August 7, 1996
Summary
District economic activity has increased since the last report.
Tight labor markets continue to be our contacts' primary concern.
Strong sales in several industries have led to lower-than-
anticipated inventories. Rising materials prices are also a
continuing concern. Residential real estate and construction markets
have softened somewhat. Loan demand at large District banks also
appears to be softening. District crops are in mostly fair-to-good
condition, although the corn and soybean crops are well behind
schedule in some areas.
Manufacturing and Other Business Activity
Reports of tight labor markets continue to come in from all parts of
the District. Contacts are also reporting high turnover rates, even
at firms that are offering relatively high starting wages and fringe
benefits. Besides the previously reported shortages of skilled and
entry-level workers, some contacts have noted a need for semi-
skilled labor. In some areas of western Kentucky, where poultry
processing is a growing industry, firms are increasingly hiring
foreign labor.
Firms that sell parts to the auto industry are reporting low finished goods inventories because of strong sales. Some firms supplying the construction industry also have low inventories because of strong sales, especially of power tools. Other firms in the steel drum and glass container industries report that their inventories are slightly below desired levels, but that customers' inventories are at desired levels.
Some St. Louis merchants located near the McDonnell Douglas plant have felt the effect of the machinists' strike, which began June 5. In many cases, merchants are offering special prices to striking machinists to attract business. McDonnell Douglas has hired about 400 out-of-towners to work alongside nearly 4,000 white-collar workers currently on the production lines.
The poultry industry continues to expand in western Kentucky, as another processor moves into the area, creating about 1,200 jobs. A telemarketer in the Memphis area is also expanding and adding almost 1,500 jobs. An Arkansas trucking company will open a new terminal and add 400 workers by winter. Two coal mines in southern Illinois, however, have announced they are closing because of a fall-off in demand. Together, about 550 jobs will be eliminated as the mines' customers switch to low-sulfur coal to meet federal pollution regulations.
Prices
Increasing prices for materials continue to affect some firms in the
District. For example, St. Louis home builders note that prices of
new homes have increased because of substantial increases in the
costs of land and construction materials. On the other hand, a
salvage metal processor and a maker of auto parts report few or no
price increases, and, in one instance, a price decrease. Even with
tight labor markets, there are still few reports of increased wage
pressures. In those cases where starting wages have been bid up, the
increase has generally not been passed on to consumers.
Real Estate and Construction
Some real estate agents have reported a recent softening of real
estate markets, particularly in central Arkansas. They cite rising
interest rates and strong sales earlier in the year that satisfied
much of the pent-up demand. Residential construction permits issued
in June in most District metropolitan areas reflect this recent
slowing. Some pockets of strength can be found in western Kentucky
and northeast Arkansas, however. Almost all District metro areas are
well ahead of last year's permit levels. Mid-priced homes ($100,000
to $150,000) are reportedly selling well, while sales of higher-
priced homes have slowed substantially. Nonresidential construction
activity appears strong in northern Mississippi, central Arkansas
and western Kentucky. Some commercial real estate agents, however,
have noted a recent moderation in demand.
Banking and Finance
Total loans outstanding at 11 large District banks declined 0.6
percent between mid-May and mid-July after rising 1.5 percent
between mid-March and mid-May and 2.7 percent between mid-May and
mid-July one year ago. Commercial and industrial loans rose 0.8
percent in the most recent period, but real estate loans dipped 0.9
percent and consumer loans dropped 3 percent.
Agriculture and Natural Resources
Weather conditions varied considerable in July, with temperatures in
the northern portions of the District slightly below average.
Although rains during the latter half of the month helped
substantially, many areas are still in need of topsoil moisture-
particularly in the southern parts of the District. In addition, the
timing of the rains in the corn- and soybean-producing areas were
such that prices for these two crops have declined markedly from
their highs earlier in the month. Overall, crops are generally in
fair-to-good condition across the District. Notable exceptions
include parts of Illinois and Indiana, where a substantial
percentage of the corn and soybean crops are well behind schedule.
In Missouri and the southern parts of the District, crops are
generally in better condition and ahead of schedule. Winter wheat
yields were average to slightly below average in Illinois, Indiana
and northern Missouri, but were generally better than average in
most other areas.