March 15, 1988
The District economy continued to expand moderately, but indicators of future economic activity are mixed. Strong employment growth, for example, was spurred by gains in services and manufacturing. The construction sector, however, weakened. Consumer spending reportedly strengthened in February after a weak January, but bank lending slowed due to a sharp decline in consumer borrowing. The farm sector is in good condition for the coming crop year.
Outlook
A recent survey of 240 small District businesses revealed increasing
pessimism about general business conditions over the next six
months. The proportion of respondents who felt conditions would
worsen was up slightly from October and was almost double the
response of a year ago. In contrast, more respondents planned to
make capital expenditures for plant or equipment and expand their
workforces than a year ago. Furthermore, two-thirds planned no
reduction in their inventories. In the recent survey, 13 percent of
respondents reported an inability to fill positions for skilled
workers, double the year-earlier response.
Employment
Preliminary data indicate that nonagricultural employment expanded
rapidly, at a 5.0 percent rate in the three months through January
compared with a 2.8 percent rate in the previous period. The major
sources of job growth were services (particularly health and
business services), construction (mainly commercial projects) and
manufacturing. Intermittent layoffs of auto assembly workers have
continued. Most other manufacturing industries, aided by growing
exports, report continued growth. Producers of fabricated metal, for
example, have rapidly expanded their workforces as orders increase.
Rising import prices have allowed regional producers of
nonelectrical machinery and apparel to increase sales and expand
their operations.
Consumer Spending
District retail sales rose 5.3 percent in the fourth quarter from a
year earlier. Rapid sales growth in Arkansas was responsible for
much of the increase. Contacts report sluggish January spending,
with sales of durables particularly weak. Sales improved in
February, however, spurred by stronger car sales.
Construction and Real Estate
The value of District construction contracts fell 2.0 percent in the
three months through January. Growth in Kentucky and Missouri was
largely responsible for a 3.5 percent advance in District
residential contracts. Gains in the residential sector, however,
were offset by an 8.7 percent drop in contracts for nonresidential
buildings.
Home building and buying has picked up slightly from January, but is still well below year-ago levels. Refinancing of existing mortgages reportedly has increased as rates for fixed-rate mortgages dropped into single digits.
Banking
Total loans outstanding at weekly reporting District banks rose at
an 8.0 percent annual rate over the December - February period. This
figure is down sharply from the 19.6 percent rate for the same
period a year ago. Both commercial and real estate lending growth
changed little over the period, but consumer loans declined at an
annual rate of 18.2 percent after increasing at a 25.4 percent rate
over the same period last year.
Agriculture
The District agricultural sector is in good condition after a mild
winter. The winter wheat crop is rated in good-to--excellent
condition. Livestock operations report only average rates of
weather-related losses. Croplands, dried by the lack of rain last
summer and fall, have been recharged by winter moisture and should
be ready for the upcoming planting season. Crop prices will continue
to be supported by government programs. Cattle prices are expected
to remain strong, while poultry and pork prices should decline.
Preliminary banking data for 1987 indicate that farm loan performance at agricultural banks continued to improve. The rate of delinquent farm loans at agricultural banks fell from 7.0 percent in 1986 to 5.3 percent in 1987. The loan loss rate at agricultural banks improved, falling from 1.8 percent of all loans in 1986 to 1.2 percent in 1987. This improvement occurred in every District state except Mississippi. Commercial bank farm loans declined by 14 percent in the District in 1987; declines were noted in all District states.