Full text of Eighth District Beige Book : January 2018

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The

Beige Book
Eighth District ■ January 2018

Summary of Economic Activity
Reports from contacts indicate that economic conditions have continued to improve at a modest pace since our previous
report. Labor market conditions remain tight, the pace of hiring remains slow, while wage growth has been moderate.
Reports on consumer spending were positive. Residential real estate conditions have improved modestly after a few
months of sluggish home sales. District bankers reported moderate loan growth across most categories. Unseasonably
cold weather has negatively impacted the quality of winter wheat in the District.

wood products prices increased moderately but sawtimber and pulpwood prices were flat or decreased.

Employment and Wages
Anecdotal evidence suggests little change in employment since the previous report. Contacts continued to
report difficulties finding experienced or qualified employees. Construction contacts in Louisville and Little Rock
reported labor shortages, while manufacturing contacts
reported difficulties hiring for both skilled and unskilled
positions. Labor demand in Missouri was particularly
high in healthcare services, leisure and hospitality, retail,
and wholesale trade.

In the energy sector, coal prices were flat. In the agricultural sector, prices generally rose at a moderate pace.
Corn feed, sorghum, and rice prices increased moderately, soybean prices were flat, and wheat and cornmeal
prices decreased slightly. Contacts in Memphis reported
strong increases in cotton prices, and Little Rock contacts reported rapid increases in large egg prices.

Consumer Spending

Contacts reported moderate growth in wages since the
previous report. A contact in Louisville reported increasing starting salaries multiple times a year to attract new
hires, as well as increasing wages to retain skilled employees in information technology. Construction and
manufacturing contacts across the District reported
increasing wages to attract new employees.

Reports from general retailers, auto dealers, and hoteliers indicate consumer spending has grown modestly
since our previous report. November real sales tax collections increased in Arkansas, Kentucky, Missouri, and
Tennessee relative to a year ago. Consumer confidence
continued to increase in West Tennessee, as households indicated their willingness to spend more in the
next few months relative to a year ago. Reports from
auto dealers were mixed: While multiple auto dealers
from Louisville and Little Rock reported improved traffic
and sales, Memphis auto dealers reported that sales
have softened the past two months. Auto dealers
throughout the District hold an optimistic outlook for
2018. Louisville hoteliers continued to report weaker
occupancy rates in the fourth quarter.

Prices
Price pressures have increased moderately since the
previous report. Residential real estate prices rose moderately, with especially strong growth in northwest Arkansas. Construction materials price pressures increased as
well. Steel prices rose moderately throughout the District, and a Louisville contact reported an uptick in construction costs. A contact in Arkansas reported solid

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Federal Reserve Bank of St. Louis
Manufacturing

Banking and Finance

Manufacturing activity has increased modestly since our
previous report. Overall manufacturing activity was
stronger than one month earlier in both Arkansas and
Missouri, although the pace of growth slowed in Missouri. Production increased in both states, but at a slower rate than previously. Several companies in the District
reported new capital expenditure and facility expansion
plans, including firms that manufacture food and beverage products, chemical products, and transportation
equipment. Sales to auto manufacturers, however, were
flat to slightly down, according to contacts that supply the
auto industry. Most manufacturing contacts expect conditions in 2018 to be similar to those in 2017, although a
contact in the plastic products manufacturing industry
expects a decline in business in 2018, citing increased
foreign competition.

Banking conditions in the Eighth District have improved
at a moderate pace since the previous report. District
banking contacts report that outstanding loan volumes
expanded by 7 percent relative to year-ago levels, indicating that loan growth, which had been slowing since
the start of 2017, levelled off in December. Year-overyear growth in residential mortgage lending continued at
4 percent for the second consecutive quarter while commercial real estate lending grew by 9 percent. Commercial and industrial credit growth was also strong as loan
volumes rose by 9 percent compared with 6 percent
nationwide. Lending activity in open-ended home equity
loans declined by 1 percent relative to year-ago levels
and was the only major loan category that experienced
negative growth.

