November 2, 1994
Summary
District firms continue to report expansions and new hirings. At the
same time, plant closures and layoffs have dulled the momentum
witnessed earlier this year. Residential construction activity is
mixed, but new and existing home sales are still strong in most
areas of the District. Business, real estate and consumer loans
outstanding at large District banks have increased moderately in
recent months. Record crops in many areas have buoyed District
farmers after last year's poor harvest.
Manufacturing and Other Business Activity
District firms continue to report modest growth, although some firms
are laying off workers and shutting down plants. Sales, for the most
part, continue strong in many industries. Many contacts,
particularly in the Memphis, northern Mississippi and eastern
Arkansas areas, are reporting a shortage of qualified workers for
both permanent and seasonal work.
One contact in the paper industry reports that the third quarter was the best since 1989, with capacity at about 96 percent. A contact in the heating and cooling industry reports a record year, with sales greatly surpassing last year's levels. This contact also noted that a slowdown in orders for the fourth quarter was larger than the normal seasonal decline. A farm equipment dealer states that new equipment sales have picked up very well over the past two months, while used equipment sales have dropped off somewhat. The poultry processing industry is entering Kentucky en masse; another firm announced plans to open a new plant, bringing the total to four within the past year. Makers of wood furniture in northeast Mississippi report that plants are operating at or above capacity, overtime is the norm, and plans for expansion are commonplace. An apparel manufacturer reports optimism about sales for the rest of the year given the current level of orders.
Some manufacturing firms in the southern part of the District report year-to-date sales increases of between 5 percent and 26 percent over last year. Firms throughout the District also report increases in employment levels. For example, a dry cleaning company will bring 300 new jobs into southern Indiana when it moves into refurbished Army facilities. An engine manufacturer will bring 600 jobs to central Missouri when its new plant opens next year. A maker of plumbing fixtures is building a new plant in western Tennessee and will hire at least 200 workers initially. Because of a new contract with a fast food chain, a poultry processor is adding 200 employees at its Missouri plant and will hire almost 500 in Kentucky. A maker of mobile homes that closed a plant in 1991 has reopened it because of high demand; the company has a 600- to 700-home backlog.
All the news is not positive, however, as layoffs and plant closings have also occurred. For example, a maker of tissues and other paper products closed its Memphis plant, eliminating 640 jobs. A maker of plastic products closed its Missouri plant, eliminating 200 positions. An Arkansas shoe company has placed all production employees on a four-day workweek in an attempt to avoid layoffs. A hydraulic pump manufacturer will lay off 175 workers when at closes early next year because of excess capacity.
Construction and Real Estate
Some softening of single-family residential construction, largely
attributed to rising interest rates, is being reported in several
areas of the District. Although single-family building permits are
still up on a year-to-date basis, they were at or below their year-
ago levels in July and August in both Louisville and Memphis. In St.
Louis, permits were still above their year-ago levels in August and
September, but the pace of activity is markedly slower than it was
earlier in the year. Some pockets of strength still exist, however,
as residential construction in northeast Mississippi, and in central
and northwestern Arkansas continues at a strong pace. Even in areas
of slowing construction, however, realtors still report fairly brisk
sales of existing homes.
Banking and Finance
Total loans and leases at 11 large District banks rose 1.7 percent
during the past two months, after declining 1.9 percent in the prior
two months. Each category of loans showed growth during this most
recent two-month period: Commercial and industrial (C&I) loans rose
1.7 percent, real estate loans were up 1.1 percent and consumer
loans increased 3.2 percent. In the prior two-month period, C&I
loans were down 0.9 percent, real estate loans had declined 3.6
percent and consumer loans were up a modest 1.3 percent.
Agriculture and Natural Resources
The fall harvest is reported as better-than-expected in many areas.
Arkansas farmers, for example, expect to harvest a record rice crop,
with milling quality generally reported as good to excellent.
Similarly, Delta cotton farmers report that warm, dry weather in
September has produced good yields, although recent rains may have
diminished the quality of the crop somewhat. Corn and soybean yields
are reported as above average in most areas, with some farmers
reporting record yields. Even some fields in Missouri that were
damaged in last year's floods have reportedly yielded unexpectedly
good crops. Bumper crop prospects, however, have caused most grain
prices to fall well below last year's levels. Despite low river
levels in the southern parts of the District, primarily on the
Mississippi, barge traffic has not been impaired. In fact, barge
operators are expecting business to pick up because of the record
fall harvests and the prospects of increased grain exports.