October 23, 1991
Summary
The District economy continues to show signs of a gradual recovery.
Manufacturing employment, except in defense-related industries, is
strengthening somewhat and contacts expect further improvement
before year-end. Manufacturing activity is mixed. Consumer spending
remains depressed. Lower interest rates have stimulated new and
existing home sales, although sources do not expect a rebound in
residential construction until next year. The fall harvest continues
to progress, but yields on some crops have been hurt by adverse
weather.
Employment
Although respondents in many areas of the District expect some
improvement before year-end, employment growth continues to be
characterized by contacts as flat or weak. A number of District
employers, especially those in defense-related industries, have
announced small- and medium-sized layoffs in recent months. In
contrast, a major home appliance manufacturer has been able to keep
employment levels stable because declines in shipments and orders in
recent months were correctly anticipated. A large apparel
manufacturer, which reduced employment significantly this year,
plans to rehire some or all of these workers in the near future. In
addition, respondents in Arkansas and northern Mississippi believe
their regions are rebounding, as evidenced by rising demand for
manufacturing workers. A survey of Memphis companies revealed that
more plan to add workers in the fourth quarter than they did in the
third, holiday staffing excluded.
Manufacturing
Overall manufacturing activity remains weak, with durable goods
manufacturers somewhat more upbeat about the future than producers
of nondurable goods. Auto parts manufacturers in Arkansas have
expanded production and hired more workers because of increased
activity in the auto sector. A District home appliance manufacturer
reports industry shipments have been flat on a seasonally adjusted
annual basis, despite the significant downturn in housing
construction. Manufacturers of defense-related products, however,
report significant declines in new orders. Most contacts expect no
upturn in capital spending in the near future. An Arkansas apparel
maker reports higher sales, but also lower margins because of higher
wage and input costs. He says that retailers have been reluctant to
pass on these higher costs to consumers. In the food processing
sector, most manufacturers report that the recession has not hurt
business significantly.
Consumer Spending
Retail sales remain "poor," according to many contacts. Declines in
interest rates have not stimulated purchases of traditionally
interest-sensitive goods, such as automobiles. One contact noted
that, despite rising personal income and employment in Arkansas,
household spending continues to decline. Many District retailers are
trying to jumpstart sales by beginning holiday advertising and sales
earlier than usual, without additional workers.
Housing and Finance
Housing starts have not picked up appreciably in recent months and
no significant rebound is expected until 1992. New home sales,
especially to first-time homebuyers, have improved slightly because
of declines in interest rates. Contacts stress that many prospective
buyers have remained out of the housing market because of concerns
about their future employment and expectations of still-lower
interest rates in the months ahead. One St. Louis mortgage banker
noted that, although mortgage demand has picked up slightly, one-
half of all closed real estate loans still are refinancings. Total
loans outstanding at a sample of 93 District banks increased more
during the last two months than they had the previous two months,
with all categories but real estate showing improvement.
Transportation
Barge movements and rates charged for shipments on the Mississippi
river in the St. Louis area have increased lately. Seasonal harvest
activities and increased exports have provided the impetus. Barge
traffic in Paducah has kept pace with last year's record level,
while transportation of nonagricultural raw materials has boosted
barge activity in Little Rock. Air cargo shipments have fallen below
year-earlier levels in Louisville and St. Louis, but they are up
significantly in Memphis.
Agriculture and Natural Resources
The fall harvest is nearing completion for most crops. Corn and
soybean yields, hurt by lack of moisture during critical periods
this summer, are expected to be lower in most District states.
Although a record rice crop is predicted in Arkansas, contacts
report that disease and cold weather may have damaged yields.
Insects are reported to be affecting parts of the cotton crops in
Arkansas, Mississippi and Tennessee, but a good crop is expected
nonetheless. Year-to-date coal production is down from last year's
levels in Illinois and western Kentucky, but is up slightly in
Indiana. Southern pine lumber mills report that orders, production
and shipments all are up compared with a year ago.