8th District economy in ‘modest expansion,’ good workers hard to find

Economic growth experienced by Arkansas and the rest of the nation in the second quarter has slowed as the post-recession recovery is now being characterized as a “modest expansion,” according to the Beige Book Report released Wednesday highlighting economic activity in all 12 Federal Reserve districts.

The Beige Book report for St. Louis’ Eighth District, which includes Arkansas and portions of Illinois, Indiana, Kentucky, Mississippi, the eastern half of Missouri and West Tennessee, points to economic growth at a modest pace from mid-August through early October across the region’s highly-diversified geographical footprint.

The monthly report provides anecdotal information of key economic activity in different sectors of the sprawling district that is led by St. Louis Fed chief James Bullard. Although there was not much specific news on the Arkansas economy, the report stated that the entire region is struggling with finding skilled and qualified workers during a period of low unemployment.

“Manufacturing contacts in rural areas throughout the District continue to report difficulty finding and retaining qualified employees,” the St. Louis district report said. “In particular, contacts in the rapidly growing furniture manufacturing sector in northern Mississippi have struggled to find enough employees with cutting and sewing skills. Contacts in trucking and other modes of transportation continue to report a shortage of qualified operators and technicians.”

According to the final revision of the nation’s real gross domestic product, or GDP, in late September, the U.S. economy advanced at a stronger-than-expected annual rate of 3.9% in the second quarter of 2015.

On Wednesday (Oct.14), the Atlanta Fed’s GDPNow indicator forecasted that the U.S. economy will only grow by 0.9% in the third quarter, down one percentage point from just a week ago. The advance estimate for GDP growth for the third quarter will be released by BLS on Oct. 29, and the final revision will come three days before Christmas.

Below are the highlights of key sectors from the St. Louis District.

• Consumer spending
Anecdotal evidence from local contacts indicates that the retail sector experienced modest growth since the previous report. The majority of contacts indicated that sales met or exceeded expectations. However, some retailers noted a slight slowdown in activity during the final weeks of summer.

Reports from auto dealers were mixed. Multiple contacts reported increased foot traffic and sales in recent weeks compared with the previous quarter. Several others noted that sales, services, and repairs have recently decreased but expect activity to pick up for the remainder of the year. Contacts continued to indicate a shift in demand toward trucks and SUVs and away from cars as the result of low gas prices.

• Real estate and construction
Residential real estate activity continued to expand, but at a slower pace than in the previous report. That said, contacts expect a steady improvement through year-end. Compared with the same period in 2014, August home sales increased on a year-over-year basis: 2% in Little Rock, 1%t in Louisville, 7% in Memphis, and 2% in St. Louis.

Residential construction increased in the majority of the District's metro areas on a year-over-year basis. Compared with the same period in 2014, August single-family building permits increased 6% in Little Rock, 8% in Memphis, and 20% in St. Louis. Louisville fell by 2%.

• Banking and finance
Overall banking conditions remain strong in the District. Loan growth slowed somewhat relative to prior quarters but remains in positive territory and above the national growth rate. Total loans outstanding at a sample of about 80 small and mid-sized District banks increased 10% in September from the same time last year. Real estate lending increased 9% over the reference period. Commercial and industrial loans increased 10% over the period, and loans to individuals increased 7%. Lending growth in each of these categories was slower in September than in the earlier this year, but growth rates remain above historical levels.

• Agriculture and natural resources
Contacts expect District row crop yields to be about 10% below 2014 levels as the result of extensive rainfall. Many contacts believe crops with earlier planting seasons, such as corn, will see a yield decline of up to 30% in the most rain-ridden areas. Contacts noted that with the recent decline in crop prices and stickiness of some input prices, production levels will not be high enough to prevent a decline in net farm income. While most livestock-related prices are also trending downward, the recent bird flu outbreak has had a mixed impact on poultry prices.