January 25, 1989
Summary
Economic conditions in the Eighth District improved in recent
months, but growth remains sluggish. Employment rose slightly,
following several months of stagnation. Despite high capacity
utilization rates that are expected to limit sales, capital spending
plans of District manufacturers were mixed. Consumer spending during
November and December was moderately strong. Overall loan activity
was weak in the fourth quarter of 1988, particularly in the
commercial area.
Employment
District payroll employment rose at a 1.3 percent annual rate in the
three months through November, following six months of flat
employment growth. A majority of the new jobs were in the services,
trades and manufacturing sector. District manufacturing employment
also rose at a 1.3 percent annual rate during the September-November
period, with the strongest growth in the printing and publishing and
transportation equipment sectors. Compared with a year earlier,
District payroll employment rose 1.5 percent, a substantially
smaller gain than the nation's 3.6 percent increase.
November employment in the St. Louis area was 1.3 percent higher than a year earlier. Manufacturing jobs constituted almost half of the additional jobs. An auto assembly plant and a military aircraft producer each added approximately 2,000 workers over the year. Most new nonmanufacturing jobs were in services, wholesale and retail trade and transportation. The number of construction jobs fell substantially.
Capital Spending
Approximately one-quarter of the 24 District manufacturers recently
surveyed indicated that sales in 1989 will be constrained by a lack
of production capacity. The manufacturers were divided equally among
those planning an increase in capital spending in 1989, those
planning a decrease and those planning no change. Industries
planning to increase spending included those producing food
products, paper, rubber and glass products, metals and metal
products. Industries producing textiles, clothing, chemicals, and
transportation equipment anticipated reduced capital expenditures.
Among all respondents, modernization and upgrading of existing plant
and equipment were the most frequently cited forms of investment.
Few indicated that capital spending would take the form of new plant
construction. Only a few respondents felt that imports were
increasing because of limited domestic capacity.
Construction
District construction activity declined sharply in recent months and
was substantially weaker than a year earlier. The real value of
District building contracts awarded In the three months through
November was down 11.4 percent from the previous three-month period
and down 10.9 percent from a year earlier. Both residential and
nonresidential building have declined.
Consumer Spending
Before adjusting for inflation, District sales of general
merchandise during the holiday season were approximately 6 to 7
percent higher than a year earlier. Most retailers from St. Louis,
Louisville and Memphis reported moderate to strong sales gains.
Reports from Little Rock were mixed, with several respondents
reporting declines.
Almost all respondents were satisfied with their inventory levels, which were generally leaner than those of a year ago. Consequently, they engaged in less than planned price-cutting and anticipate higher profits than last year. Women's apparel and consumer electronics were among the strongest selling products.
Most St. Louis respondents expressed more difficulty finding temporary Christmas help than in past years, but few raised wages. The availability of temporary help was also a problem facing some respondents in Memphis and Louisville but not those in Little Rock.
Banking
Total loans at large weekly reporting District banks grew at a 0.2
percent annual rate for the fourth quarter of 1988 compared with an
8.7 percent rate for the same period in 1987. Commercial loans, in
particular, contributed to the overall slow growth, declining at a
5.8 percent rate; for the same quarter in 1987, commercial loan
growth increased at a 12.4 percent rate. Consumer loans also
decreased during the fourth quarter of last year, declining at a 2.7
percent rate. Real estate loans, which grew at an 18.6 percent rate,
were the only loans reporting growth during the period.
Agriculture
Low water has repeatedly closed the Mississippi River to barge
traffic this winter. Recent rains, however, have allowed the
seasonally light traffic to resume. Despite recent moisture, soils
in northern Missouri remain critically dry, making water for
livestock scarce and harming the winter wheat crop.