Nonfinancial Services

District agriculture conditions declined moderately from
the previous reporting period. Due to unusually low
temperatures across much of the District, the percentage
of winter wheat rated fair or better fell 4 percentage
points from the middle of November to the end of December; it is now 89 percent. Contacts are concerned
that crop conditions worsened further during the first
week of January, when temperatures plunged.

Agriculture and Natural Resources

Activity in the service sector has expanded modestly
since the previous report. Firms that provide transportation, logistics, and information technology services announced plans to increase employment, open new facilities, and renovate existing facilities. Demand for commercial trucking remains elevated because of Hurricane
Harvey relief efforts, exacerbating a shortage of drivers.
Reports from healthcare firms remain mixed. One major
healthcare employer is cutting employees to improve
operational management, while other healthcare providers began capital expansions.

Natural resource extraction conditions declined slightly
from October to November, with seasonally adjusted
coal production falling 2 percent. November production
was also down by 4 percent from a year ago.

Real Estate and Construction
Residential real estate activity has improved moderately
since the previous report. Seasonally adjusted home
sales for November increased sharply from the previous
month across the District’s four major MSAs. Local contacts continued to report shortages in inventory.
Residential construction activity was flat. November
permit activity within District MSAs was unchanged
relative to the previous month. Local contacts continued
to report that a shortage of labor is limiting new construction.
Commercial construction activity improved slightly. November nonresidential construction starts increased
moderately within the District relative to the previous
month while multifamily permits dropped slightly. Little
Rock construction contacts reported healthy levels of
activity that they expect will continue through the first half
of 2018 at least.

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Federal Reserve Bank of St. Louis
Conditions of Missouri’s winter wheat crop deteriorated
in December, and unseasonably cold weather in January
is likely to have worsened the condition of the crop even
further.

Highlights by Zone
The Beige Book report provides an overview of economic conditions in the Eighth District based on information received from business contacts. Because aggregating zone data to the District level sometimes
masks variations in conditions within the District, the
summaries below are by zone: The headquarters office
is in St. Louis and the branch offices are in Little Rock,
Louisville, and Memphis.

Little Rock Zone
Economic conditions in the Little Rock zone have improved at a modest pace since our previous report.
Consumer spending growth was modest. Arkansas
taxable sales in November were up about 3 percent from
one year ago. Local auto dealers were generally more
optimistic about sales, mostly due to increased foot
traffic in recent months.

Reports suggest slight growth in employment. The Arkansas purchasing managers’ survey was consistent
with slow employment growth in December. Contacts
cited labor shortages and high turnover as key challenges to increasing employment. Statewide claims for unemployment insurance increased about 5 percent between mid-November and the end of December.
Manufacturing conditions modestly improved in December. Manufacturers reported an uptick in new orders,
although current production levels are lower than a few
months ago.
Real estate conditions were mixed. On one hand, seasonally adjusted single-family building permits dropped
by 19 percent in November. On the other, seasonally
adjusted home sales increased 5 percent, with the inventory of homes for sale dropping 3 percent.

Louisville Zone
Economic conditions in the Louisville zone continued to
improve at a modest pace. Contacts across the zone
reported moderate growth in wages. Contacts expressed
a general sense of optimism for the region, often citing
the number of active commercial construction projects.
Bankers cited positive loan growth.

St. Louis Zone
Economic conditions in the St. Louis zone continued to
improve at a modest pace. Statewide surveys of hiring
activity in Missouri were particularly positive in December, and claims for unemployment insurance dropped 5
percent between mid-November and the end of 2017.

Several auto dealers reported that sales in 2017 were
lower than in 2016, and they expect sales to remain at
the same or a slightly lower level in 2018.

Consumer spending grew at a moderate pace. November Missouri taxable sales increased 5 percent from one
year ago. Reports of holiday sales were generally upbeat.

Reports from the manufacturing sector were generally
positive, with about half of contacts reporting a record
year. Firms reported a modest uptick in capital spending
for 2018; most did not attribute this to changes in tax
policy.

Manufacturing activity expanded at a modest pace, but
at a slower pace than earlier in 2017; in particular,
growth in new orders has slowed.
Housing market conditions continue to improve. Seasonally adjusted home sales in November were up over 10
percent, and inventories of homes for sale have also
ticked up. Residential construction activity was little
changed, with seasonally adjusted building permits up 2
percent in November.

