prices have spurred an upsurge in sales of trucks and sport utility vehicles. At the same time, automotive loan delinquency rates in the fourth quarter of 2014 rose significantly. Reports from zone banking contacts suggest a modest pickup in loan demand, fueled in part by increased competition. 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 (Q4-14) -4 -2 0 St. Louis US Total Nonfarm (100%) Trade, Trans., and Utilities (19%) Education and Health (17%) Prof. and Business Services (16%) Government (12%) Leisure and Hospitality (11%) Manufacturing (9%) Financial Activities (6%) A majority of agricultural bankers surveyed in late 2014 expect farm income, farmland values, and capital expenditures to decline in the first quarter of 2015 relative to a year earlier. Nat. Res., Mining, and Construction (4%) Other Services (3%) Information (2%) This report is published by the Federal Reserve Bank of St. Louis 2 4 6 First Quarter 2015 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 February 1 and February 15. 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 First Quarter 2015 Labor Market Conditions Improving; Wages Expected to Increase By Maria A. Arias, Senior Research Associate “To be competitive for technical positions we have to continue to evaluate wage ranges. The healthcare industry will continue to require information technology, data analysts, care providers, and human resources personnel, all in short supply.” — St. Louis area healthcare contact The unemployment rate declined significantly during the fourth quarter across the entire zone. St. Louis was the only MSA where the unemployment rate remained higher than the national average at the end of 2014. In 2014, the largest declines in the unemployment rate were seen in St. Louis and Cape Girardeau. The smallest decline was in Columbia, where the unemployment rate was already low (see figure). Employment growth across the zone remained moderate during the fourth quarter, though below the national average. In both St. Louis and Springfield, employment growth was slower than during the previous quarter (see table). Business contacts have a generally positive outlook for the zone’s labor markets for the first half of 2015: 45 percent of contacts expect employment levels to be slightly higher than last year, and 48 percent expect they will stay about the same. Contacts surveyed show concerns about the availability of qualified candidates for skilled positions, which is pushing up wage expectations (about half of contacts expect wages to be higher than last year). Average hourly wages throughout most of the St. Louis zone were slightly higher during 2014 than during the previous year, with average changes ranging from a 3 percent decline in Springfield to a 4 percent increase in Jefferson City, higher than the 2 percent national average increase. “There is a tremendous shortage of skilled help available for construction.” — Springfield area business contact St. Louis and Cape Girardeau saw largest unemployment rate declines last year Aggregate decline in unemployment rate (Q4-13 to Q4-14), Percent (SA) St. Louis Springfield Jefferson Cape City Columbia Girardeau US 0 -0.2 -0.4 -0.6 -0.8 -1 -1.2 -1.4 Source: BLS. St. Louis Springfield Jefferson City Columbia Cape Girardeau US Unemployment rate (Q4-14) (%) 6.1 ▼ 4.6 ▼ 4.8 ▼ 4.0 ▼ 5.5 ▼ 5.7 ▼ Nonfarm employment (Q4-14) 0.9 2.0 0.4 0.0 1.2 ▲ 2.1 Goods-producing sector 1.5 5.4 3.0 ▲ 3.2 3.2 ▲ 2.9 Private service-providing sector 1.8 0.9 ▼ 1.9 3.1 2.3 2.4 -2.2 -4.7 -1.0 0.3 Government sector -1.8 1.0 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 First Quarter 2015 Manufacturing Strengthens in Missouri By Daniel Eubanks, Research Associate “The value of the dollar has had a major impact on business with regards to prices charged to international customers and a reduction in our competitiveness.” — St. Louis area manufacturer In Missouri, manufacturing employment growth exceeded the national rate, driven by strong growth in durable goods. In Illinois, manufacturing employment increased slightly, with small gains in both durable and nondurable goods manufacturing employment. In the St. Louis area, manufacturing employment growth exceed the national average for the third consecutive quarter. Several manufacturers have recently announced expansion plans, which may increase hiring in the near future. Transportation employment growth increased significantly in the St. Louis area and in Missouri as a whole during the fourth quarter. In Illinois, growth accelerated from 2.3 to 3.2 percent, but remains below the U.S. average. Contacts in the transportation sector continue to report difficulty finding qualified drivers. Manufacturing exports from Missouri sharply increased in the fourth quarter (see figure). Significant growth in exports came from plastics and rubber products, primary metals, and transportation equipment. Manufacturing exports from Illinois contracted slightly, with weakness spread across several classes of goods. Exports of primary metals slowed significantly. Exports from Missouri sharply increased in Q4-14 Real export value, percent change from one year ago 60 50 40 30 20 10 0 -10 -20 -30 -40 Missouri Illinois US 2004 2006 2008 2010 2012 2014 Source: Census Bureau. St. Louis Transportation employment (Q4-14) 5.1 Manufacturing employment (Q4-14) 2.0 Durable goods Nondurable goods Manufacturing exports (Q4-14) Missouri ▲ 3.9 Illinois ▲ US 3.2 3.8 2.8 0.4 1.7 2.3 5.0 0.1 2.4 1.6 -0.2 0.9 0.7 -- 37.7 -1.7 1.1 ▲ 