September 20, 1989
Summary
District economic growth remains sluggish with most contacts
anticipating no major changes for the remainder of 1989. Several
sectors, however, report worsening shortages of skilled workers.
Consumer spending increased in August and early September following
generally sluggish summer activity. Real residential construction
activity remains below year-ago levels. Bank profits were reduced by
rising loan losses. Many bankers anticipate additional commercial
real estate loan problems.
Consumer Spending
District retail sales of general merchandise picked up slightly in
August and early September after being flat for most of the summer.
Sales of women's apparel were strong throughout the region while
back-to-school sales were moderate. Spending on durables, including
building materials and furniture, were lower than a year earlier.
Most contacts report inventories at satisfactory levels. Car sales
are either flat or lower than a year earlier in most areas, though
contacts in Arkansas and Louisville report increases in August and
early September spurred by dealer incentives. Auto inventories
remain above desired levels. The outlook for the remainder of the
year for both general merchandise and autos is for flat or slightly
higher real sales compared with last year.
Labor Markets
District employment has leveled off since the first quarter, with no
major sector showing significant growth. Construction employment has
rebounded in some parts of the region in recent months but remains
below the levels of a year ago. Regional manufacturing employment
declined slightly in recent months, except in Arkansas, where it has
expanded moderately over the last year because of growth in
nondurables production. Producers of poultry products, apparel,
paper and boxes have either expanded or announced major expansions.
The St. Louis unemployment rate declined 0.1 percentage points to 5.2 percent in July despite temporary layoffs of 4,000 auto workers. One labor analyst expects the jobless rate to drop even lower in August, then remain near 5 percent for the rest of the year.
Although District job growth has generally been sluggish, labor shortages have become more severe over the last year. Little change in the availability of unskilled workers was reported, but finding qualified skilled workers is increasingly difficult for manufacturing, wholesale/retail trades, finance and services firms. For the rest of 1989, businesses surveyed in the District expect little change in overall economic conditions and most plan no substantial changes in the size of their workforce or inventories in the next few months. Among the District's major metropolitan areas, employment opportunities were expected to be most limited in Louisville, where construction job reductions are expected.
Construction and Real Estate
The value of contracts for nonresidential building increased
moderately in recent months in Arkansas, Kentucky and Missouri and
is slightly above the level of a year earlier. Following several
years of strong construction growth, the recent completion of a one
million square-foot office building precipitated a rise in St. Louis
downtown vacancy rates to 24 percent, the highest rate of the
decade. No new office construction of any magnitude is expected in
the downtown area for several years.
Although slight gains were reported this summer, District residential construction growth remains sluggish. The value of District residential contracts issued in the first seven months of 1989 is virtually identical to that of a year earlier, with building of multi-family dwellings particularly weak.
Agriculture
Most District crops are in fair-to-good condition. Drier conditions
in southern states have helped improve cotton and soybean crops that
were damaged by excess rain earlier in the season. Continued rains
in northern Missouri have helped drought-stressed late soybeans and
pastures, but arrived too late to help the corn and sorghum crops.
Agricultural banks servicing weather-stressed areas are not
anticipating a substantial change in the quality of their
agricultural loan portfolios this year.
Banking
District bank earnings declined 4.6 percent in the second quarter.
Loan losses in the commercial area and additions to loan loss
reserves hampered earnings. Asset quality declined during the second
quarter, particularly at the largest banks where nonperforming loans
represent 2.16 percent of total loans. Problems with real estate
loans are of particular note. District commercial banks continued to
improve their capital adequacy position with only four banks failing
to meet the minimum regulatory primary capital guideline.