March 12, 1985
Summary and Outlook
Little change is expected in business conditions through mid-1985.
The volume of business is expected to rise marginally in the next
three months. Respondents expect only modest increases in price and
employment levels. Retail sales, though mixed, were up slightly
overall in February from the January level. Growth in total loan
volume slowed in the first half of February, from the seasonally
strong January rate. There is evidence of additional erosion in
farmland values, with the decline expected to last at least through
1985. Cattle and hog prices are beginning to weaken seasonally.
Consumer Spending
Retail sales were up slightly overall in February from the January
level. Though some respondents report strong sales, one respondent
said the retail industry as a whole is going through a period of
weakness, and estimated only a 2 to 3 percent growth in retail sales
over the 1984 level for the Louisville area.
Business Activity
Business activity as measured by an index of seven components has
increased in the District. The index moved upward in Arkansas and
Missouri in January, at rates of 7 and 4 percent, respectively. In
Kentucky and Tennessee, where data are available only through
December, the index rose 3 percent and 7 percent, respectively, for
the month. Business activity in all four states was 2 to 6 percent
above 1984 levels.
The paper and paper products industry reports that sales since mid- December have been only one-half as strong as previously expected. They cite price weakness and inventory build-up as their main concerns. Excessive inventory levels also were reported by other industrial firms in early February. As a result, industrial employment has remained essentially flat. Capital spending increases for 1985 have been reduced from earlier estimates, though an increase over last year's level is still planned.
Construction
Single-family housing starts remain sluggish despite lower mortgage
rates. Respondents remain optimistic about the outlook for 1985;
however. Housing starts are expected to rise 10 to 12 percent above
the 1984 level in the Louisville area. Multi-family housing
construction remains strong in the Memphis area. The time required
to fill available office space in the District has lengthened, which
generally indicates an excess supply of nonresidential buildings.
Banking and Finance
Total loans outstanding at large District banks grew at a 30 percent
annual rate in January over the previous four weeks (not seasonally
adjusted). Through the first half of February, however, total loan
growth has fallen to a 10 percent annual rate, just slightly below
the long term trend rate. Both the rapid January growth and the more
recent return to trend can be attributed to fluctuations in consumer
and real estate lending. Commercial and industrial lending has risen
only modestly over the period. Much of the January growth in
consumer lending can be attributed to the normal increase of the
Christmas season.
A January survey found that bills to establish regional interstate banking zones had been introduced into legislative committees in 5 of 7 District states. Of the two remaining states, Kentucky enacted a regional interstate banking bill in 1984, while no such legislation was pending in Mississippi. More recently, the Missouri House banking committee rejected the interstate provisions of a banking bill. The House action will hinder interstate legislation proposed in the state's Senate. A House spokesperson stated that interstate banking provisions would be reexamined this year only if neighboring states adopt such legislation.
Agriculture
Despite uncertainty over loan guarantees and the 1985 farm bill,
planting intentions surveys indicate increased feedgrain acreage and
reduced acreage in oilseeds. With large surpluses still in storage,
normal weather this year would show large harvests, keeping prices
near loan rates. Survey evidence shows additional erosion in land
values, further weakening the ability of some farmers to obtain
credit; expectations are for a continuation of this decline, at
least through 1985. Livestock producers, who currently face
profitable marketing opportunities, also are beginning to see some
seasonal price weakness.