Full text of Eighth District Beige Book : June 2017

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The

Beige Book
Eighth District ■ June 2017

Summary of Economic Activity
Reports from contacts suggest economic conditions have slightly improved since our previous report. Employers reported little hiring and moderate wage pressures due to difficulties finding qualified candidates. Retailers indicated that
consumer spending has modestly improved since our previous report. Manufacturing contacts continued to report modest growth. Real estate contacts indicated that, while demand remained strong, residential activity continued to decline
amid supply constraints. Banking contacts indicated generally strong growth in loan demand from both businesses and
households. Reports from the District’s agriculture sector suggest modest improvement after flooding last period, but
that generally conditions remain weak amid low prices.

Prices

Employment and Wages

Price pressures in the District remained moderate. Low
commodity prices continue to put pressure on the agriculture sector. Since the previous report, cash prices of
wheat and sorghum have increased moderately and
prices of rice have increased slightly; there was no
change in the price of coal, and prices of soybeans,
corn, and cotton decreased modestly. A contact in Little
Rock reported farm equipment prices are down.

Anecdotal evidence suggests employment is little
changed since the previous report. Many contacts reported a desire to hire, but they have been unable to find
suitable employees. Manufacturing contacts in Louisville
and Memphis reported difficulties finding experienced or
qualified employees, with some citing candidates' inability to pass drug tests or to consistently report to work.
Hospitality contacts in Louisville noted that both entrylevel and experienced workers have been challenging to
find, and skilled positions in technical fields such as
information technology and engineering remain difficult
to fill.

Across the District, home prices continued to increase
moderately. Contacts reported increased price pressures
on new homes from rising construction costs due to the
shortage in labor supply. Price changes of construction
materials were mixed. Contacts in the Little Rock area
reported solid wood prices decreased modestly due to
increased supply, whereas a contact in the Memphis
furniture industry reported higher wood and foam prices
were putting upward pressure on the price of their finished goods.

Contacts reported moderate growth in wages since the
previous report, as tightness in the labor market has
resulted in upward pressure on wages. In addition, several contacts reported enhancing benefits in an effort to
attract employees. However, some employers noted
factors holding back wage increases. A science and
technology contact reported that rising costs of benefits
have limited increases in wages, and a hospitality contact in Louisville noted that wages remain unchanged
because any increases would result in higher prices
charged to customers.

Consumer Spending
Reports from general retailers, auto dealers, and hoteliers indicate consumer spending has grown modestly
since our previous report. May sales tax collections in
Arkansas, Kentucky, Missouri, and Tennessee were

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higher than one year ago. Multiple auto dealers reported
an increase in sales, albeit at a slower pace relative to a
year ago. Furthermore, dealers in north Mississippi
reported a shift in demand toward used vehicles. Hospitality contacts in Missouri indicated that business activity
has increased since our previous report, while hotel
occupancy rates continue to decline in downtown Louisville.

is approaching levels consistent with fundamentals.
Commercial real estate activity has remained flat since
the previous report. Demand for industrial properties
continued to be robust, and a Louisville contact reported
that there is essentially no warehouse space available in
the area. Multifamily demand remained stable, but some
contacts reported an increase in demand for senior living
facilities. Contacts reported that rising interest rates have
had very little impact on commercial real estate markets.

Manufacturing
Manufacturing activity has increased modestly since our
previous report. Manufacturing activity was stronger than
one month earlier in both Missouri and Arkansas, although the pace of growth slowed sharply in Missouri and
slowed slightly in Arkansas. In addition, contacts in the
furniture manufacturing industry reported a decrease in
orders. Several companies reported new capital expenditure and facility expansion plans in the District,
including firms that manufacture fabricated metal products, paper products, and plastic and rubber products. A
contact in the aluminum industry reported record high
capital expenditures.

Commercial construction activity continued to be strong.
Several Memphis contractors indicated that they are
optimistic about their future prospective projects. Industrial construction activity remained robust, particularly in
Louisville. Contacts across the District expressed concerns over the number of new hotels under construction.

Banking and Finance
Lending activity in the Eighth District has expanded at a
robust pace since the previous report and markedly
outpaced the nation. Commercial real estate loan volumes grew at a strong pace, rising by 14 percent on a
year-over-year basis. District bankers reported that
consumer loans—which comprise credit card, auto,
medical, and student loans—experienced robust growth
and have risen by 28 percent relative to year-ago levels.
Commercial and industrial lending exhibited moderate
growth over the period, though slightly softer than in
recent quarters. District bank deposits expanded at a
moderate pace and have been growing at roughly three
times the national rate over the past three years.

Nonfinancial Services
Reports of plans in the service sector have been positive, on balance, since the previous report. Firms that
provide transportation, warehousing, utilities, and information technology services reported plans to expand
facilities and hire employees. In the St. Louis area, reports from the education sector were negative, as two
major universities announced layoffs due to budget cuts
and declining enrollment. News from the healthcare
industry is mixed. Some providers are cutting costs,
leading to closures in healthcare-related businesses;
however, other providers continue to expand operations
in urban areas.

