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January 2021

Eighth District Beige Book


Summary of Economic Activity

Reports from District contacts indicate that economic conditions have been generally unchanged since our previous report. Firms reported mixed changes in employment levels. Overall, wage pressures have increased slightly, with contacts citing tight labor market conditions. Reports on consumer spending were mixed, while reports on holiday sales focused on the accelerated shift to online shopping. Activity in the manufacturing sector continued its robust growth, but activity remains below year-ago levels. District banking contacts reported slowing growth in loan volumes but anticipate stronger demand in coming months from new PPP loans. 


Employment and Wages

Reports on hiring have been mixed since the previous report. Firms across many industries, especially manufacturing and transportation, continued hiring in what remains a tight labor market. Businesses increasingly reported seeking workers nationwide due to the labor shortages and, when applicable, allowing workers to work remotely. Many other firms reported that employment levels have remained stagnant or declined, especially small businesses and firms in the leisure and hospitality sector. A survey of manufacturers indicates that, despite continued hiring, manufacturing employment in many areas remains below the same period last year.

Wages have grown modestly since the previous report, owing to the tight labor market in several industries and annual increases in minimum wages in some District states. One transportation firm advertised entry-level positions at more than twice the minimum wage, with benefits. Small-firm wages have remained more stagnant.


Prices

Consumer prices have increased moderately since the previous report. Contacts reported that the prices of lumber and concrete have increased since the previous report. These increases, paired with shipping delays for supplies have increased the costs of construction projects, leading homeowners to scale back renovation and building projects. Parcel companies have increased shipping prices due to unprecedented demand from online shopping overall and holiday demand specifically. Gasoline prices have increased since the previous report but remain lower than one year ago. One contact in outdoor retailing noted that tent prices have increased due to material cost increases. A wholesale car retailer noted that a recent wave of repossessions will lead to higher used car inventories and lower prices. A contact from a brewery reported that the elevated price of aluminum is eating away at profit margins: Canned beer has made up a larger portion of sales than on-premise pints since COVID-19 social distancing regulations have reduced demand at bars and restaurant. 


Consumer Spending

Reports from District general retailers, auto dealers, and hospitality contacts indicate that consumer spending activity has been mixed since the previous report. Consumer sentiment in West Tennessee regarding both current economic conditions and future expectations has worsened since September. As of mid-December, most Tennessee consumers indicated they expected to spend less this holiday season than last year's. General retailers reported mixed business activity, with some retailers reporting sales comparable to or higher than this time last year. District auto dealers continue to report strong sales despite inventory shortages and hold an optimistic outlook for the coming months. Tourism and hospitality contacts reported lower business activity relative to late November, attributing the decline to increased COVID-19 cases and travel restrictions; contacts indicated a pessimistic outlook for the first half of 2021.


Manufacturing

Manufacturing activity has continued to increase at a robust pace since the previous report, although the rate of growth has leveled off. Firms in both Arkansas and Missouri reported a strong uptick in new orders and production. However, several contacts reported that production is still below pre-COVID levels and that inventory remains tight as manufacturers are unable to keep up with the demand. One contact in central Arkansas noted that some manufacturing plants were shutting down or slowing production due to COVID infections among employees.


Nonfinancial Services

Activity in the nonfinancial services sector has remained unchanged since the previous report. Passenger traffic at airports has risen slightly since the previous report due to holiday travel, although it remains a fraction of the prior years' levels. Several parcel services have continued to hire both seasonal and permanent employees. A logistics contact indicated that business in 2021 would likely be better than 2020, although potential regulations on heavy industry and low oil and gas pipeline investment could impact the demand for transported commodities. Hospitals continue to deal with large numbers of COVID cases and ICU beds are near capacity. 


Real Estate and Construction

Residential real estate activity has been unchanged since the previous report. Seasonally adjusted existing home sales in St. Louis, Little Rock, and Louisville have increased since mid-November while sales in Memphis have fallen slightly. Inventory remains low, and a contact in Missouri reported expectations of similarly low levels of inventory for the foreseeable future. Compared with this time last year, home prices are up sharply across the District, with numerous buyers making offers above listing price. One St. Louis area realtor noted that this may be the worst time to buy a house in their decades-long career. Most of the largest District MSAs saw a slight decrease in their apartment rental rates, while Memphis saw a slight uptick since the previous report. However, rental prices remain elevated compared with this time last year and with the national average.  

Commercial real estate activity has been mixed since the previous report. An Arkansas commercial real estate broker expects continued high demand for industrial space and decreasing demand for retail and office space into next year. Many construction firms in Memphis anticipate a robust 2021, with projects that were previously on hold starting back up again. Contacts in Arkansas and Louisville expect industrial properties for distribution, warehousing, and manufacturing will continue to be in high demand.


Banking and Finance

Banking conditions in the District have weakened slightly since the previous report. Banking contacts continued to report a modest decrease in overall loan demand. Outstanding loan volumes have declined moderately since the previous report but remained strongly above year-ago levels. Growth in residential real estate and consumer loans was down compared with the previous period and fell below year-ago levels. On the other hand, commercial real estate loan volumes increased slightly. Deposit levels at District banks remained elevated. St. Louis bankers were cautiously optimistic about the second round of PPP lending, hoping the additional funds would be helpful to some of the most distressed businesses, especially those in the entertainment industry. However, some bankers still voiced concern about the uncertain PPP guidelines that might discourage participation.


Agriculture and Natural Resources

District agriculture conditions have remained relatively unchanged since the previous report. The percentage of winter wheat in the District rated fair or better slightly increased from the end of October to the beginning of December. Wheat conditions are modestly worse than the same period one year ago.  Natural resource extraction conditions improved modestly from October to November, with seasonally adjusted coal production increasing 2%. November production was still down strongly compared with a year ago, falling nearly 21%.