August 5, 1986
Summary
The expansion of the Eighth District's economy is slowing slightly
with growth of employment, retail sales and construction trailing
that of the nation. District banking activity is characterized by
strong commercial lending and a lower growth of consumer and real
estate loans. Crop conditions resin good to excellent in most
District states.
Employment
Nonagricultural employment grew at a 2.0 percent annual rate in the
three months ending May, slightly below the 2.1 percent national
rate. Manufacturing employment declined at a 2.2 percent rate during
the same period. Although District non-manufacturing employment has
increased steadily throughout the current recovery, employment in
the manufacturing sector has not changed substantially since mid-
1984. The District unemployment rate declined to 7.5 percent in May
from 7.6 percent in April while the national jobless rate increased
slightly during the period.
Consumer Spending
Despite strong April growth, District retail sales decreased at a
6.3 percent rate in the February-April period compared with a 2.3
percent national growth rate. A survey of major retailers in the
District's largest metropolitan area, suggests that second quarter
sales were strong in St. Louis and Louisville compared with year-ago
levels, moderate in Memphis (approximately 5.0 percent higher) and
weak in Little Rock. Respondents anticipated continued third quarter
strength in St. Louis and Louisville while the outlook for the other
areas was uncertain. Several retailers reported that the declining
value of the dollar has resulted in only slight increases in the
prices of goods imported from Japan and Western Europe; exporters
apparently have limited price increases and narrowed their profit
margins in order to maintain their share of the U.S. market.
Construction
The value of District residential construction contracts awarded in
the second quarter declined by 8.4 percent compared with a 14.0
percent increase nationally. Despite the recent decline, this
indicator is 6.0 percent above its year-ago level. Building permit
data from the District's major metropolitan areas indicate that,
while single-family housing exhibited strong growth in recent months
over year-ago levels, multifamily building has declined.
Nonresidential construction activity in the District increased by 0.2 percent in the second quarter compared with 11.9 percent national growth. In contrast to the District's stagnation, nonresidential construction increased by 29.3 percent in Tennessee during the period.
Banking
Total loans outstanding at large District banks grew at a 7.9
percent annual rate for the second quarter compared with a 6.7
percent rate for the same period last year. Second quarter loan
activity saw an acceleration in commercial lending being offset by a
slowing in the growth of consumer and real estate lending.
Commercial loan volume grew at a 12 percent annual rate over first
quarter levels versus a 2.5 percent rate for the same period in
1985. The Memphis and Louisville markets, in particular, have
experienced strong growth in commercial loans as a result of some
large banks becoming very active in loan participations originated
by New York City banks. In contrast, consumer loans grew at only a
12.4 percent rate during the second quarter relative to a 28.5
percent rate over the same period last year.
Agriculture
Crop conditions are rated good-to-excellent in most District states
as a result of favorable weather throughout the planting and growing
season. The corn and soybean crops have enjoyed nearly ideal growing
conditions in Illinois, Indiana and Kentucky and are two to three
weeks ahead of normal development. Crops in western Tennessee have
progressed at a near-average pace but are more vulnerable to
moisture shortages than are the northern agricultural regions of the
District. Northern Mississippi and Arkansas report crop conditions
as below-average to average due to late planting and moisture
shortages. Both areas note that timely rains could still result in
very satisfactory crops.