May 2, 1990
Economic growth in the Eighth District continues to be sluggish, a characterization similar to those presented in our reports since April 1989. Consumer spending appears to be flat or up only slightly. The manufacturing sector is still weakening, while the construction and service sectors show slow growth. Export activity has been mixed. More widespread tightening of credit appears to exist in the District.
Consumer Spending
Recent retail sales activity is described by most contacts as flat
or up slightly from a year ago. Some of the March weakness, however,
is thought to be due to wet weather and because Easter occurred
later this year than last. Some contacts also mentioned that
unusually mild weather earlier this year, which resulted in heavier
spending for spring clothing and furniture, has borrowed from
current and future sales. These contacts anticipate a slowing of
sales in the next few months. Car sales have been weak recently, and
have declined since February in most areas.
Manufacturing
A survey of Missouri purchasing agents suggests generally weak
conditions. The rate of new orders received by manufacturers in the
first quarter slowed from the previous quarter and from a year
earlier. Most respondents reported that delivery lead times had
declined or were unchanged last quarter. Fewer respondents reported
increasing commodity prices in the first quarter compared with a
year earlier.
Numerous plant closings, layoffs and production slowdown have been reported in recent months. For example, firms producing shoes, women's apparel, school supplies, fabricated metal products and home insulation have reduced their output. Auto-related manufacturing remains generally stagnant with suppliers of auto components such as seats, fuel lines and vacuum harnesses cutting production. The workweek for those assembling minivans, however, continues to lengthen reflecting the strong demand for these vehicles.
Manufacturers producing primary metals, machinery and chemicals report flat to declining exports in 1990, relative to 1989. Exports of fabricated metal products were mixed. Contacts in the lumber, food products and coal mining industries report higher exports in the early part of 1990, relative to 1989, with increased exports to East Bloc countries contributing to the increase in lumber and food product exports.
Construction
Reports from contacts, as well as housing permit and building
contract data, suggest there has been an increase in both
residential and nonresidential building activity this year there is
disagreement, however, on how much of the increase is due to the
unusually mild weather. Some contacts believe that the demand for
new and existing single-family homes will strengthen this year in
Missouri and in the Louisville area. Apartment building in the
District is expected to remain depressed, however, as vacancy rates
remain high in some areas. Uncertainty about the possible closing of
a major military base has slowed construction activity in northeast
Arkansas. Much of the District's gain in the nonresidential sector
is due to growth in Arkansas, where a paper plant and other
factories are being constructed.
Banking and Credit
A widespread "credit crunch" does not appear to exist in the
District. Total loans outstanding at the District's 11 largest banks
are up modestly from their level of one year ago. Real estate loans,
and home equity loans in particular, are up sharply from last year.
Commercial and industrial lending was also up sharply at District
banks during the first quarter. Most small businesses contacted have
not experienced a significant shift in their lenders' credit terms,
nor have they had trouble obtaining financing during the past six
months. Loan officers at District banks indicate that their
willingness to make consumer loans is essentially unchanged from six
months ago.
Commercial real estate lending is the notable exception to overall growth in real estate lending, and has been sharply curtailed by District banks in recent months. Lending terms and underwriting standards have tightened considerably, reflecting pressure from examiners to strengthen banks' real estate portfolios and the generally sluggish economy.
Agriculture
A late March freeze destroyed most of the peach crop in Tennessee
and Kentucky and damaged the apple, strawberry, alfalfa and winter
wheat crops in some areas. April rains have pushed topsoil moisture
conditions to levels ranging from adequate to surplus in most of the
District and have slowed fertilizer application, field preparation
and planting. Reflecting increased planting intentions for rice and
cotton, agricultural banks in southern portions of the District are
receiving requests for larger production loans.