May 4, 1987
Summary
Overall economic activity in the District continued at a moderate
pace. Employment and nonresidential construction growth accelerated
since the last report, while residential construction continued to
grow rapidly. Retailers report generally moderate sales gains in
March and April. The agricultural sector continues to shrink as
planted crop acreage is expected to decline for the third
consecutive year. Bank lending during the first quarter grew at a
faster pace than during first quarter 1986. Some of the District's
large banks reported lower earnings as loans to Brazil and Ecuador
were placed in a non-accrual status.
Employment
District nonfarm employment grew at a 4.8 percent annual rate in the
three months through February compared with the nation's 3.2 percent
rate. All major sectors of the region's economy expanded during the
period. Manufacturing employment grew at a 3.3 percent rate.
Employment in the food processing and textile/apparel sectors
continued to grow rapidly, while employment in the production of
transportation equipment continued to decline.
Consumer Spending
Reports from major retailers in the District's metropolitan areas
suggest that sales of general merchandise in March and early April
were moderately above the level of the same period last year, but
were not as strong as the February gains. February tax revenue data
suggest that auto sales volume was down 19 percent from February
1986 in Arkansas while up moderately in Tennessee.
Construction
Residential building in the District continued to grow rapidly in
the first quarter, matching the nation's growth. The value of
residential construction contracts grew 13.7 percent in the first
quarter compared with a 15.1 percent gain in the previous quarter.
Much of the District's residential growth continues to be
concentrated in the St. Louis area.
The value of District nonresidential contracts accelerated in the first quarter, increasing by 5.5 percent, following a 7.5 percent drop in the previous period. Nationally, nonresidential contracts were also up 5.5 percent in the first quarter.
Agriculture
Recent survey information points to a continued shrinkage of the
District's agricultural base. Total harvested acres in Arkansas,
Kentucky, Missouri and Tennessee fell by 4.7 percent in 1986
following a 5.5 percent reduction in 1985. Estimates of farmers'
planting intentions for 1987 indicate a 7 percent decline in planted
acres from 1986. This compares with an 8 percent decline in planted
acres nationally. Intended acreage of soybeans and corn, the
District's two most important crops, were 11 and 17 percent lower
than plantings in 1986. Cotton is the only major District crop
expected to increase in planted acreage (up to 9 percent). Farmland
values continued to decline in all District states with the
exception of Tennessee where they were up by 2.0 percent in 1986.
The largest decline occurred in Arkansas where values were 10.1
percent lower for the year.
Agricultural banks in the District showed improvement in 1986 in all measures of bank performance. Nonperforming farm production loans decreased from 7.6 percent of total farm production loans to 7.0 percent and loans charged-off at agricultural banks decreased from 2.0 percent to 1.8 percent of all loans. The return on assets at District agricultural banks increased from .80 percent in 1985 to 1.02 percent in 1986.
Banking
Total loans outstanding at large District banks grew at a 13.7
percent annual rate for the first quarter of this year compared with
9.0 percent growth for the same quarter in 1986. Commercial loans,
increasing at a 16.1 percent rate over the quarter, far outpaced the
6.2 percent growth recorded for first quarter 1986. Real estate
loans expanded at a rate twice that recorded for first quarter 1986,
growing at a 26.7 percent annual rate.
Problem loans in Brazil and Ecuador lowered first quarter profits at two of the District's largest banks. One large St. Louis bank placed $69 million in loans to these countries on non-accrual status.