September 10, 1986
Summary
Economic conditions in the District remained sluggish in the most
recent period with growth of employment, construction and retail
sales trailing national growth. Bank lending expanded moderately.
Agricultural conditions vary widely due to dryness in the southern
regions and nearly ideal conditions in northern parts of the
District.
Outlook
A survey of small businesses in the District revealed that most
respondents expect business conditions to be unchanged for the
remainder of the year, and planned little change in their work
force, prices or inventory levels. A survey of corporate purchasing
managers in Missouri indicated that new orders were down sharply in
the second quarter.
Construction
The value of District residential building contracts awarded in the
three months through July declined by 8.5 percent compared with a
1.9 percent national expansion. While down from the pace of earlier
this year, single family construction remained above last year's
levels; multifamily building, however, declined from a year ago.
District nonresidential construction contracts declined by 4.8
percent and were 4.8 percent below the level of the same period last
year.
Employment
District non-farm employment grew at a 0.6 percent rate in the
second quarter compared with the national rate of 1.8 percent.
Recent gains continue to be concentrated in the services, financial,
and trade sectors; losses have been primarily in manufacturing. An
automaker announced that, due to excess inventories, the three-week
closing of a St. Louis area assembly plant will be extended by a
week. The closing of the plant, originally shut down for model
changeover, will affect 5,000 workers. Contrary to regional and
national trends, Memphis has experienced employment gains in
manufacturing in recent months while service-producing sectors have
contracted. The District unemployment rate increased to 7.8 percent
in June from 7.5 percent in May.
Consumer Spending
Despite strong April growth, District retail sales decreased at a
6.3 percent rate in the February-April period compared with a 2.3
percent national growth rate. Nevertheless, sales during the three-
month period were 2.6 percent above their year-ago levels. Based on
reports from automobile dealer associations, year-to-date sales have
grown at an 8 to 14 percent rate. Despite substantial price
increases, foreign auto sales have grown faster than sales of
domestic cars. Inventories of new cars have decreased but remain
slightly higher than desired.
Banking
Total loans at large District banks grew at an 11 percent annual
rate for the three-month period ending July, compared with a 5.5
percent rate for the same period last year. Commercial lending
expanded at a 5.4 percent rate in contrast to a 3.8 percent rate of
decline for the same period last year. Month-to-month changes,
however, indicate a slowing in the rate of growth of commercial
loans. Consumer loans expanded at a 17.6 percent rate for the three
months through July versus 25.6 percent for the comparable period in
1985. Real estate lending has picked up in recent months, growing at
an 8.6 percent rate, compared with 6.2 percent for the same three-
month period last year.
Agriculture
Nearly ideal weather in northern parts of the District have resulted
in predictions of record-breaking yields of corn and soybeans. Crops
in Missouri, Illinois and Indiana are reported in good to excellent
condition and have progressed one to two weeks ahead of schedule.
Southern parts of the District report significant degrees of drought-related stress. Counties in northern Mississippi have requested federal disaster relief for drought-affected soybean crops. Arkansas farmers are estimated to have lost up to $200 million due to the impact of dry weather on livestock and crops. Yields of major Tennessee crops are estimated to be 25 to 35 percent below last year. While less severe than in Tennessee, Kentucky agricultural officials also report lowered yields of most crops.