Full text of Eighth District Beige Book : May 2018

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The

Beige Book
Eighth District ■ May 2018

Summary of Economic Activity
Economic conditions in the District have improved slightly since our previous report. Firms reported slight increases in
employment despite continued difficulties finding workers. Wages and nonlabor costs increased at a moderate pace.
Prices and price pressures grew modestly. Reports from consumer spending contacts were mixed. Manufacturers reported declines in production, capacity utilization, and new orders. Contacts in nonfinancial services indicated modest
growth across their sectors. Residential real estate contacts reported sluggish sales resulting from low inventories and
slightly lower demand, while construction activity increased modestly. District bankers reported slightly weaker demand
and a decline in the creditworthiness of loan applicants. Agriculture conditions improved modestly. Overall, the outlook
among contacts weakened somewhat but remains optimistic. On net, 27 percent of contacts expect conditions in 2018
to be better or somewhat better than in 2017.

Nonlabor input costs rose modestly, though at a slower
pace than the previous survey three months ago. On net,
29 percent of contacts reported that costs were higher
than a year ago. Multiple contacts noted that construction costs increased. In particular, a contact in Little Rock
reported a strong increase in lumber prices, and several
contacts in Louisville reported that the proposed steel
and aluminum tariffs caused metals prices to rise. Automotive and corrugated products manufacturers also
reported increases in raw materials prices.

Employment and Wages
Employment has increased slightly since the previous
report. Of the contacts surveyed, on net, 13 percent
reported that second-quarter employment was higher or
slightly higher than a year ago. Several firms across a
variety of industries announced plans to expand and hire
new employees, including manufacturers of chemical
products, wood products, and primary metals. Contacts
in Missouri and Arkansas also reported difficulties filling
skilled technical and engineering positions. Some local
employers have begun relaxing drug-testing standards
and reducing restrictions on hiring convicted felons in
order to alleviate labor shortages.

Commodity price movements were mixed. Sorghum and
soybean prices decreased modestly; coal, corn meal,
cottonseed, rice, and soybean meal were flat; and corn,
corn feed, cotton, and wheat prices increased modestly.

Contacts reported moderate wage growth since the
previous report. On net, 51 percent of contacts reported
wages were higher or slightly higher than a year ago,
and 43 percent reported increases in labor costs. Several contacts noted that the tight labor market has exerted
upward pressure on wages for both entry-level and
skilled positions.

Consumer Spending
Reports from general retailers, auto dealers, and hoteliers indicate mixed consumer spending activity. Real
sales tax collections increased in Arkansas and Tennessee relative to a year ago, remained flat in Missouri, and
declined in Kentucky. Reports on sales from general
retailers were mixed. On net, 40 percent of auto dealers
indicated that sales were below expectations in the
second quarter. About the same net percentage noted a
shift in demand toward used vehicles. Hospitality and
tourism contacts in Missouri reported business activity
that met or exceeded expectations and have a positive
outlook for the next few months.

Prices
Overall, prices charged to consumers increased at a
modest pace. On net, 31 percent of contacts reported
that prices were higher than a year ago. This is higher
than three months ago, indicating an increase in growth
from earlier this year.

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Federal Reserve Bank of St. Louis
Manufacturing

Banking and Finance

Overall manufacturing activity has declined slightly since
our previous report. Most contacts reported that production, capacity utilization, and new orders were down in
the second quarter relative to one year ago, with greater
shares reporting declines in production and new orders
than in our previous survey. The percentage of contacts
reporting increases in new orders has fallen for over a
year. However, contacts were more optimistic about the
next quarter.

Banking market conditions in the District have weakened
slightly since the previous report. Banking contacts reported that demand for mortgage and auto loans fell
modestly in year-over-year terms while demand for
business loans was flat. Bankers also reported that the
creditworthiness of loan applicants declined relative to
last year, particularly among applicants for auto loans
and credit cards. Delinquencies fell across all loan categories but to varying degrees; mortgage and auto loan
delinquencies dropped slightly, while delinquencies on
business loans and credit cards decreased at a moderate rate.

Nonfinancial Services
Activity in the service sector has expanded modestly
since the previous report. Transportation and service
contacts generally reported that sales met expectations
in the current quarter. On net, 23 percent of contacts
reported higher dollar sales in the current quarter than
this time last year, and 43 percent expect sales to be
higher in the next quarter relative to the same time a
year ago.