There was little growth in the residential real estate
sector. Seasonally adjusted single-family building permits were down about 4 percent. Home sales were unchanged, and pending sales dropped 1 percent. The
inventory of homes for sale also dropped slightly.

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Federal Reserve Bank of St. Louis
Memphis Zone
Economic conditions in the Memphis zone have shown
slight improvements since our previous report.
Reports on consumer spending were mixed. Auto dealers in northwest Mississippi reported low sales volumes
in December. Some retailers reported slow holiday sales,
partially attributing this to a weak agriculture economy in
the region and a shift to online shopping. However, convenience stores reported positive sales, with final sales
above 2016 levels; and a sporting goods store reported
the best holiday sales on record, driven by strong sales
of higher-priced items.

Manufacturing reports were generally positive. Poultry
manufacturing facilities continued to expand in the area,
and a firm that produces refrigeration products noted
expansion plans. However, a boat manufacturer reported
a slowdown in new orders.
Real estate activity showed strong growth since our
previous report. Single-family home sales in the Memphis area jumped by double digits, pushing inventories
lower. Pending homes sales are up slightly, indicating
that early 2018 sales could be off to a slow start. Construction activity increased, although at a slower pace:
Seasonally adjusted single-family building permits were
up about 2 percent in November. ■

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Federal Reserve Bank of St. Louis

Disclaimer

ters for the Eighth Federal Reserve District, also known
as District 8H. With Branches in Little Rock, Louisville,
and Memphis, the District serves approximately 14.6
million people in the four zones that span all of Arkansas
and parts of the six states of Missouri, Mississippi, Tennessee, Kentucky, Indiana, and Illinois.

This document summarizes comments received from
contacts outside the Federal Reserve System and is not
a commentary on the views of Federal Reserve officials.

Frequently Asked Questions

The Federal Reserve Bank of St. Louis is one of 12
regional Reserve Banks in the United States that, together with the Board of Governors in Washington, D.C.,
make up the Federal Reserve System—the nation's
central bank. The St. Louis Fed and the other regional
Reserve Banks help formulate monetary policy, supervise and regulate banks and bank holding companies,
and provide financial services to depository institutions
and the federal government.

What is The Beige Book?
The Beige Book is a Federal Reserve System publication about current economic conditions across the 12
Federal Reserve Districts. It characterizes regional economic conditions and prospects based on a variety of
mostly qualitative information, gathered directly from
District sources.
The qualitative nature of the Beige Book creates an
opportunity to characterize dynamics and identify emerging trends in the economy that may not be readily apparent in the available economic data. Because this information is collected from a wide range of business and
community contacts through a variety of formal and
informal methods, the Beige Book can complement other
forms of regional information gathering.

Join Our Panel of Business Contacts
The anecdotal information in this report was provided by
our panel of business contacts. If you’re interested in
becoming a member of our panel, follow this link to
complete a trial survey:
www.research.stlouisfed.org/outlooksurvey/.

How is the information collected?

Or email us at beigebook@stls.frb.org.

Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District
through reports from Bank and Branch directors, plus
phone and in-person interviews with and online questionnaires completed by businesses, community contacts,
economists, market experts, and other sources.

For more information, contact the St. Louis office:
Charles Gascon
charles.s.gascon@stls.frb.org
Media inquiries
mediainquiries@stls.frb.org

How is the information used?
The anecdotal information collected in the Beige Book
supplements the data and analysis used by Federal
Reserve economists and staff to assess economic conditions in the Federal Reserve Districts. This information
enables comparison of economic conditions in different
parts of the country, which can be helpful for assessing
the outlook for the national economy. The Beige Book
also serves as a regular summary of the Federal Reserve System’s efforts to listen to businesses and community organizations.

Where can I find other Federal Reserve District
Reports?
All current and past versions of the Beige Book are
available on the Federal Reserve Board of Governors
website: www.federalreserve.gov/monetarypolicy/
beigebook/.

What is the Eighth Federal Reserve District?
The Federal Reserve Bank of St. Louis is the headquar-

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