June 25, 1985
Most District economic indicators have declined recently. Retailers, however, reported single-digit sales increases in May over year-ago levels. District employment declined slightly in April, though the unemployment rate remained unchanged. Both residential and nonresidential construction contracts declined from the year-ago level in April. District respondents expect very little change in business conditions over the next three months. Total loan growth at large District banks has slowed from last year's pace. Only consumer loan growth has outpaced the year-ago growth rate. In the agricultural sector, the prospect of large harvests has lowered futures prices for most major crops to new life-of-contract lows.
Outlook
A majority of District respondents surveyed early in the second
quarter expects business conditions to be about the same through
September of this year. Half of those surveyed expect the real
volume of business to increase slightly, while one fourth of
respondents expect no change. Prices near current levels over the
next three months are planned by about 60 percent of respondents,
while almost 20 percent plan to raise prices and only 2 percent
expect to lower prices. Survey respondents also indicate that no
work force changes are planned in the near future. Most respondents
are comfortable with current inventory levels and plan no change in
those levels in the next three to six months.
Consumer Spending
All indications suggest that retail sales in the District have been
fairly good, a condition unchanged since the last report. Some
District department and discount stores reported sales gains of 5 to
10 percent in May over last year's level.
Employment
Eighth District payroll employment declined at a 3 percent
annualized rate in April, bringing the year-to-date rate of growth
to just over 1 percent. The District unemployment rate remained
unchanged in April at 7.5 percent despite the small decline in
employment. The unemployment rate declined slightly in Arkansas and
Kentucky while Missouri's unemployment rate remained unchanged and
Tennessee experienced a small increase.
Business Activity
Business activity in April, as measured by an index of seven
indicators, rose sharply in Missouri at an 11 percent rate. Arkansas
business activity also increased in April, but only at a 1 percent
rate. The business activity index was 1.5 percent above the year-ago
level in both states in April.
Construction
Total construction contracts in April declined 14 percent from the
April 1984 figure. Both residential and nonresidential construction
contracts fell from their year-ago levels, at 18 and 7 percent
rates, respectively. Reports from the District suggest, however,
that interest in new homes and home improvements has increased
recently.
Banking and Finance
The most recent bank data indicate a continuation of lending trends
that have been evident since the beginning of this year. Total loans
at large weekly-reporting District banks grew at a 12 percent
annualized rate (not seasonally adjusted) over the three month
period ending in May. This is considerably slower than the 24
percent rate of loan growth for the same period of the previous
year. Slower growth in both commercial and real estate lending were
the most important factors contributing to the slower overall loan
growth. Commercial loans grew at a 10 percent pace this year
compared to a 15 percent rate last year while real estate loans grew
at only a 5 percent rate as compared to a 17 percent rate over the
three month period last year.
Consistent with recent experience, consumer lending has grown more rapidly over the past 3 months of this year (33 percent) than for the same period last year (12 percent). Over the last three months, however, the month to month growth rates have been declining, suggesting a slowing in consumer borrowing.
Agriculture
Early planting and timely rains have lowered futures prices for most
major crops to new lows. With export demand weak, it appears as if
grain, soybean, and cotton prices will stay near current levels
unless yields are below average. Cattle supplies remain abundant
with producers still attempting to market a large number of
overfinished animals. Hog prices have increased somewhat recently,
partially in response to widening restrictions on the importation of
hogs from Canada.