October 31, 1990
Summary
The District economy showed little or no expansion in recent weeks.
Slow District growth in consumer spending and in some service-
producing sectors, particularly health services, is being offset by
declining construction and durables manufacturing activity. Higher
energy prices are being blamed for cutbacks in the transportation
sector. New home construction is generally weak. Agricultural
conditions are mixed. The amount of commercial and industrial loans
outstanding at the District's largest banks continues to decline.
Consumer Spending
Contacts report that real retail sales have been near year-earlier
levels. Spending on vehicles and other durables has been slowing.
New car sales are flat to well below year-earlier levels in many
areas, while used cars sales are flat to slightly higher. Contacts
suggest consumer confidence has eroded because of weakness in the
national economy and uncertainty regarding the federal government
budget agreement and the Persian Gulf conflict. Retailers generally
expect fourth quarter sales, adjusted for inflation, to be flat or
just slightly higher than last year. As a result, some retailers are
ordering or planning to order less merchandise than previously
planned.
Manufacturing
Contacts report production slowdowns and layoffs at many durable
goods plants. Falling orders from the construction and auto
industries will cause a glass factory to close indefinitely in
November and have resulted in production slowdowns in factories
making rubber insulation, heat exchangers, air conditioners, metal
tubing and copper electrical components. Slowing sales, a trend that
is expected to continue, have led producers of major consumer
appliances to lay off more than 2,000 workers. In contrast, rising
demand for freight cars has led one steel plant to begin recalling
workers and double production. A primary aluminum producer reports
that orders have not slowed and expects no abnormal slowing for the
rest of the year. Nondurables manufacturing activity is generally
steady or expanding slowly.
State Government Activity
Because of slowing economic activity, the growth of gross general
revenues, and sales tax revenues in particular, has slowed in recent
months, but revenues remain slightly higher than a year earlier in
Arkansas, Missouri and Tennessee. Revenues are currently meeting
anticipated levels in these states. In Missouri, contacts anticipate
further weakening, which may necessitate budget cuts. There has been
no deceleration of tax revenues in Kentucky, where the state's
economy continues to expand slowly.
Transportation
Higher energy prices are being blamed for cutbacks in the
transportation sector. A large airline announced that it would lay
off as many as 100 management and clerical workers in St. Louis and
stop hiring pilots and flight attendants. A Memphis-based trucking
business said that higher energy prices, a truck driver shortage,
and weak auto and home sales influenced the cancellation of a
planned fleet expansion. Two contacts attribute a portion of the
recent growth in express delivery services to the nation's
widespread economic slowdown: as the economy slows, firms tend to
monitor their inventories more closely and rely more on just-in-time
deliveries.
Construction and Real Estate
Housing starts of single family homes and existing home sales in the
District range from down substantially in St. Louis to fairly strong
in Louisville. Developers in St. Louis, Louisville and Memphis
report some difficulty obtaining construction financing, although
mortgage financing appears plentiful. Memphis home sales are down
slightly, especially in more upscale neighborhoods. In Louisville,
however, both new and existing home sales are up over last year,
with the market's relative strength attributed to continued growth
in the service sector.
Agriculture and Natural Resources
Agricultural conditions are mixed. Recent rains throughout the
District and above normal temperatures in the Delta have been
beneficial to late-planted crops and pastures. These same rains,
however, have caused flooding in Arkansas, delayed crop harvesting
throughout the District, and may have reduced cotton quality. In
addition, a recent cold front may have caused frost damage to late-
planted soybeans in some areas. District coal production continues
to run more than 5 percent ahead of last year.
Banking and Credit
Total loans and leases on the books of the District's 11 largest
banks declined just over 1 percent in the third quarter, after
increasing almost 9 percent during the same period last year.
Commercial and industrial (C & I) loans declined 12.5 percent during
the third quarter compared with a 5 percent decline a year earlier.
Consumer and real estate loans continue to increase, albeit at a
much slower pace than last year. Contacts at small and mid-size
District banks report declining C & I loan demand from traditional
as well as new customers. These same bankers indicate that they are
reviewing the declining pool of loan applications more closely.