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 First Quarter 2015 Commercial Real Estate Market Stabilizes in St. Louis By Diana Cooke, Senior Research Associate “Large blocks of contiguous office space are increasingly difficult to find.” — St. Louis area realtor “Low mortgage rates have helped to keep housing affordable.” — St. Louis area home builder The residential housing market in St. Louis shows signs of stability. Although year-to-date home sales in 2014 were down 2 percent compared with 2013, December sales were up 29 percent from one year ago (see figure). Single-family building permits decreased in the majority of MSAs. Anecdotal evidence suggests that the low inventory of housing is placing upward pressure on prices. In St. Louis, home prices increased 5.3 percent. The commercial real estate market in St. Louis is stable. Contacts note that, with increased competition, rents remain low even as occupancy increases. Over the past year, asking rents for apartment space rose more than in any other sector (see table). The office market remains stable in St. Louis; compared with one year ago, asking rents have increased 1 percent and vacancy rates have decreased 2 percent. Contacts report that there is strong demand for certain submarkets, including Clayton, Mid-County, and the Highway 270 corridor. An insurance company recently bought a building in Clayton that had been vacant for more than a decade. Home sales gain momentum in the last half of 2014 New and existing monthly home sales 2000 2013 2014 1600 1200 800 400 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: See appendix. Non-residential market (St. Louis, Q4-14) Vacancy rate (%) Asking rent Apartment Office Retail Industrial 4.4 17.7 12.2 6.3 2.5 1.0 1.2 1.0 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 (Q4-14) St. Louis CoreLogic Home Price Index 5.3 -0.7 -- 3.2 5.1 Single-family building permits -3.9 1.4 -13.3 -16.2 2.1 New and existing home sales -2.0 -- -- -- -2.8 Springfield Jefferson City 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 First Quarter 2015 Low Oil Prices Affect Auto Markets and Improve Household Finances By Peter B. McCrory, Senior Research Associate “[Low gasoline prices] have led to consumers buying more trucks and sport utility vehicles.” — St. Louis area auto dealer “[Low gasoline prices] should allow our customers to reduce debt at a more rapid pace and allow for additional savings rates and increase the ability to make purchases.“ — Columbia area banker Household auto debt balances continue to rise Index (2008=100) 110 100 Auto delinquency rates in the St. Louis zone increased significantly in the fourth quarter of 2014, ticking up to 2.7 percent. Mortgage and credit card delinquency rates remained essentially unchanged (see table). Multiple zone auto dealers reported that low oil prices have led to an increase in the demand for trucks and sport utility vehicles. One zone banker expects that low oil prices will allow consumers to reduce debt, increase savings, and stimulate consumer spending. 80 Mortgage Auto 60 Credit 50 40 Dec-02 Dec-05 Dec-08 Dec-11 Dec-14 Source: FRBNY Consumer Credit Pa nel and Equifax. St. Louis Zone Households in the St. Louis zone reduced their mortgage balances and increased their holdings of credit and auto debt in the fourth quarter of 2014. The rate of auto debt accumulation far outpaces that of mortgage and credit card debt. Auto debt balances now stand nearly 10 percent above their pre-recession peak (see figure). 90 70 Personal income growth was essentially unchanged in the third quarter of 2014 relative to the second. In Missouri, personal income grew by 2.5 percent; in Illinois, it grew by 2.6 percent. Due largely to low gasoline prices, inflation slowed in the fourth quarter. Taken together, these two facts possibly indicate that real personal income grew at a faster pace in the latter months of 2014. Missouri Illinois -- 2.5 2.6 3.2 Mortgage -1.3 -1.1 -1.9 -0.4 Credit card 1.4 1.0 0.3 0.7 Auto loan 8.0 9.3 9.4 8.8 Mortgage 1.6 1.5 3.1 2.6 Credit card 6.0 6.6 6.3 7.0 Auto loan 2.7 3.2 2.7 Per capita personal income (Q3-14) US Per capita debt balances (Q4-14) 90+ day delinquency rates (Q4-14) (%) ▲ ▲ 3.3 ▲ 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 First Quarter 2015 Banking Conditions Steady; Loan Demand Improving in St. Louis Zone By Michelle Neely, Economist, and Hannah Shell, Research Associate “Our perspective is of an overall brighter 2015… Our loan pipelines are at their highest ever across our entire footprint.” Banking contacts in the St. Louis zone report that loan demand has been and is expected to remain steady to somewhat stronger in the first half of 2015. Many contacts report competition for loans is intensifying. There is a slight sense of optimism among bankers about residential mortgage demand. Although most contacts report demand has been and will remain unchanged in the first half of 2015, about one-quarter of bankers surveyed predict it will increase. Profitability held steady in the fourth quarter. Return on average assets (ROA) was unchanged at 0.99 percent at Missouri banks and ticked down 2 basis points to 1 percent at southern Illinois banks. The average net interest margin (NIM) increased 1 basis point at Missouri banks and held constant in southern Illinois. NIMs in the St. Louis zone remain below the national average of 3.85 percent (see figure). Asset quality continues to improve across the zone. In the fourth quarter of 2014, the ratio of nonperforming loans to total loans fell 12 basis