December 8, 1993
Summary
District economic activity continues to grow. Retailers are more
upbeat about the holiday season than they were previously, and car
sales are still very strong. Most surveyed firms report increases in
sales, orders and employment. Residential construction and home
sales have slowed somewhat from their year-ago levels. Loan demand
at District banks is rising modestly. District cotton farmers report
a small crop.
Consumer Spending
Preliminary reports suggest that post-Thanksgiving holiday sales
were brisk in many areas, despite some weather-related problems. In
a pre-Thanksgiving survey of retailers, most contacts noted sales
increases of at least 3 percent over the same period last year.
While discounting is becoming common in Louisville, it is not being
used much elsewhere. Most report that inventory and staff levels are
up in anticipation of a strong holiday season. Stronger local
economic conditions are cited as the main reason for the high
expectations.
Car sales throughout the District continue to show strength. Many dealers report 10 percent increases over the same period last year, with some in Memphis reporting slightly stronger growth. Trucks and minivans continue to sell very well. Louisville continues to experience extremely strong sales in both foreign and domestic models. Inventory shortages, however, have cut into the sales volume of newer models. Overall, a strong fourth quarter is expected.
Manufacturing and Other Business Activity
District firms continue to observe moderate growth, as sales, orders
and employment increase. Minor cutbacks are still occurring, though.
Contacts from various manufacturing and distribution firms say sales
are up, in some instances by double digits, over the same period
last year. For example, a contact in the burglar alarm and security
industry reports that males have increased 42 percent. Contacts in
the wood products, building supply, truck transmission and conveyor
manufacturing industries cite sales increases of between 7 percent
and 8 percent. A die casting concern reports a 4 percent increase,
while a metal salvage company reports a 33 percent increase. A
pharmaceutical company disclosed that increases in sales have led to
10-hour workdays and regularly scheduled Saturdays.
Firms are also experiencing strong orders and shrinking inventories. One contact in the tractor industry claims that inventories are at a 35-year low, owing partly to few suppliers remaining in the industry, one of which is undergoing a major reorganization. A firm in the air conditioning and heating industry reports that business has unexpectedly rebounded, after a downturn early in the third quarter. Orders to medical suppliers are booming according to a contact at a regional health center. Most firms expect slight increases in employment within the next month or two.
Two District areas of particular strength are northwest Arkansas (Benton and Washington counties) and northwest Mississippi (Tunica County). In northwest Arkansas, the regional unemployment rate has fallen more than 1 percentage point over the past year, and new home construction is booming. In northwest Mississippi, riverboat gambling has turned one of the nation's historically poorest counties into one of its fastest growing. A third casino is scheduled to open in December, and four more are under construction. More than $1 billion in construction has occurred in the area in 1993. Area firms are having difficulty finding workers because of the boom. Monthly sales in the county during the third quarter were almost double last year's sales.
Layoffs at some firms temper the generally positive news. In northeast Mississippi, for example, the cancellation of a NASA contract eliminated 1,900 construction jobs and 1,500 other jobs that would have been created had the facility been completed. A public utility in Kentucky plans to lay off almost 300 unionized workers because there is not enough work. An oil company will cut almost 150 jobs to reduce costs.
Construction and Real Fate
District residential construction has slowed somewhat in the last
several months, although year-to-date activity is still well above
that of one year ago in most areas. Builders in St. Louis are
struggling to keep up with the backlog created by an unusually wet
summer. Sales of existing homes are mixed. In some areas, recent
sales and year-to-date sales are still above those of 1992 and on
track for a record year; in other areas, the pace of sales activity
has slowed substantially in recent months. Average sales prices of
existing homes are up in most areas of the District.
Banking and Finance
A November survey of senior loan officers at large District banks
indicated that loan demand continues to strengthen in portions of
the commercial and retail markets. Increased financing needs for
inventory, plant and equipment were cited as reasons for a slight
uptick in commercial loan demand by large corporate customers. Most
respondents noted a pickup in consumer installment loan demand,
primarily for automobiles.
Agriculture and Natural Resources
The fall harvest is nearly complete, although substantial rainfall
in some areas has delayed the soybean harvest. Expectations of a
substandard crop became a reality for many District cotton farmers;
in parts of Arkansas and Mississippi, the yield on this year's crop
was approximately half the average yield. The price of cottonseed,
an oilseed similar in nature to soybeans, has risen significantly in
recent weeks because of this year's smaller soybean crop, which will
reduce the supply of soybean oil. Seeding of the winter wheat crop
is nearly completed, with the emerging crop in mostly good
condition. Although Mississippi's pecan crop is reportedly one of
the largest in recent years, its quality is said to be below
average.