Agriculture and Natural Resources
District agriculture conditions improved modestly from
the previous reporting period and robustly from the same
time last year. After contacts reported concerns about
weather being too wet and cold for a strong early planting season, mid-May planned acreages planted for corn,
cotton, and soybeans were, respectively, 13, 12, and 24
percentage points above the same time last year. Rice
planting progress was slightly behind 2017. Contacts
indicated that the prospective Chinese tariffs on U.S.
soybeans would be damaging to exporters but at this
point seemed unlikely.

Real Estate and Construction
Residential real estate activity has declined slightly since
the previous report. Seasonally adjusted home sales
dipped slightly in March across the four major MSAs in
the District. On net, a third of contacts reported that
sales halfway through the second quarter have fallen
short of expectations. Contacts attributed this shortfall to
a decline in inventory and a slight drop in demand relative to the same time last year. However, demand is
expected to return to year-ago levels in the third quarter.

Natural resource extraction conditions were roughly
unchanged from the previous report and year. Seasonally adjusted coal production fell 1 percent from March to
April, and April production was also down 4 percent from
the same month last year.

Residential construction activity has increased modestly
since the previous report. There was a moderate uptick
in March permit activity across most of the District’s
MSAs. On net, only 10 percent of contacts reported that
residential construction increased in the second quarter
compared with a year earlier, but around twice that number expect activity to increase in the coming quarter.

Commercial real estate activity improved slightly. Local
contacts, on net, reported increased demand for industrial and office properties relative to a year ago. They also
state that inventories for both property types have declined. These trends are expected to continue into the
third quarter.
Commercial construction activity improved modestly. On
net, contacts reported higher demand for construction of
all property types and noted that inventories for industrial
and retail property types have improved. The majority of
contacts continued to have an optimistic outlook for the
remainder of 2018.

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Federal Reserve Bank of St. Louis
since our previous report. Seasonally adjusted singlefamily building permits fell about 3 percent in March and
home sales declined by a similar magnitude. Inventories
declined by about 7 percent over the same period.

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.

The overall outlook among contacts was generally optimistic and unchanged from three months ago, with most
contacts expecting conditions to improve slightly during
the remainder of 2018.

Little Rock Zone
Overall economic conditions in the Little Rock zone have
improved slightly since our previous report. Contacts in
southern Arkansas noted that activity remains a bit
stronger due to higher oil prices. Contacts in northwest
Arkansas continued to report robust growth.
Arkansas real sales-and-use tax revenues increased
about 8 percent from one year ago, suggesting an uptick
in consumer spending. Area auto dealers reported flat
year-to-date sales, noting that the outlook for new-car
sales is somewhat lax and dependent on factory rebates;
but the outlook for used-car sales has been improving.
Growth in the sales of boats was positive, with higher
retail prices being somewhat offset by longer terms on
loans.
Reports from banking contacts indicated increased competition for deposits and that many banks are starting to
increase deposit rates.
Residential real estate activity was mixed. There was
moderate growth in March building permits, which were
up 8 percent in Little Rock. But seasonally adjusted
home sales dropped 7 percent and inventories declined
about 2 percent during the same period. A contact in
southern Arkansas noted that much of the existing inventory of homes is not attractive to workers in the area.

St. Louis Zone

Agribusiness contacts noted that 2018 has started out as
one of the most difficult years to plant and grow corn and
rice in Arkansas. Despite these challenges, planting
progress in mid-May was roughly on par with 2017.

Economic conditions in the St. Louis zone have improved slightly since our previous report. Area bankers
reported weak demand for auto loans, commercial and
industrial loans, and mortgages. Employment increased
slightly as labor markets remain tight. Firms reported
shortages of skilled talent and are looking for new ways
to attract skilled workers to the region. Most contacts
reported slightly higher wages, particularly in construction trades.

The overall outlook among contacts weakened after a
sharp uptick three months ago. On net, 28 percent of
contacts expect conditions to improve during the remainder of 2018, with most contacts expecting a slight improvement.

Louisville Zone

Reports on consumer spending indicate little change
since our previous report. Missouri real sales tax revenue was flat in April compared with one year ago. Area
auto dealers reported mixed sales. Reports on tourist
activity were generally better than expected.

Economic conditions in the Louisville zone have improved slightly since our previous report. Bankers reported modest increases in overall lending and higher rates
on deposits. Rail transportation business has picked up
due to increased coal production nationally, although

Residential real estate activity has declined modestly

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Federal Reserve Bank of St. Louis
western Kentucky coal production declined between
March and April. Contacts across the metals industry
reported modest growth: Metals recycling hit record
volumes with strong margins, and demand remains
strong for automotive aluminum.

