December 7, 1994
Summary
Continued growth and tightening labor markets are the norm in most
areas. Consumer spending is relatively strong in most parts of the
District, and retailers expect strong sales during the holiday
season. Tight labor markets are making it increasingly difficult for
firms to find qualified workers, and many contacts report increasing
wage pressures. Residential construction continues to slow in some
markets, although commercial construction is picking up in several
areas. Loan demand is still fairly strong in most parts of the
District. Record crops have created storage problems in some areas.
Consumer Spending
District retailers report recent sales at or above their year-ago
pace, with sales growth exceeding expectations in many cases. Strong
local economies are cited by retailers as the principal reason for
strong sales. Most retailers say discounting has not been a factor
in generating these sales increases; some, in fact, expect prices to
rise as the holidays approach. Most retailers report that holiday
staffing and inventories are at desired levels. Contacts at
discounters, specialty stores and department stores around the
District report brisk holiday traffic and sales during the weekend
after Thanksgiving.
District car dealers report mixed sales activity. Some dealers are still experiencing falling sales because of lack of inventory, while others are experiencing double-digit sales increases. Prices of most 1995 models have increased relative to their 1994 counterparts, although some dealers report that these increases are being absorbed in dealer costs rather than being passed on to consumers.
Manufacturing and Other Business Activity
A growing number of contacts in the District report increasingly
tight labor markets, making it more difficult for firms to find
qualified workers. In most parts of the District, construction
workers are increasingly scarce. In southern Indiana and parts of
Arkansas, Kentucky and Tennessee, contacts report increased wage
pressures because of the tight markets. In some instances, fast food
restaurants and entry-level positions at other firms are paying up
to $7 an hour. In many areas, unemployment rates have recently
reached 20-year lows. A quarterly employment outlook survey projects
further employment gains in the St. Louis metropolitan area through
the first quarter of 1995.
Most District industries surveyed report increased sales in recent months. For example, a maker of concrete products reports that October figures show sales up 30 percent over last year. In addition, this contact reports that demand has not followed the normal seasonal pattern: Strong residential housing demand is keeping demand for building materials unseasonably high. Similarly, a District brick manufacturer currently has one-third of its annual production on back order, which is more than usual, especially for this time of year. A glass container manufacturer reports that October sales were up 8 percent over last year, and a contact in the footwear industry reports a 1.5 percent increase during October but a 15 percent increase year-to-date. A maker of car exhaust systems reports that automakers' just-in-time inventories keep this company operating around the clock to keep up with demand. In general, contacts throughout Arkansas and the Louisville, Memphis and St.
Louis metropolitan areas all report healthy economic growth.Some contacts, however, are not as positive. A maker of corrugated boxes reports October sales were down 6 percent, although year-to- date sales are still up 10 percent. A contact in northeast Mississippi reports an overall softening in the region's economy; he cites not-so-upbeat reports from computer and office suppliers, who expect some slowing over the next six months, partly because of rising interest rates.
Construction and Real Estate
Residential real estate markets have changed little since the last
report: Some areas are still experiencing strong growth in permits
and sales, while other areas are noticeably weaker. Most contacts
expect the effects of rising interest rates on permits and sales to
be substantial by mid-1995. Several areas in the District are
experiencing new construction in multifamily housing, which had been
dormant since the mid-to-late 1980s. Commercial construction is also
picking up strength in parts of the District.
Banking and Finance
District bankers continue to report relatively strong consumer and
commercial loan demand. Strength in auto sales and accompanying auto
loans is responsible for much of the growth in consumer loans.
Several loan officers from the District's largest banks report
strengthening in demand for loans to small businesses, which they
attribute to increased plant and equipment spending needs and
inventory financing.
Agriculture and Natural Resources
Despite substantial rainfall that slowed the pace of the fall
harvest in many areas, most contacts report little crop damage, with
most still expecting record or near-record crops. These large crops
have created storage problems in some areas, forcing many facilities
to store crops on the ground or to construct temporary facilities.
Many livestock producers report that cattle and hog prices have
fallen below their costs, although they note that low grain prices
have ameliorated their losses somewhat.