September 6, 1988
The District economy continues to weaken. Employment and construction activity have declined recently. Real consumer spending has exhibited little growth with car sales weakening. Manufacturers in several industries, however, are running at maximum capacity. In banking, weakness in consumer and real estate lending continues, however, commercial loan growth remains strong. Dry weather in mid- August has harmed crops further. River transportation has improved.
Employment
Following a strong first quarter, District nonagricultural
employment declined at a 1.1 percent annual rate in the second
quarter. While all nongovernment sectors reported job losses,
declines were particularly severe in the mining and construction
sectors. District manufacturing employment fell at a 2.7 percent
rate last quarter with sharp drops in the food processing and
textile and apparel industries. Many chemicals producers, saw mills
and paper manufacturers, on the other hand, are running at maximum
capacity due to a rapid increase in exports and strong domestic
sales. Some paper mills have imported pulp to maintain their supply.
Nevertheless, no substantial wage hikes have been reported in these
industries. A St. Louis auto assembly plant plans to call 2,500 auto
assembly workers back to work in September.
Outlook
A July survey of District small businesses revealed a more
pessimistic outlook than a survey conducted one year earlier showed.
A substantially larger proportion of respondents in the recent
survey anticipate a decline in real sales value and a weakening in
business conditions in the following six months. There was no change
in the proportion of the total sample that planned to raise prices
in the near future, though a considerably larger share of
respondents from the manufacturing sector planned price increases.
The survey also revealed a shortage of skilled construction and
transportation workers.
Consumer Spending
District consumer spading in recent months has been only slightly
higher than a year earlier, after adjusting for inflation. Car sales
leveled off in August but spending for services was moderately
strong. Grocery stores sales in St. Louis are picking up slightly,
despite higher prices.
Construction Construction continues to weaken. In both the District and the nation, the value of total building contracts awarded in the three months through July was down approximately 4 percent from the previous three months. The May-July value of District contracts was down 8.7 percent from a year earlier as both residential and nonresidential building sectors weakened. In St. Louis, however, nonresidential building remains strong. In the second quarter, both office and industrial vacancy rates in St. Louis were lower than they were a year earlier and were also below the national average. Sales are increasing in some agricultural areas of Arkansas, reflecting farmers' improved outlook following recent rains.
Banking
For the three months ending July, total loans at weekly reporting
District banks grew at an 8.5 percent annual rate, somewhat slower
than the 10.7 percent rate reported for the same period last year.
Real estate loans grew at a 12.9 percent rate, less than half the
pace of the May-July period in 1987. Consumer loans declined during
the three months, falling at a 1.2 percent rate. Commercial loans,
on the other hand, grew at an 11.9 percent rate, more than double
the rate of the same period last year.
Agriculture
Extremely hot and dry weather caused District crop conditions to
deteriorate in mid-August. An August 1 survey estimated corn yield
losses in District states at 23 to 42 percent. Recent hot weather
will further reduce these already weak yields. The northern half of
Missouri is the area most affected by the drought with corn yields
more than 50 percent below last year. In Arkansas, Kentucky and
Tennessee, soybean yields were estimated at 4 to 8 percent higher
than last year because of timely rains. The recent heat wave,
however, will reduce yields. The District's cotton and rice crops,
however, remain in very good condition. In addition, river
transportation has improved because of above-average rains in the
upper Midwest. Barge traffic at Memphis, a site of major delays
earlier this summer, has been higher than a year earlier.