Agriculture and Natural Resources
Agricultural conditions improved modestly by the end of
June as row-crop farms recovered from flooding. Contacts reported a few Arkansas fields had still not dried up
enough to replant and many fields would be replanted
with soybeans because other crops’ planting windows
had passed. As of June, the percentages of District corn
and soybeans rated fair or better were below their 2016
values, but corn improved slightly from a month prior.
The percentage of rice rated fair or better was above the
year- and month-ago values, while the cotton percentage
was slightly better than a year prior and slightly worse
than a month prior.

Real Estate and Construction
Residential real estate activity has declined modestly
since the previous report. Seasonally adjusted home
sales for May decreased slightly from the previous
month in most of the District’s four major MSAs. Local
real estate contacts continued to report that significant
shortages in inventory have hindered sales while demand remains strong. Most contacts indicated that
changes in interest rates have had little to no impact on
the market.

Natural resource extraction conditions declined slightly
from April to May, with seasonally adjusted coal production decreasing 3 percent. However, production was still
7 percent higher than one year ago. ■

May permit activity in District MSAs declined slightly
relative to the previous month. A Memphis contact indicated that little new construction is occurring, while a
Little Rock contact noted that homebuilding in the region

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Federal Reserve Bank of St. Louis
Real estate conditions continued to be constrained by a
limited supply of homes for sale. Single-family home
sales in the St. Louis MSA have declined slightly since
our previous report. Construction activity remains constrained as well, as seasonally adjusted single-family
building permits declined about 6 percent in May.

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 modestly improved since our previous report. Conditions in
the zone’s metro areas continued to perform well; however, reports from non-metro portions of the zone were
less upbeat, primarily due to continued weakness in the
agriculture sector that has been exacerbated by flooding.
Agriculture contacts report that farm equipment prices
are down and many farmers are refinancing their land
over longer durations to ease cash flow problems.
Contacts generally reported tightening labor markets
with little change in employment and moderate growth in
wages. Manufacturing conditions continued to improve
as well.
Residential construction activity increased moderately,
and seasonally adjusted single-family building permits
increased by about 12 percent in May. At the same time,
inventories remain low, restricting single-family home
sales, which fell about 3 percent in May.

Louisville Zone
Economic conditions in the Louisville zone have slightly
improved since our previous report. Contacts report the
pace of hiring has slowed despite growth in job openings
as workers are in short supply. Hiring managers in the
Louisville area report that the tight labor market is driving
some wage escalation; however, the pace of wage
growth remains moderate as employers contend with
higher costs for employee benefits.

St. Louis Zone
Economic conditions in the St. Louis zone have slightly
improved since our previous report. Contacts reported
no change in employment, generally due to difficulties
finding qualified workers. Construction contacts noted
that prices have moved up modestly as a limited supply
of workers is pushing up labor costs.

Contacts report some weakness in consumer spending.
Louisville area auto dealers are experiencing flat to
modest declines in sales relative to one year ago. Hospitality contacts report that business is generally favorable,
but the downtown market is seeing declines due to the
convention center renovations.

Reports on consumer spending were generally positive:
A regional director of tourism noted that activity has been
higher over the past few months, and bookings indicate
a positive outlook for the next few months. Manufacturing conditions continue to improve; however, statewide
manufacturing indexes for Missouri suggest growth may
be slowing.

Consistent with other regions of the District, residential
home sales growth has been flat due to inventory constraints. Moreover, construction activity remains weak,
as seasonally adjusted single-family building permits
declined by about 6 percent in May.

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Memphis Zone
Economic conditions in the Memphis zone have modestly improved since our previous report. Employment was
little changed. While businesses have open positions,
hiring managers report difficulties hiring and retaining
qualified workers. Wage pressures have increased moderately on average, although some employers have
reported limited successes in attracting and retaining
workers by increasing starting pay.
Reports from general retailers in the Memphis area suggest slight growth in consumer spending, although the
outlook among these contacts has somewhat weakened
since our previous report. A new car dealer in the region
reported that auto sales have modestly improved in
recent months after a weak April.
Residential real estate conditions remained hampered by
low inventories: Memphis’s seasonally adjusted home
sales declined by about 6 percent in May. However,
there are some signs of improving inventories, and single
-family building permits increased by about 13 percent
during the same period. ■

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Federal Reserve Bank of St. Louis

Disclaimer

What is the Eighth Federal Reserve District?
The Federal Reserve Bank of St. Louis is the headquarters 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
What is The Beige Book?

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.

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:

How is the information collected?

www.research.stlouisfed.org/outlooksurvey/.

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.

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

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

How is the information used?

Media inquiries

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.

mediainquiries@stls.frb.org

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/.

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