September 8, 1987
Summary
The District's economy weakened in recent months as employment and
construction growth slowed. Agricultural conditions, however, have
been positive as good weather has resulted in large yields of major
crops. Livestock producers have enjoyed a profitable year with low
feed costs and favorable prices.
Outlook
The outlook of small District businesses has improved. Only 7
percent of 211 businesses surveyed in July expected a worsening of
national economic conditions in the following 6 months. This
represents a substantial drop from the 17 percent anticipating
deteriorating conditions in an April survey.
Employment
District nonfarm employment declined at a 1.0 percent rate in the
second quarter compared with a 2.3 percent national rate of
increase. The second quarter slowdown of District non-farm
employment was due to declines in the mining, manufacturing and
construction sectors and sluggish growth of the service-producing
sectors.
Manufacturing
Manufacturing employment dropped 3.5 percent in the second quarter,
returning to the level of a year earlier. Employment in most major
industries has continued to decline, with only producers of
electrical equipment, food products and textiles and apparel posting
job increases compared with a year earlier. Regional textile plants,
particularly those producing cotton products, are running at near
full capacity and have a substantial backlog of orders. Textile
prices reportedly have increased this year due to high consumer
demand for apparel and to rising costs of inputs, particularly
petroleum products and cotton. Plants making footwear in the region
are operating near capacity. The permanent closure of an aging truck
plant in St. Louis recently eliminated over 2,000 jobs. Due to poor
car sales, 2,700 workers will be laid-off in October from an auto
assembly plant in the St. Louis area.
Construction and Real Estate
Regional construction activity slowed recently as the nonresidential
sector weakened. The seasonally-adjusted value of District
nonresidential building contracts grew by 3.5 percent in the three
months through July, following a 15.3 percent gain in the previous
three months. Much of the slowdown was in Arkansas. Despite the
recent deceleration, District nonresidential contracts were 35.8
percent above a year earlier.
Regional residential building continued to decline. The value of District residential contracts fell by 8.4 percent in the three months through July. Losses were concentrated in Missouri and Tennessee. Although weak recently, District residential contracts were up 7.1 percent in the May-July period compared with the same period a year earlier due to strong single-family building. A slight decline in residential building was posted nationally during the same period.
The office vacancy rate in the St. Louis metropolitan area increased to 16.4 percent in June from 13.6 percent a year before, but remained about 4 percentage points below the national metropolitan average. Area vacancy rates are expected to rise by the end of 1987 as a large volume of office space is completed. St. Louis' industrial vacancy rate of 5.4 percent was slightly below the 6.1 percent national average in June and down from 6.7 percent in June 1986.
Agriculture
The crop year has been extremely favorable for most District
farmers. Harvests of major crops have begun amid predictions of
record corn and soybean yields. The cotton harvest began a month
earlier than normal due to early planting. The only potential hazard
remaining is overly wet harvest conditions. The combination of low-
priced feed and favorable prices for hogs and cattle also has
allowed livestock producers to enjoy a profitable year.
Due to reduced acreage, large government payments to farmers, and lenders' restraint, the volume of farm loans outstanding at District commercial banks in June fell by over 15 percent from last year. The largest decline occurred in Kentucky where farm loans were off by 30 percent. Farm loan delinquencies and farm loan losses at agricultural banks improved in District states with the exception of Mississippi.