August 7, 1991
Summary
The District economy remains sluggish. Car sales have picked up
slightly, but spending on general merchandise is flat. Manufacturing
activity is mixed and residential construction remains weak.
Shipping companies report declining business. Loan growth at large
District banks has picked up in recent months. Weather-related
problems continue to hinder agricultural production.
Consumer Spending
Most retailers of general merchandise report that sales have not
strengthened appreciably since spring and, in real terms, are down
from a year ago. Inventories are generally at planned levels. Some
retailers feel that consumer confidence is increasing, but that
heavy debt loads are forcing many consumers to curtail their
purchases. Declining prospects for farm income are expected to
reduce retail sales in some rural areas. Some contacts anticipate a
slight sales increase in the third quarter, while others expect no
increase before the fourth quarter. Most car and truck dealers
report that sales have strengthened slightly in June and July,
though they remain below last year's level. Reduced profit margins
and slow sales have lowered dealers' profits. Many customers are
buying used cars rather than new ones. Inventories generally are
near desired levels. The outlook for vehicle sales is cautiously
optimistic; some contacts expect a moderate pick-up as 1992 models
are released.
Manufacturing
Unlike most District manufacturers, food processors have continued
to add workers in recent months. Some District poultry processors,
for example, are expanding their facilities and workforce. One
contact, however, reports that the Soviet Union, a primary buyer of
U.S. poultry, has cut its orders for poultry because of a shortage
of hard currency. Some manufacturers making auto-related goods, such
as chemicals and plastic products, have received increased orders.
One steelmaker, who has ordered intermittent layoffs this year,
expects increasing orders from the auto industry, which will make
further layoffs unnecessary. This contact anticipates, however, that
orders from the commercial construction industry will remain at
their currently low level. The indefinite shutdown of another steel
factory was attributed to a sudden downturn in orders for castings
for railroad freight cars.
Construction and Real Estate
Residential construction activity remains depressed throughout most
of the District. Homebuilders in St. Louis, Memphis and Little Rock
report that year-to-date, single-family home permits are still
substantially below year-ago levels. Contacts report some
strengthening in the second quarter, however. Louisville continues
to be a bright spot, with new home prices steady and year-to-date
permits down just slightly from a year ago. Other contacts report
that declines in existing home prices have depressed new home
prices. In addition, rising lumber costs have squeezed builders'
profit margins further. Nonresidential construction activity, with
the exception of seasonal infrastructure repair work and other
public works projects, remains weak.
Shipping
Contacts report that depressed economic conditions in North America
and Europe have led to a decline in the business of two major
express shipping firms. One company spokesman expects that revenues
will continue to be depressed by the soft worldwide economy in the
next few months. The U.S. recession has resulted in intensified
competition in the trucking industry and has led to the liquidation
of an Arkansas-based trucking firm, idling 3,800 workers in the
Midwest and South.
Banking and Finance
Total loans on the books of 12 large District banks rose slightly
from mid-May to mid-July, after a small decline during the previous
two months. Real estate loans increased almost 4 percent during the
period, compared with 1 percent growth from mid-March to mid-May and
2.6 percent growth a year earlier. Commercial and industrial loans
outstanding declined just 0.6 percent during the past two months,
after a 3.6 percent drop the period before. In contrast to other
loan categories, consumer loans dropped more than l percent from
mid-March to mid-May, after rising almost 1 percent during the
previous two months.
Agriculture and Natural Resources
Significant yield reductions, resulting from weather-related
diseases, caused the recently harvested winter wheat crop in the
District to be at its lowest level in several years. Hot and dry
weather is beginning to stress the corn, soybean and cotton crops in
most areas. The exceptions are west central Illinois and parts of
northern Missouri, where corn and soybean crops are reported in
excellent condition. Because of the costs associated with the
delayed spring plantings in the Delta region of the District (for
example, additional tillage operations and increased chemical
usage), this year's crops, primarily cotton and rice, will be among
the most expensive ever to produce. As a result, some farmers are
reported to have exhausted their short-term credit lines. Contacts
report that a decline in available Pacific Northwest timber acreage
and a rise in lumber prices, associated primarily with the spotted
owl protection plan, has stimulated increased inquiries to Southern
lumber producers. Two large plywood producers have even increased
shipments to the West Coast.