points to 0.98 percent at Missouri banks and declined 13 basis points to 1.12 percent at southern Illinois banks and in the fourth quarter (see table). Both rates are well below those of the District and national peers. —St. Louis area banker “Competition from other banks, both in our immediate area and from outside the immediate area, is influencing business lending.” —Central Missouri banker “Producing revenue and asset growth will be the major challenges facing banks in 2015. Competition for goodquality borrowers is strong. In times like this, banks have a tendency to ease lending terms and not price to risk.” —St. Louis area banker Net interest margins hold steady at area banks Net interest margin at commercial banks, percent 4.3 4.1 3.9 3.7 3.5 US Missouri So. Illinois 3.3 3.1 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: FRED. Banking performance (Q4-14 ) Missouri Return on average assets 0.99 0.77 1.00 1.09 1.02 Net interest margin 3.42 2.67 3.60 3.82 3.85 Nonperforming loans / total loans 0.98 1.54 ▼ 1.12 1.27 1.33 151.02 83.77 ▲ 114.29 113.39 106.02 Loan loss reserve coverage ratio Illinois So. Illinois ▼ 8th District US Peer Banks 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 First Quarter 2015 Cropland Values in Illinois Lose Momentum; Bankers Expect Contraction Ahead By Lowell R. Ricketts, Senior Research Associate “Decreased grain prices will benefit our clients in the protein sector and stress our grain and oilseed clients. However, fuel and fertilizer are major expenses for our clients. Lower costs will help offset the lower grain prices.” Cropland values in Illinois and Missouri rose 5.4 and 7.1 percent, respectively, over the previous year according to data released by the USDA in August 2014 (see figure). Over the preceding three years, cropland values in Illinois maintained a steady growth rate close to 12.6 percent. Thus, while 5.4 percent is still a healthy rate of growth, it does mark a significant departure from recent experience. A majority of agricultural bankers surveyed expect farm income, farmland values, and capital spending to decline in the near-term (see right table). A widespread cutback in capital expenditures is expected to keep loan demand about flat over the near term. Coal production in Illinois during the fourth quarter of 2014 was over a million tons higher than at the same time a year ago. Illinois produces over 100 times the amount of coal that Missouri does, so the double-digit decline in the Show-Me State had little impact on national production. Missouri and Illinois farmers planted around 26 percent fewer acres of winter wheat this season (see table). Both states combine for about 40 percent of the total District winter wheat crop. Farmers planted fewer acres due to low prices and a late corn and soybean harvest. — St. Louis area agricultural banker Illinois and Missouri cropland values increase at slower rate Percent change from one year ago, adjusted for inflation 20 Illinois 15 Missouri 10 5 0 -5 -10 1998 Source: USDA. 2002 2006 2010 2014 Illinois Missouri US Mining and logging employment 6.9 0.8 4.8 Coal production 9.6 -13.6 Natural resources (Q4-14) St. Louis zone Ag. bankers' expectations Q1-15 vs. Q1-14 Farmland values 4.7 ▲ Loan demand Red meat production (2014) Available funds -0.6 2.9 -3.7 Loan repayments Share of national production 6.4 4.0 100 Farm income Winter wheat, area planted (2015) -25.7 -26.1 -4.6 Capital spending Note: Va l ues (except for producti on s ha res ) 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 or yea r. See a ppendi x for notes a nd s ources . Federal Reserve Bank of St. Louis — St. Louis Zone Lower 19 16 0 16 41 57 Higher 5 21 22 11 23 14 Net -14 5 22 -5 -18 -43 Note: Percenta ge of res pons es . Net va l ues ma y not a dd up due to roundi ng. See a ppendi x for s ource. 8 Appendix Cover Page Sources Bureau of Labor Statistics Unemployment rate, nonfarm payroll employment. Labor Markets Table Sources Bureau of Labor Statistics Unemployment rate, nonfarm employment, employment 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 Table Sources First Quarter 2015 (Paper Manufacturing); 323 (Printing and Related Support Activities); 324 (Petroleum and Coal Products Manufacturing); 325 (Chemical Manufacturing); and 326 (Plastics and Rubber Products Manufacturing). 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. Notes Asking rent is the publicized asking rent price. Data are in current dollars. 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. Bureau of Labor Statistics Transportation employment: includes transportation and warehousing industries. Household Sector Manufacturing employment: total, durable, and nondurable goods. Table Sources World Institute for Strategic Economic Research Manufacturing exports: dollar value. Notes 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). 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 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 Federal Reserve Bank of St. Louis — St. Louis Zone 9 Appendix First Quarter 2015 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 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) Winter wheat plantings, red meat production, and farmland values. Bureau of Economic Analysis (BEA) Consumer price index (used to adjust agricultural land values for inflation). Note Total red meat production includes: beef, veal, pork, and lamb and mutton production. Federal Reserve Bank of St. Louis — St. Louis Zone 10
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