January 23, 1991
District economic conditions continue to deteriorate. Employment and output are declining in the durables manufacturing sector, while the nondurable sector is relatively stable. Real consumer spending during the holidays was down sharply from a year ago. Total loans outstanding have risen slightly at large District banks. Real estate markets continue to slump. Agricultural and natural resource conditions are mixed.
Consumer Spending
District retailers report that nominal sales during the 1990 holiday
season ranged from slightly higher to 10 percent lower than in the
previous year. In addition to consumers' concerns about recession
and war, unseasonably mild weather reportedly dampened sales of
winter apparel early in the season, while ice storms in some areas
hampered sales the week before Christmas. Respondents reported that
inventories were near desired levels, however, as most retailers had
planned for sluggish sales. When contacts were asked whether more
price discounting was used than in previous years, responses were
mixed. The outlook for the first quarter of 1991 varied from bleak
to optimistic, particularly if the Persian Gulf conflict is resolved
quickly. Contacts report new car sales continue to be well below
year-earlier levels, except for imported luxury cars, which
registered strong December sales as consumers sought to avoid the
new federal taxes on expensive and "gas-guzzling" cars.
Manufacturing
Many producers of durable goods, including firms producing heating
and cooling equipment, industrial machinery, electrical wiring,
refrigerators and furniture, have cut production recently; many
expect additional cuts in the first quarter. The federal
government's cancellation of a military jet contract will result in
the elimination of 3,000 to 5,000 jobs at one Missouri defense
contractor. This follows layoffs of roughly 4,000 workers last year
by the same contractor. Most of the region's motor vehicle plants
have had intermittent layoffs, although plants making sports/utility
vehicles and minivans have scheduled overtime in recent weeks.
Several vehicle-related factories have had declining orders,
including two large tire plants, which had sizable layoffs. Overall,
production of nondurables has been flat; however, food processing
activity has expanded. Growth in poultry processing, in particular,
has been fueled by export sales and sales of processed convenience
dinners.
State Government Finance
Slowing economic growth in Missouri and Tennessee has caused state
government revenues to fall short of projected levels. Both states
expect revenues in the current fiscal year to be roughly 2 percent
less than originally projected. Both states also have limited
spending to avoid a budget deficit. Revenues are expected to show no
real growth through 1991.
Construction and Real Estate
Residential real estate markets across the District continue to
slump, although many contacts believe a turnaround will occur by the
end of the first quarter. A lack of consumer confidence is cited as
the major reason for slow sales, despite recent declines in interest
rates and home prices. Recent layoffs in St. Louis are expected to
depress that housing market further. Commercial real estate markets,
except for distribution warehouse space in Memphis, also are weak.
To adjust to the slower pace of residential and commercial
construction, many developers and suppliers are broadening product
lines. One Memphis contact reported, for example, that major
commercial developers have shifted their focus from building office
and retail centers to leasing, property management and marketing of
services for business owners.
Banking and Credit
Total loans on the books of 11 of the District's largest banks rose
2 percent from the end of October through year-end, after showing no
growth in the two months previous. Real estate and consumer lending
grew over the period, while commercial and industrial (C&I) lending
continued to shrink. Contacts expect no significant uptick in C&I or
commercial real estate lending, at least until the third quarter,
because of weak demand and tightened credit standards. Preliminary
estimates by many banks indicate improved profit margins by the
fourth quarter. Net interest margins were buoyed by declines in
interest rates, which lowered funding costs.
Agriculture and Natural Resources
Heavy rains and melting snow have caused flooding in some areas and
raised river levels throughout the District, but barge traffic has
not bean disrupted significantly. Southern pine lumber mills report
that recent orders and shipments have fallen below year-ago levels
and inventories are up. District coal production is running about
4.4 percent ahead of last year. Agricultural contacts report low or
falling prices for wheat, soybeans, broilers and hogs, but continued
strong returns for beef cattle.