May 4, 1988
Summary
The Eighth District economy has continued to grow moderately.
Widespread employment growth has resulted in a steady reduction in
the region's unemployment rates, and exports continue to stimulate
manufacturing activity and employment. Consumer spending has
accelerated in recent months. Construction activity has picked up,
but remains weaker than a year earlier. Bank lending has been
relatively weak. The outlook for the farm sector is optimistic.
Employment
District nonagricultural employment rose at a strong 7.6 percent
annual rate in the three months ending February, outpacing the
nation's 4.1 percent rate. All major divisions of the regional
economy, except for mining, generated new jobs. The wholesale and
retail trade and the construction sectors grew most rapidly. Both
residential and nonresidential construction activity increased
slightly in recent months. Residential building, however, remains
below its year-ago levels the value of residential construction
contracts issued in the three months ending February was down 10.2
percent from a year earlier. Construction of a $1.2 billion-dollar
breakfast-cereal plant in Memphis is expected to boost area
construction employment by 2,500 over the next three years.
Regional manufacturing employment grew at a 4.9 percent rate in the November-February period, despite a alight decline in Tennessee. Much of the growth was concentrated in the production of electrical equipment, fabricated metals and transportation equipment. Growing export demand is responsible for the increased production of electric motors, appliances, consumer power tools and fabricated metals, with some plants running at full capacity. In the production of transportation equipment, growth stems from increased auto parts production in Arkansas and Kentucky and the expansion of auto assembly, which is due to better-than-expected car sales.
Exports of processed food products, including processed poultry and canned goods, have contributed to job growth in Arkansas. Meanwhile, after steady expansion last year, textile and apparel production is slowing as employment fell slightly in recent months. Some textile and apparel plants are operating at full capacity, however, and several apparel makers are expanding their productive capacity.
Consumer Spending
Reports indicate that District consumer spending has picked up in
recent months. Retail sales in Arkansas grew at a 5 percent annual
rate in the first quarter. Arkansas' sales were concentrated in
incentive-induced auto sales while other sales, particularly those
of clothing and in restaurants, continued to be quite sluggish.
Sales in Kentucky and Tennessee also have accelerated, particularly
for home appliances and furniture. Contacts report that the prices
of some building materials, including plastic pipe and wiring, have
increased rapidly in Louisville.
Banking
Total loans at weekly reporting District banks grew at a 5.9 percent
annual rate for the first quarter, down from 13.2 percent for the
same period last year. Commercial loans grew at a 15.5 percent rate,
similar to their growth in the first quarter of 1987. Both consumer
and real estate lending were considerably weaker than a year
earlier. On April 19, two of the largest banking companies in the
District announced a plan to merge, which would create the largest
banking company in the Eighth District with assets of $11.6 billion.
Agriculture
The outlook for the District's farm sector is cautiously optimistic.
The price of soybeans, the District's leading crop in total sales,
is at its highest level in many years. Because of the high prices,
local sources have reported some imports of soybean products from
South America. Despite higher prices, little expansion of soybean
acreage is planned because farmers are reluctant to remove acres
from the government's corn program. Cotton and rice acreage,
however, is expected to increase by over 15 percent because of
higher prices.
Farmland values in 1987 rose in all District states except Kentucky where they fell by 1 percent. Farmers have made early progress in planting because of favorable weather; farmers in Kentucky and Tennessee, however, are worried about possible drought. The District's wheat crop is good-to-excellent condition after a relatively mild winter. Cattle producers continue to earn profits while pork and poultry producers are experiencing lower prices.