March 20, 1986
Summary
The Eighth District economy continues its moderate expansion.
District retail sales growth exceeded national trends while
employment and nonresidential construction trailed national
performance. The outlook from business and academic contacts
throughout the District is generally favorable, suggesting the
expansion will continue at a modest pace during 1986.
Outlook
Slightly more than 80 percent of the 265 District small businesses
surveyed in January expected business conditions to be unchanged or
better through July. Less than a quarter of the respondents foresaw
a decline of their real business volume through April, while 44
percent expected an increase. Despite this generally favorable
outlook, only 19 percent thought the period was a good time to
expand. Most of the respondents expected no changes in their prices,
work force or average compensation through April. These responses
reflect little change in the expectations of District businessmen
since the last survey was conducted in October 1985.
A forecast by the University of Arkansas indicates the Arkansas economy will grow faster than the nation in 1986, spurred by increases in manufacturing, trade and services employment. A forecast for Tennessee economic growth in 1986 was less optimistic with nonagricultural employment predicted to grow by only 1.9 percent. Employment declines in the manufacturing and mining sectors are expected to contribute to the state's sluggish growth.
Consumer Spending
District retail sales increased at 4.8 percent rate in the fourth
quarter while a 3.7 percent decline was reported nationally.
December retail sales in the District are 21.8 percent above year-
ago levels, exceeding the 6.7 percent national gain. Extremely
strong December sales in Kentucky were largely responsible for the
District growth.
Employment
Employment growth in the Eighth District continues to trail national
trends. District nonagricultural employment increased at a 0.6
percent annual rate in the fourth quarter compared to a 3.5 percent
rate of growth nationally. Despite a December increase, District
manufacturing employment decreased at a 0.9 percent rate in the
fourth quarter while no change was reported nationally. The District
unemployment rate dropped from 8.3 percent in November to 7.9
percent in December.
Construction
District residential construction contracts grew by 3.3 percent in
the fourth quarter while nonresidential construction declined by 3.6
percent. Residential contracts, while 6.0 percent above year-ago
levels, trailed the national increase of 14.0 percent. Over the same
period District nonresidential construction declined by 12.2 percent
compared with a 2.0 percent national increase.
Banking and Finance
February data from large District banks indicate distinct changes in
lending trends that have persisted over the past year. Commercial
lending, which had been sluggish, showed a reversal in February with
volume growing at an annual rate of 34 percent compared to a sharp
decrease last February. Consumer lending, which has shown strong
growth over the past year, declined at a 5 percent rate in February.
After approval by the Missouri Senate, a regional reciprocal interstate banking bill awaits House approval. The bill has no provisions for transition to nationwide banking. The Mississippi Senate has approved a bill allowing statewide banking in 1986 and regional interstate banking in 1988.
Agriculture
In response to the lower loan rates of the 1985 farm bill, futures
prices for the new crops of major District commodities such as corn
and cotton are significantly lower than futures prices for the old
crop. Given these price expectations for the coming year,
participation by farmers in the government's price support programs
is likely to be high, leading to large government stocks of
agricultural commodities. Analysts in Kentucky expect further
declines in tobacco prices associated with falling demand and
continued large surplus stocks.