January 22, 1992
Summary
Manufacturing activity remains weak in the District, but some firms
report increased activity. The health services sector continues to
add employees. Retailers report holiday sales comparable to year-ago
levels. Residential construction continues to improve, although
construction financing is still a constraint for some builders. Loan
demand remains depressed, especially in the consumer loan
categories. District farmers report low cotton and hog prices, but
strong wheat prices.
Manufacturing
Although District activity remains slow in the manufacturing sector,
several bright spots were noted. For example, an electrical
equipment contact reports that orders were steady last month and
inventories were in good shape relative to demand. A power tool
manufacturer in Arkansas reports strong sales, especially in its
export markets. A paper manufacturer reports stable sales for its
packaging paper, but declining sales of paper for advertising
supplements. A paper products company announced the development of a
new plant with about 200 employees in Bowling Green, Kentucky.
Employment
The District has been spared the brunt of recent cutbacks in the
domestic auto sector because the models produced in the region are
strong sellers. In fact, one Missouri auto plant has recalled at
least 1,000 workers for a third shift because of continued strong
demand for minivans. Two months after laying off 1.300 employees,
the nation's largest shoe manufacturer announced another round of
plant closures, affecting 1,150 workers throughout Missouri. Reasons
stated for the closures include high labor costs and a "truly
terrible" market for shoes. A Kentucky tire manufacturer recalled
its workers to replenish its inventory, reflecting a new contract
with a domestic auto maker. Growth in service-sector employment has
cushioned some of the losses in goods-producing sectors. For
example, a telecommunications firm in Memphis plans to add 100
workers, the second increase in six months. In St. Louis, growth in
health services jobs (2,800 in 1991) has helped offset cutbacks at
the area's major firms.
Consumer Spending
Retail sales in the District were mixed for the 1991 holiday season.
St. Louis and Memphis contacts report sales of non-auto merchandise
were little changed from last year, while the Louisville and Little
Rock regions posted modest to significant increases. Apparel,
electronics, jewelry and small-ticket items sold well, as contacts
believed consumers were looking for values. Big-ticket items were
more heavily discounted than general merchandise; however, price-
cutting overall was at the same level as last year. Inventories in
St. Louis and Memphis are currently at desired levels, while reports
from Little Rock and Louisville state that inventory levels are
lower than anticipated because of careful buying by store managers
and a favorable holiday shopping season. Despite cautious optimism
about the first quarter, many retailers do not expect sales to pick
up until later in the year.
Construction and Real Estate
District homebuilders report flat or modest activity in new home
construction. The exception is in northwest Arkansas, which
continues to show strong growth in both single- and multi-family
home construction. Most District builders believe the industry has
bottomed out and that conditions will improve significantly by mid-
1992. Construction financing is still reported to be constrained.
Despite the lowest mortgage rates since the mid-1970s, many buyers
are still hesitant to commit because of job security concerns. New
and existing home prices are relatively stable, despite increases in
materials costs for builders. The nonresidential construction
sector, with the exception of public works projects, is still very
weak throughout the District.
Banking
Loans on the books of District banks are still flat or declining.
The lackluster holiday sales season is reflected in consumer lending
data: consumer loans declined 1.6 percent at the District's largest
banks during the last four months of 1991. The only major category
of loans to show growth during the last third of 1991 was commercial
loans, which rose 0.3 percent. District bankers report that most
real estate loan activity is related to mortgage refinancing.
Agriculture and Natural Resources
The winter wheat crop in the District is in mostly fair to good
condition, except in parts of Arkansas where flooding has caused
some damage. Wheat prices remain relatively strong. Contacts report
weak or falling prices for cotton and hogs, while cattle prices have
firmed. Livestock is mostly in good condition. Lumber producers in
the District report weak demand; however, Southern Pine lumber
producers report that prices held firm through the end of the year.
Coal production, although down by 8 percent from last year, has
increased significantly in recent weeks.