June 23, 1993
Summary
Recent changes in District economic activity have been mixed.
Numerous firms report uncertainty and trepidation concerning the
budget deficit and health care proposals. Many retailers report that
consumers also seem hesitant, as they are unwilling to commit to
major purchases until they see the results of Congressional
deliberations. Despite continued wet weather, District homebuilding
is still on the upswing in most areas. Total loan growth has slowed
at large District banks in recent months. Cool, wet weather
continues to stymie farmers in many areas of the District.
Consumer Spending
Retail sales in the District have increased modestly over one year
ago. Sales are reportedly up between 2 percent and 3 percent; some
in St. Louis report double-digit increases. Most contacts felt that
their year-to-date sales expectations had been met. Price cutting to
spur sales was reported only in Louisville, and only for jewelry.
Contacts also report that consumers remain cautious about the
effects of prospective fiscal policy changes. Most retailers,
however, are optimistic about this fall and expect increased sales
without many price cuts.
District auto dealers report that new and used domestic car sales are on the rise. Many dealers are optimistic and expect slow-to- moderate growth through the end of the year. Sales of Japanese cars, however, have declined because of rising prices and the perception of improved quality of domestic cars.
Manufacturing
District manufacturing firms are somewhat optimistic, but many are
unwilling to make commitments regarding employment or investment
plans until the outcomes of current Congressional deliberations are
revealed. Reports are therefore mixed. The areas of strongest growth
appear to be Arkansas and northeast Mississippi. For example, a New
York-based shirt manufacturer will open its eighth factory in
Arkansas, employing an additional 300 workers. A meat-processing
company will also open a new plant in eastern Arkansas that will
employ 200. A school furniture maker is expanding its production in
central Arkansas, creating an additional 100 jobs. Northeast
Mississippi has two new firms, a furniture producer and a maker of
building materials, which will employ 300 workers in the area.
Other District areas are not as upbeat. For example, a shoe manufacturer reversed its decision about the fate of a western Tennessee plant and will close it in late July, eliminating 265 jobs. In addition, a children's clothing manufacturer in Tennessee will close its plant in early July, eliminating 300 jobs. A St. Louis-based defense contractor laid off an additional 132 workers.
Nonmanufacturing
District nonmanufacturing firms have also expressed concerns about
the pending deficit reduction and health care proposals. On top of
these concerns, mines in southern Illinois and Indiana have closed
as 3,100 union members went on strike. Positive reports were
received, however, from some contacts. A trucking company in
Memphis, for example, began operations at its new facility this
month with more than 250 workers. Other contacts report increased
use of just-in-time management of inventories, which has allowed for
better inventory control and reduced costs. A recent survey
indicates that 30 percent and 33 percent of the reporting firms in
Memphis and Little Rock, respectively, will increase employment in
the third quarter of this year. Some contacts in the construction
industry report very high cement prices, but believe that such price
increases are an aberration rather than a trend toward higher rates
of inflation. Developers report that lease renewals no longer
include the perks previously sought by lessees, although
renegotiated rents can be up to 40 percent lower.
Construction and Real Estate
Wet weather continues to be a problem for many District
homebuilders, as contacts indicate that issuance of single-family
building permits has been delayed by the rain. Nevertheless, a
number of areas report double-digit increases in March and April
permits over the same period last year. Sales of new and existing
homes are strong in most areas of the District, with St. Louis a
notable exception. Many realtors have expressed concern about low
inventories of homes for sale. In central Arkansas, prices received
by home sellers are very close to the asking price, and in
Louisville existing homes valued at less than $140,000 are selling
within five to eight days.
Banking and Finance
Total loans on the books of a group of large St. Louis banks rose
just 0.2 percent from early April through late May after a 1.1
percent increase during the prior two-month period. All of the
slowdown in growth was the result of a decline in commercial
lending. Real estate loans increased 0.7 percent after a 0.2 percent
increase in February and March; consumer loans rose 1 .6 percent in
the April-to-May period after a 0.7 percent decline in the prior two
months.
Agriculture and Natural Resources
Cool temperatures and substantial rainfall have delayed planting and
impeded crop emergence across the District. In many instances,
planting took place under less-than-ideal conditions. Contacts in
Missouri and southern Illinois have expressed concern over the
planting delays and the slow development of the corn crop; as a
result, some farmers have switched from corn to soybeans or sorghum.
Record boll weevil infestations-a result of the mild winter and the
wet spring-have been reported in most cotton-producing areas of the
District. Although farmers have started to apply pesticide, some
contacts believe that a substantial risk to the cotton crop is
possible this year given the magnitude of the outbreak. Generally,
the winter wheat crop is in good condition as the summer harvest
approaches.