June 15, 1988
Summary
The Eighth District economy is slightly weaker than in recent
reports. After several months of rapid growth, employment in most
sectors declined. Construction activity expanded moderately, despite
declines in residential building. District manufacturers reported
moderate-to-sharp increases in input prices, but no strong wage
pressures. Bank lending continues to be slow, particularly in the
consumer and real estate areas. Crops face a shortage of rain at a
critical point in their growth.
Employment
District nonfarm employment fell at a 2.6 percent annual rate during
March and April after growing at a 8.4 percent pace between November
and February. This trend was evident in most District states and
industrial sectors. Manufacturing employment declined at a 4.3
percent rate following a 5.6 percent rate of expansion during the
same periods. Except for the transportation equipment sector, all
major manufacturing sectors reduced employment between February and
April. This reduction was particularly severe among textile and
apparel producers, who enjoyed moderate growth in 1987.
Manufacturing
District manufacturers generally report higher input prices, but no
strong wage pressures. The largest price increases are reported by a
shoe manufacturer, who is faced with leather prices 15 percent
higher than a year earlier, and a fertilizer supplier, whose input
prices were up 18 percent from a year earlier. Both manufacturers
have sharply raised their prices.
The reasons for the lack of wage pressures varied. Some District businesses, located in rural areas, still have abundant supplies of surplus labor, reflected in county unemployment figures well above 10 percent. In addition, expanded automation has allowed some manufacturers to increase output substantially without hiring many new workers. A major appliance maker reported that wage pressures are not currently a problem, but could be in the fall, when union labor contracts are renegotiated.
Construction
District construction activity has expanded in recent months, though
more slowly than the national average. The value of building
contracts issued in the District rose 2.8 percent in the three
months through April compared with a 4.1 percent national gain.
While contracts for nonresidential buildings rose more rapidly in
the District than in the nation (11.5 vs. -1.4 percent), District
residential growth was weaker (-3.4 vs. 8.4 percent). Only
Tennessee, among the District states, showed an increase in the
residential sector. Compared with a year earlier, District
residential contracts in the February-April period were down 9.7
percent. In the St. Louis area, residential building contracts
issued this year are down 6 percent from a year earlier, with a
sharp drop-off in multifamily construction.
Banking
For the three months ending in May, total loans at large, weekly
reporting District banks grew at a 6.3 percent annual rate, down
from a 7.1 percent rate for the same period last year. Consumer and
real estate lending, in particular, have fallen considerably.
Consumer loans declined at a 0.6 percent annual rate, after
expanding at an 8.2 percent for the same three-month period a year
ago. Real estate loans grew at a 7.8 percent rate, well behind the
20.6 percent rate for the same March -May period last year.
Agriculture
Dry weather has begun to threaten crops throughout the District as
they enter a critical growth stage. Rainfall in April and May was
the lowest ever recorded in many regions. Farmers in northern
Missouri have been allowed to graze cattle on acreage previously
kept out of production by the price support programs. Other states
anticipate taking the same action if dry conditions persist.
Projections for the upcoming wheat harvest have been scaled back
because of dry conditions. Many speculate that continued bad weather
could push soybean prices to $10/bushel, double the 1987 price.
Although the long-term outlook calls for more hot and dry weather,
good rains in the coming weeks could lead to large crops because of
the early planting progress.
Farm loan performance at District agricultural banks improved significantly in the first quarter of this year compared with the same period in the last two years. The percentage of nonperforming agricultural loans fell from 9 percent in the first quarter of 1987 to 6 percent this year. Most District states showed comparable improvement.