Residential real estate conditions have been mixed.
Construction activity picked up in March with 8 percent
growth in seasonally adjusted single-family building
permits. However, some businesses that supply materials for home construction noted a slowdown in orders.
Home sales have tapered off: March seasonally adjusted
home sales declined 7 percent, and the inventory of
homes for sale dropped 5 percent.

Kentucky real sales-and-use tax revenues decreased
about 2 percent from one year ago. A large regional auto
dealer reported that April sales were down slightly, despite substantial manufacturer rebates on sedans.

Agricultural conditions showed modest improvement.
Drier weather helped farmers catch up on spring planting
after a wet start to the season. As of mid-May, Tennessee planting progress for cotton was considerably ahead
of the same time last year. ■

Overall employment growth was slow. Tight labor markets in the region are pushing firms to find new ways to
attract workers: One firm reported increasing wages for
drivers by about 15 percent this year. A manufacturer
took out billboard advertisement for the first time to recruit workers. New partnerships are being formed between education and business to bring workers into the
manufacturing sector. In southwest Kentucky, employers
are relaxing restrictions on felony convictions to hire the
necessary staff.
Residential real estate activity remains constrained by
low inventories. Seasonally adjusted home sales were
down slightly in March, while inventories declined by 4
percent during the same period. Single-family building
permits have increased, although higher lot prices and
increased construction costs have led builders toward
higher-priced homes.
The outlook among contacts was generally optimistic.
The majority of contacts expect conditions to improve
during the remainder of 2018. Many cited a strong pipeline for new projects in the coming months. However, the
outlook is somewhat less optimistic than three months
ago.

Memphis Zone
Economic conditions in the Memphis zone have continued to improve slowly since our previous report. Economic developers reported increased activity from businesses looking to build new facilities. Some manufacturing contacts in the zone reported that higher steel prices
have reduced their profit margins.
Reports of consumer spending were positive. April real
sales-and-use tax revenue in Tennessee increased 2.5
percent from one year ago. Reports from retailers in
northeast Arkansas were favorable, with year-to-date
sales above 2017 levels. Hoteliers in northeast Arkansas
reported the highest occupancy levels seen in recent
years. Reports from auto dealers were similarly positive:
One dealership in northern Mississippi reported strong
sales in March after a very weak start to the year. Another dealer noted that a shortage of trucks and trailers has
led to delays in shipments of new vehicles.

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Federal Reserve Bank of St. Louis
Have sales at this point in the current
quarter met expectations?

Supplemental Data and Survey Results
Anecdotal information in this report was provided by our
panel of business contacts, who were surveyed between
May 1 and May 14. The previous survey was conducted
between February 5 and February 19. The following are
selected results from those surveys.

70

One Year Ago
Previous Survey

Percent of Responses

60

How do you expect local economic conditions to
change during the remainder of this year?
40
35
30

Current Survey
50
40
30
20

Net Percentage

10
25

0

20

No, fell short of Met expectations No, exceeded
expectations
expectations

15
10
5

How do you expect each of the following measures to
change at your firm relative to the same time last
year?

8th District

May-18

Jan-18

Sep-17

May-17

Jan-17

Sep-16

May-16

Jan-16

Sep-15

May-15

Jan-15

Sep-14

May-14

0

Previous
Survey

Current
Survey

Prices Charged to Customers

23%

31%

Little Rock Zone

Sales (Dollars)

33%

21%

Louisville Zone

Inventory

2%

-9%

Memphis Zone

Non-Labor Costs

25%

29%

Capital Expenditures

26%

26%

Labor Costs

47%

43%

Wages

46%

51%

Hours per Employee

13%

14%

Employment

30%

13%

60

Percent of Responses

50
40

St. Louis Zone

30
20

10
0
Worse

Slightly About the Slightly
worse
same
better

Notes: Values are reported as the net percentage of respondents reporting increases. Responses are weighted
as follows: increase (+1), slightly increase (+0.5), decrease (-1), and slightly decrease (-0.5). Values greater
than zero indicate a net increase from one year ago,
while values less than zero indicate a net decrease from
one year ago.

Better

Note: Interactive versions of these charts can be found
at: https://research.stlouisfed.org/publications/regional/
beige-book

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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?
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.

www.research.stlouisfed.org/outlooksurvey/.

How is the information used?

Media inquires

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

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

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.

mediainquires@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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