March 13, 1991
Summary
District economic activity continues to contract, but not as sharply
as indicated in our preceding report. Retail sales, though still
depressed, show signs of improvement. Durables manufacturing
activity continues to weaken, but declines are mitigated by export
growth. Demand for transportation services generally is weak.
Declines in residential construction and sales appear to have
bottomed out. Loan growth, while still weak, has shown some
improvement. Activity in natural resource industries is weak.
Consumer Spending
Recent retail sales are near or slightly below their year-earlier
level; in many cases, substantial price cuts were used to move
goods. Some retailers, however, report slight sales increases which
they feel reflect rising consumer confidence. Many retailers expect
March sales to improve, but only slightly. Typical responses
regarding recent motor vehicle sales were "quite poor" and "almost
nil." Sonic dealers are cutting inventories by reducing orders.
Contacts believe sales are depressed because many consumers have a
"wait and see" attitude.
Manufacturing
Many durables manufacturers making products related to autos,
construction and appliances continue to receive declining orders.
For instance, one Kentucky steel mill is cutting production
substantially. Vehicle assembly plants in St. Louis and Louisville
ordered temporary layoffs in response to rising inventories and weak
sales. In St. Louis, contacts anticipate the elimination of jobs by
defense contractors and motor vehicle producers, layoffs by other
manufacturers and the lack of growth in most other sectors will
result in declining employment levels throughout most of 1991. While
inventories of most manufacturers are near desired levels, an
increasing minority of producers, including those making rubber
insulation and copper tubing, report excessive inventories.
Recent experiences of nondurables manufacturers have been mixed. A shoe manufacturer reports that orders have been soft since June; the outlook is uncertain because customers have been slower than usual in making commitments for the Fall season. Meanwhile, food processors continue to receive steady or rising orders.
Exports
For many manufacturers, including those producing boxes, electrical
components, wire and wood products, rising sales to foreign markets
have partially offset the loss of domestic orders. Sales to Mexico
and some European markets are especially strong. Contacts believe
the resolution of the Persian Gulf war will stimulate exports to the
Middle East. The level of southern pine lumber exports is reported
as steady, while District crop exports, except wheat, have fallen.
Transportation and Distribution
One airline in St. Louis has ordered layoffs, while another has
pulled our of the Memphis market. Both actions are partially in
response to a reduction in the demand for air service stemming from
the Gulf war. Air passenger traffic is flat in Louisville and below
year-ago levels in Little Rock and Memphis. Recent air cargo
shipments are up in both Louisville and Memphis, compared with a
year ago, but barge traffic on District rivers is down. Orders for
pellets, a barometer of future shipping, continue to "nose-dive."
Construction and Real Estate
Single family housing starts in the District were substantially
below their year-ago level in January; however, some District
contacts believe the downturn in the residential market has bottomed
out. Realtors in Louisville, St. Louis and Memphis report increased
buyer interest due to lower interest rates and a rise in consumer
confidence. One Memphis contact said continued difficulty in
obtaining financing was forcing developers to reduce inventories and
some developers fear a shortage of new homes if financing difficulty
persists.
Banking and Credit
Total loans on the books of large District banks showed a smaller
decline from mid-January through mid-February than they did for the
previous month. Smaller declines in real estate and consumer loans
appear largely responsible for the improvement. Total loans for a
sample of small and mid-size District banks show similar trends.
Contacts blame weak new car sales for consumer loan softness. Loan
officers report mixed activity in commercial lending. A St. Louis
banker said a number of companies that normally obtain funding in
the commercial paper markets were making inquiries about bank
financing.
Natural Resources
Year-to-date District coal production is down 11 percent from a year
ago. Abnormally high stockpiles of coal at utilities, reduced demand
for high-sulfur coal and slow growth in electric output contributed
to the decrease. Both southern pine lumber mills and hardwood
products manufacturers report that orders are down substantially
from a year ago due, in part, to weak home building.