May 6, 1986
Summary
The Eighth District indicators of real economic activity were higher
than national figures over the most recent period. Expansion of both
goods- and services-producing industries contributed to substantial
employment growth in recent months. Retail sales have been strong
this year with growth surpassing that of the nation. Respondents
expect mortgage refinancing to result in increased disposable income
that may boost future consumer spending. Spurred by mild weather in
the region, construction activity in the first quarter also exceeded
national figures. Financial and agricultural indicators are less
encouraging, with commercial and consumer lending slowing in the
first quarter and no change in the forecast of low prices for
District farm products.
Employment
Eighth District nonagricultural employment grew at a 1.2 percent
annual rate in February, trailing the 1.9 percent national rate. In
the three-month period ending in February, however, the 10.7 percent
growth rate of District nonagricultural employment exceeded the
nation's 3.6 percent rate. District manufacturing employment
increased at a 4.8 percent annual rate in the three months ending in
February compared with a 2.1 percent rate for the nation. Despite
these strong employment figures, even faster growth in the labor
force raised the Eighth District unemployment rate in February from
7.7 to 8.0 percent.
Consumer Spending
District retail sales growth continues to exceed the national pace.
January sales in the region were 10.9 percent above year-ago levels
while nationally sales increased by 6.2 percent. District retail
sales grew at a 1.3 percent annual rate for the three months through
January while the nation's sales declined slightly during the
period.
Some District retailers have suggested that spending would be higher were it not for the "up-front" closing costs incurred when consumers refinance home mortgages. The results of a survey of 11 District financial institutions, however, suggest that mortgage refinancing has not restrained consumer spending and, in fact, should result in improved cash flows that could lead to further growth of consumer spending. Most indicated that the overwhelming majority of refinancers have been able to include the closing costs in the new mortgage and still enjoy lower monthly payments.
Construction
Spurred by good weather, first quarter construction activity grew
faster in the District than in the nation. Contracts for District
residential construction grew by 8.5 percent (simple rate) from the
previous quarter, while a 1.9 percent decline was posted for the
nation. District nonresidential construction contracts increased by
4.3 percent in the first quarter while the national figure declined
by 15.2 percent.
Banking
Total loans at large District banks grew at a 9.7 percent rate for
the first quarter. This increase represents a considerable slowing
from the 19.3 percent annual rate of growth recorded for the first
three months of 1985. Commercial lending continues to be sluggish,
increasing at a 6.6 percent rate, compared with a 16.0 percent rate
of growth for the first quarter of last year. Over the most recent
three months, however, month-to-month growth rates have been
accelerating. Compared with recent experience, the growth of
consumer lending is slower than that for the same period last year.
Consumer lending expanded at a 15.8 percent rate, while a 24.1
percent rate of growth was recorded for the first quarter of 1985.
The Missouri interstate banking bill has received both Senate and House endorsement and now awaits the Governor's approval. The bill provides for a reciprocal agreement with eight neighboring states and contains no provision for full nationwide banking.
Agriculture
The price outlook for major District crops remains depressed as
futures prices for this season's crops have fallen to levels well
below old crop prices. Corn futures prices, for example, are at a
nine-year low while fall cotton futures are 38 percent below current
prices. Farmland values are expected to continue falling in tandem
with crop prices as they have over the last four years. Bank data
indicate similar farm lending trends in the District and the U.S.
Loans outstanding to farmers declined in 1985 by 10.2 and 12.3
percent, respectively, at banks in the nation and the District. The
percent of overdue farm loans at agricultural banks increased from
2.9 percent in 1983 to 5.5 percent in 1985 in the District and from
2.9 percent to 4.2 percent in the nation. Because loans that are
eventually written off first appear as overdue loans, these
increases in overdue loans suggest that agricultural loan losses
will continue to rise in the future.