March 13, 1984
On the whole, economic activity in the Eighth Federal Reserve District has been showing substantial improvement recently. According to the latest data, personal income in the District is rising at about the same rate as at the national level. The strength of the recovery across District states has been somewhat disparate, however, with some areas showing considerably more improvement than others. Indexes of general business activity have been rising at rates ranging from 10.8 percent for Arkansas to 4.3 percent for Tennessee.
Outlook
The managers of District business firms generally expect business
activity to increase over the next six months. This was particularly
true in the transportation industry and in professional services.
Most of these firms (about 75 percent of those contacted) look for
improvement in the near future with the remainder expecting business
activity to remain roughly unchanged. About 60 percent of the firms
in the areas of construction, manufacturing, finance, wholesale and
retail trade expect improvement over the next six months. Well over
half the firms surveyed cited general economic conditions as the
reason for the brighter outlook. Of all firms contacted, relatively
few (4.5 percent) expect business conditions to deteriorate in the
coming months.
Employment
The general expansion in economic activity has had important
consequences for District employment. Recently, growth in payroll
employment has ranged from a high of 4.3 percent in Arkansas to a
low of 1.0 percent in Missouri.
Despite the expansion in employment, the District's average unemployment rate has remained, roughly, unchanged. Recently, Tennessee has experienced a substantial reduction in its unemployment rate while slight increases have occurred in Kentucky and Missouri. Unemployment rates in other District areas have been fairly static.
These two factors—growth in employment and a stable unemployment rate—suggest that the labor force in the District has expanded at a rate commensurate with employment growth.
Over the next three months, about 20 percent of the District firms contacted plan to increase employment while only 6 percent expected to reduce their workforces. Most of the expected increase appears to be concentrated in the construction and manufacturing industries. A number of manufacturing firms have had job openings for more than six months that they have been unable to fill with qualified individuals.
Sales Volume and Prices
Many firms in the District have experienced higher sales volume
recently. This was particularly true in the cases of transportation
equipment manufacturers, agriculture and professional services. In
addition, most firms expect sales volume to increase further over
the next three months while only 15 percent of the firms surveyed
expect sales to decline.
The expected increase in sales seems to be placing some upward pressure on prices. About 20 percent of the firms surveyed plan to raise prices and these firms were about equally divided between those planning an increase of less than 3 percent, an increase of between 3 and 5 percent, and an increase of between 5 and 10 percent. Only 3 percent of the firms surveyed plan price reductions.
Inventory
For the most part District firms believe their present level of
inventory is about right. However, a substantial number of firms in
the manufacturing industry and in wholesale and retail trade plan to
increase inventory levels over the next three to six months.
Relatively few firms, about 10 percent overall, plan to decrease
inventory during this period.
Business Problem Areas
A recent survey highlights a number of problem areas for Eighth
District business firms. The survey was conducted by the National
Federation of Independent Business and includes responses front 264
District firms. On the whole, the two most often cited problems were
taxes and interest rates. An exception were respondents from the
transportation industry. These individuals indicated that government
regulation is the most onerous problem they confront. Only 6 percent
of the firms surveyed cited inflation as a significant problem.