Fed Says STL Growth Lags Pre-Recession Levels
Date Posted: April 7, 2016
Posted In: News, Organizations,
by Ed Choklek, Executive Director, Construction Forum Education Foundation
The St. Louis region’s economy is growing, but is not yet approaching pre-recession levels Charles Gascon, Regional Economist for the Federal Reserve Bank of St. Louis, told attendees at a March 23 St. Louis Council of Construction Consumers (SLCCC).
Gascon presented a national and rational economic briefing to 85 registrants at the Fed’s offices in downtown St. Louis. Since 2011, both national and St. Louis economic growth has been averaging 2.5% each year versus the pre-recession average growth of 3.5% per year, Gascon said.
The national labor market is approaching full strength as the national unemployment rate dips below 6%. Since the recession, there has been slower hourly wage growth, but businesses will need to increase salaries in order to recruit and retain top talent.
Inflation and inflation expectations are moving in opposite directions, and speculation that one presidential candidate will be better than another for stock market performance is unproven.
International Headwinds Slow Growth
Major economic headwinds that have slowed international economic recovery are diminishing:
- Owners’ equity in real estate is now as it was before the recession;
- Real government spending is starting to steadily increase;
- International GDP growth is showing positive trends (especially in Canada, Mexico and Europe) with our major trading partners. China is still growing, but at a slower and more sustainable rate.
- Oil prices are forecast to increase between 1.1% and 1.3% during the next 5 to 10 years. Inflation is low and conducive to spur investment in the U.S.
Other good signs across the United States pointing towards economic strength are:
- Robust growth in real estate prices,
- Tighter lending standards by banks for commercial real estate loans,
- Positive growth demand for loans related to construction and land development, and
- Increases in public construction spending to offset a reduction in private sector investment.
One significant change between 2001 and 2016 is that national spending has shifted away from office and commercial projects to industrial projects. The percentage of office and commercial building projects in 2001 was 24% of the total pie, whereas manufacturing and power projects were 15%. In 2015, office and commercial investment was reduced to 18% of the pie, whereas manufacturing and power sectors grew to 25%.
Growth Slower Here
The St. Louis regional economy follows closely the national economy trends and our current employment levels are now equal to 2008. The STL region has only added 2% more workers since 2000 due to slower population growth than the national average. What is interesting is that the makeup of industry has changed significantly in the St. Louis region between 2000 and 2015.
- Expanding industries during this time include Healthcare and Education (+ 63,800 jobs), Leisure and Hospitality (+ 17,000 jobs) and Professional and Financial Services (+ 40,000 jobs). Area
- Recovering industries include Construction (+ 12,000 jobs) and Manufacturing (+ 56,600 jobs).
- Contracting industries include Government (- 4000 jobs) and Information Services (- 4000 jobs).
St. Louis regional banks have yet to pull back on commercial real estate lending and regional loan demand is lower. One troubling sign is that outside investors have reduced their support for projects over the last two years.
The Fed’s Gascon said there is a disconnect between the downtown St. Louis office real estate market and the broader regional office real estate markets (South County, Central West End, West County).
The industrial property vacancy rate has leveled off as inventory has picked up. The area’s continued focus on transportation distribution and logistics businesses is showing promise.
A 125,000 sq. ft. spec building under construction in the River City Business Park.
Labor rates in St. Louis are not growing as fast as the national average, and area businesses will need to respond in order to recruit and retain skilled workers.
The St. Louis Region is approximately a $150 billion annual local economy. Three demographic trends are restricting our economic viability in the 21st Century, Gascon said:
- Our lack of overall population growth since 2000.
- Our aging society – “A 65-year old man is more likely to die than to have a child.”
- Our disparity in attracting immigrants compared to other Midwest cities. St. Louis has had a 4.5% immigration rate over several years; whereas Chicago’s immigration rate is 13%.