December 9, 1992
Summary
District economic activity continues to increase modestly, fueled by
positive expectations for the current holiday shopping season. Many
manufacturing firms have not experienced any recent changes in their
demand, but see a bright future. Others, especially those in
defense-related industries, continue to undergo reorganizations to
compete in global markets. Nonmanufacturing firms have experienced
increases in demand, especially retailers; many retailers predict
the strongest year-end rally in recent years. Residential housing
construction continues to be a source of strength throughout the
District. Buoyed by business loan growth, total loans outstanding
continue to increase at large District banks. Bumper crops are
expected in most areas of the District.
Manufacturing
Reports from District manufacturing firms continue to be mixed, as
some see better times ahead, while others are extremely cautious.
One contact in the air conditioning and heating equipment industry
reports an optimistic outlook for next year, especially in the
aftermath of Hurricane Andrew; sales are expected to increase 10
percent. Other durable goods producers also see improvements. For
example, a maker of aluminum wheels for cars and trucks is
expanding, leading to 300 new jobs, and an electrical components
assembler is moving production from New Jersey to the Memphis area,
creating 130 positions. In addition a maker of tennis equipment will
renovate its plant and resume production after a two-year
suspension, creating 150 new jobs by March, and a shoe plant,
previously scheduled to close, will remain open until at least early
next year because of an unexpected increase in orders.
Among firms less optimistic about the future, one contact in the electrical equipment sector reports that worsening foreign economies have led to growing skepticism about export growth, which had been a bright spot in the company's sales picture. Sales are down about 6 percent from last year's modest level, A glass company in Illinois and an art supply manufacturer in Missouri will close by January, eliminating a total of 500 jobs.
As for restructuring in the District, a major chemical company announced a new reorganization and cost reduction plan that will eliminate 500 jobs. Increased development costs for new pharmaceuticals, without similar increases in product prices, have strained the company. A St. Louis defense contractor laid off another 400 workers at the beginning of November. Additional layoffs, possibly affecting up to 3,500 St. Louis workers, are expected in the near future. A maker of agricultural spraying equipment in Arkansas announced that it will move production to Texas and northern Illinois, taking 160 jobs with it. Finally, a company producing household storage containers is closing its Tennessee plant and consolidating production in South Carolina, resulting in a loss of 800 District jobs.
Nonmanufacturing
Reports from District nonmanufacturing firms are generally
optimistic, especially from area retailers. Many area retailers
reported increases in sales during October. In light of recently
reported increases in consumer confidence and initial reports of
strong post-Thanksgiving Day sales, retailers expect inflation-
adjusted holiday sales to be up significantly from last year. Some
retailers have reported that they would rather forego sales than be
stuck with excess inventory; therefore, stock is being maintained at
minimal levels. Other nonmanufacturers also see growth. For example,
a women's clothing chain is expanding its Memphis distribution
facility, adding 100 new jobs, and a mortgage company that had
previously laid off about 700 St. Louis employees will add 250 new
positions during the next six months. A telecommunications firm,
however, decided to close its Louisville office, eliminating more
than 110 jobs.
Construction and Real Estate
Residential construction continues to be a bright spot in most parts
of the District. Single-family housing permits in September and
October were up substantially from their year-ago levels, though
most areas reported stronger year-over-year increases in September
than in October. New and existing home sales are also reported as
strong in most areas of the District. One contact noted that recent
increases in interest rates have encouraged potential homebuyers to
get into the market before rates rise further.
Banking and Finance
Loans outstanding at 12 large District banks increased 0.6 percent
from mid-September to mid-November, after declining 0.4 percent
during the prior two months. Much of this turnaround can be
attributed to business loans, which grew 1 percent during the past
two months after a 4.7 percent decline during the prior two months.
Consumer loans rose 1.6 percent from mid-September to mid-November
after a 2.8 percent increase from mid-July to mid-September. Real
estate loans, however, remained flat, declining as much in the last
two months as they had risen in the prior two months. A sample of 93
small and mid-sized District banks showed comparable trends. All
categories of loans except for consumer loans posted increases in
the last two months that exceeded their performance in the prior two
months.
Agriculture and Natural Resources
Persistent rainfall has hampered the fall harvest in many District
areas. For example, the corn harvests in Illinois, Indiana and
Missouri are expected to continue well into December. The cotton
harvest is also behind schedule in Tennessee. Nonetheless, bumper
crops are expected in most areas. Record corn and soybean yields are
expected in Illinois, Indiana, Kentucky, Missouri and Tennessee;
Arkansas also expects to have a record soybean yield this fall. In
terms of actual production, Illinois and Indiana farmers expect to
have record-breaking corn and soybean crops, while Kentucky and
Missouri farmers expect to harvest a record corn crop as well. A
record rice crop is expected in Arkansas and Missouri; likewise,
Tennessee cotton producers expect to harvest a record crop.