Summary
District economic activity, buoyed by relatively strong holiday
sales, continues to increase at a moderate pace. Unseasonably warm
weather hindered apparel sales, but big-ticks items like jewelry
were large sellers. While a recent survey of small businesses
reveals that the majority expect little change in business
conditions over the first half of 1995, one-fifth anticipate
improving conditions. Tight labor markets remain a major concern
among contacts. Firms in various industries report sales and
employment growth. Residential construction continues to slow
because of higher interest rates, and average single-family home
prices are up slightly. Total loans outstanding at large District
banks continue to increase, though by less than they had previously.
Consumer Spending
Most retailers in the District report that holiday sales were up an
average 6 percent to 7 percent over last year's season. Electronics,
jewelry and other big-ticket items were the strongest sellers.
Apparel sales were well below expectations because of unseasonably
warm weather; however, some retailers in Memphis credit it for their
strong holiday sales. Many retailers discounted apparel before
Christmas to try to move the merchandise. After-Christmas sales
generally met expectations, with most retailers employing their
normal price reductions to reduce remaining inventories.
Car dealers generally report increased sales in December, in some cases of up to 20 percent over last year, although some dealers lost sales because of continued shortages of popular models. Many cite creative leasing programs and improved local economic conditions as boosting sales, despite slightly higher prices on 1995 models.
Outlook
A December 1994 survey of 87 District small business shows that
slightly more than one-fifth expect a more favorable outlook in
general business conditions over the next six months; this
proportion is up about 5 percentage points from a similar survey
conducted in November. More than half, however, expect little change
in business conditions over the next six months. Slightly more than
one-quarter of respondents plan to increase prices over the next
three months, compared with just under one-quarter in November.
Nearly half plan no change in prices in the next three months, down
from about three-fifths in November who indicated a similar
sentiment.
Manufacturing and Other Business Activity
Contacts throughout the District continue to report that labor
markets are the tightest they have seen in years. Higher starting
wages and increased benefits have not helped many firms find and
keep qualified employees. For example, a nonprofit organization that
regularly hires seasonal workers to aid with its holiday fund
raising was unable to find people, which translated into reduced
collections. One contact reports that retail stores were actively
recruiting employees from other stores.
Growth in sales and employment continues around the District. Farm equipment dealers report that although sales were down slightly in the most recent period, 1994 was a record year, with sales up about 12 percent over the year before. Various manufacturers in western Tennessee and eastern Arkansas report sales and revenue increases of between 15 percent and 40 percent in late November and early December over the prior month. These contacts report, though, that profit margins are much tighter because of competition and rising costs.
Reports suggesting that many firms are facing capacity constraints are increasing. For example, a food processor reports significant overtime, a printing establishment has all plants running at capacity, and a maker of packaging products now operates three shifts to meet increased demand. In addition, announcements of new plants come from the Little Rock area, northern Kentucky, central Arkansas and northwest Mississippi. Each will bring at least 200 jobs into their areas, most by June.
Construction and Real Estate
Contacts in most parts of the District continue to report slowdowns
in residential construction activity, which they attribute to higher
interest rates. Northwest Arkansas, however, is enjoying an extended
construction boom; the value of its residential construction
contracts is up more than 60 percent from a year ago. Most contacts
also report that homebuilding in the high end of the market is still
relatively strong; east-central Mississippi, though, sees softening
in this market. Single-family home sales are down in Louisville and
western Kentucky, western Tennessee and St. Louis. Average home
prices are up slightly in most parts of the District; contacts in
Memphis also report sharp increases in apartment rents.
Banking and Finance
Total loans outstanding at 11 large District banks rose 1.8 percent
from mid-October to mid-December after increasing 2.2 percent from
mid-August to mid-October. All major loan categories-commercial,
real estate and consumer-increased in both periods. Although
commercial loans increased more in the latter period than they had
in the former, smaller increases in consumer and real estate loans
from mid-October to mid-December dragged down the increase in total
loans.