August 8, 1990
Summary
Sluggish economic growth is reported by most contacts throughout the
District. Retail sales and employment levels are flat or expanding
slowly. Manufacturers plan to eliminate several thousand jobs in the
near future. Loan growth has slowed at the District's largest banks.
Consumer Spending
Retail sales in recent months are described by most contacts as flat
to slightly higher than a year earlier. Memphis has shown moderate
sales growth, however, partially because of increased sales at
restaurants and apparel stores. Some retailers expect a slowing in
sales because of the anticipated contraction of military bases and
layoffs at auto and military aircraft plants. In most parts of the
District, sales of durable goods, particularly home appliances,
televisions, and other consumer electronics, are flat or below year-
earlier levels. Most contacts report recent vehicle sales as flat to
down slightly from a year earlier. Some contacts in Arkansas and
Kentucky; however, report moderate gains in vehicle sales,
particularly of vans, light trucks and small to midsize cars.
Labor Markets
District employment growth in recent months has ranged from small
gains in Arkansas to slight declines in Kentucky, Missouri and
Tennessee. Contacts expect no substantial job growth in St. Louis
for the remainder of 1990 because of the planned layoffs of
approximately 7,000 auto and defense industry workers. One labor
analyst predicts that the layoffs will cause the areas unemployment
rate to be approximately one percentage point higher by year's end
than it otherwise would have been. A slowdown in the trucking
industry led to layoffs of St. Louis drivers and an easing of a
driver shortage in Memphis.
Manufacturing
Manufacturing activity has weakened recently. Employment declined in
plants making nonelectrical machinery and some nondurable products,
such as chemicals, textiles and apparel. One tire plant will cut
production soon in response to slow car sales. Many defense
contractors, including those making shoes and electronic components,
are curtailing their operations due to declining government
contracts. To cut costs, one large defense contractor will lay off
approximately 5,000 workers before year's end.
An increasing number of small manufacturers, including those making electronic components and valves, is opening plants or distribution centers in Europe to provide better service to European customers. One producer of computer-related equipment will soon export to Poland and receive shoes as partial payment.
Input costs and product prices generally are expected to be 3 to 5 percent higher next year, but some contacts note slight declines in some input prices and widespread resistance to product price increases. Several contacts note that they have been unable to raise their prices for two or three years due to competitive pressures.
Construction and Real Estate
In response to generally flat rents and high vacancy rates, the construction of multifamily dwellings has almost stopped in many parts of the District. Single-family homebuilding is weaker than a year earlier in most areas. In Louisville, however, the construction of both single-family and multifamily dwellings has expanded and is well above year-earlier levels. The building of starter homes in Memphis is strong. There is widespread uncertainty regarding the near future, but contacts in most areas expect homebuilding to weaken slightly in the year's second half. Contacts report that residential construction contractors in St. Louis, with little available work, have lowered their bids to the point where some weaker firms may soon fail.
Agriculture
Most District crops are in fair to good condition. Soil moisture
conditions are reported as adequate in Missouri and Tennessee, but
the remaining District states report that soil moisture is short.
The dry soil conditions, in conjunction with a recent heat wave,
stressed the late-planted corn crop and may have lowered potential
yields in some areas. District states' wheat yields were reduced by
12 percent to 26 percent from a year ago because of diseases that
developed during the wet spring.
Banking and Credit
Loan data for the period from mid-May to mid-July point to a
slowdown in credit growth. Total loans at the District's 11 largest
banks increased 0.7 percent over this interval compared with a 2.3
percent expansion over the same period last year. Commercial loans,
which represent about one-third of total loans at these banks,
declined 0.1 percent over the two-month period compared with a 2.1
percent increase one year ago. Real estate loans increased 4.1
percent over the two-month period last year compared with a 3.3
percent rise this year; the increase in consumer loans was down from
0.9 percent to 0.2 percent this year. As of mid-July, commercial
loans on these banks' books were 4 percent below their year-ago
level.