January 28, 1986
Summary
District indicators show a mixed outlook for the region and a
continuation of the conflicting signals reported in November.
District employment growth continues to lag national trends.
Residential and nonresidential construction activity, however, has
exhibited strong growth in the most recent quarter. Consumer
spending also has shown stronger growth in the District than in the
nation. Banking trends continue to follow a year-old pattern of
sluggish growth in commercial loans and strong growth in consumer
lending. The health of the local agricultural economy, as measured
by agricultural finance data, points to continuing stress for
farmers and their lenders.
Employment
District nonagricultural employment increased in October and
November at annual rates of 2.5 and 1.4 percent, respectively,
trailing the national rates of 4.3 and 2.2 percent. Nonagricultural
employment in the District was 1.5 percent greater in November than
it was a year ago; nationally, nonagricultural employment expanded
3.0 percent over the same period. The District unemployment rate
increased slightly in November to 8.2 percent with decreases in
Missouri and Tennessee offset by increases in the jobless rate in
Arkansas and Kentucky.
Construction
For the three-month period ending November, residential and
nonresidential construction contracts grew by 14.7 and 15.8 percent,
respectively. District residential contracts were 9.5 percent above
year-ago levels, exceeding the national increase of 8.4 percent.
District nonresidential construction, however, grew by only 4.9
percent compared with a 14.0 percent national increase.
Consumer Spending
District retail sales (seasonally adjusted) remained strong over the
three months ending in October, growing at an 11.9 percent rate
while retail sales nationally grew at only a 1.5 percent rate over
the same period. Reports from the District, however, suggest some
weakness in November sales.
Interviews of ten retailers in the four major cities of the District indicate moderate sales increases for the 1985 Christmas season. Increases ranging from 4 to 9 percent suggest District sale. growth was similar to, or slightly above, national levels. The strongest sales increases were reported in Memphis and St. Louis. Compared with last year, retailers kept inventories more in line with sales and avoided more unplanned price markdowns. Most respondents reported profits similar to or slightly above 1984 levels.
Banking
Total loans outstanding at large weekly-reporting District banks
grew at a 10.1 percent annual rate for the fourth quarter.
Commercial lending continues to be sluggish, increasing at a modest
3.5 percent rate compared with a 16.7 percent rate of growth for the
fourth quarter of 1984. In contrast, growth of consumer lending has
remained strong over the fourth quarter (25.0 percent) relative to
the same period last year (18.0 percent). Consumer lending continues
to be the fastest growing component of large District banks' loan
portfolios.
Total deposits at large District banks grew at a 10.5 percent rate for the fourth quarter compared with a 12.1 percent rate recorded for the same period last year. This slower rate can be attributed to modest growth in MMDA's, which increased at one-half the rate recorded for fourth quarter 1984.
Agriculture
Data for the third quarter indicate that the volume of agricultural
loans outstanding at District banks is 4.3 percent less than for the
same period a year ago. Kentucky, Arkansas and Missouri exhibited
the sharpest declines, with volume falling by 11 to 12 percent. Farm
Credit System lenders in these states and Tennessee experienced even
sharper drops as farm loan volumes fell by 24 to 28 percent from a
year ago. The percentage of agricultural loans past due at
agricultural banks has increased steadily over the last two years,
rising from 2.4 percent in 1983 to 3.0 percent in 1984 and to 3.5
percent in 1985. Due to rising agricultural loan delinquencies,
total loan charge-offs at District agricultural banks have risen
from 0.4 percent of total loans outstanding in the third quarter of
1983 to 0.9 percent in the third quarter of 1985. Loan charge-offs
at agricultural banks nationwide, however, were even larger, rising
from 0.5 percent to 1.3 percent over the same period. Missouri's
agricultural banks showed the worst deterioration of loan quality in
the District as the percent of loans written-off increased from 0.5
percent in 1983 to 1.8 percent in 1985.