June 21, 1995
Summary
The District economy continues to grow, albeit at a slower pace.
Residential construction activity continues to slow, although
multifamily and commercial construction have increased recently.
District bankers report little change in loan demand and supply
conditions. Record rainfall has produced severe flooding along major
rivers in the District, affecting thousands of acres of farmland and
causing further delays in planting spring crops.
Manufacturing and Other Business Activity
Contacts continue to report mixed signals about economic activity,
with many more noting a slowdown than in prior periods. Despite the
slowing, reports of tight labor markets are common. Although many
contacts expect a continued slowing in the economy, most do not
foresee a recession in the near future.
Contacts describe a general slowdown in the national and regional economies, although the regional slowdown is more spotty. Overnight package delivery firms and interstate trucking companies report a slowing in orders. Suppliers to the auto industry have felt the effects of waning auto demand; one such supplier reports the company's first decline in sales in more than a year. Contacts in the apparel industry report that apparel sales are down and do not show any sign of bouncing back soon; however, shoe sales are stable. Competitive pressures have caused firms in this industry to obtain most of their product overseas to control costs. In addition, by managing their clients' inventories, these firms have held prices down and improved overall industry efficiency Generally, international markets appear to be the strongest areas of growth.
Contacts at public utilities report that the pace of new residential installations has fallen because of the construction slowdown; meanwhile, the pace of industrial installations for small businesses has been steady. A chemical company that depends largely on the auto and construction industries reports strong sales in recent months, with plants operating almost at capacity; this company's plastics division has been operating above capacity. This contact expects the recent slowdowns in auto production to dampen sales, though.
Some District industries continue to report growth. Mobile home manufacturers around the District report sharp increases in sales and employment. In addition, they report increases in starting wages to improve recruitment and retention of new employees. Furniture makers in northeast Mississippi are operating at capacity with plans to expand. A contact whose firm makes prefabricated metal buildings also reports rapidly growing sales.
Many areas of the District are still experiencing tight labor markets, particularly for entry-level positions. Some contacts still report difficulty finding qualified applicants. One firm reports a 60 percent turnover rate for new employees, and many firms have resorted to hiring those applicants with "good attitudes," that is, those who are willing to be trained. Some firms have been substituting capital-especially computers-for labor as a way to increase productivity In some instances, though, this action has added to hiring pressures because the new technology raises the job's qualifications, and firms are finding that many entry-level applicants arc computer-shy.
Real Estate and Construction
Most parts of the District are still experiencing declines in the
number of residential construction permits issued, owing mostly to
last year's interest rates hikes Home sales in most areas are also
lagging behind last year's levels. In general, there continues to be
a need for more "starter" home construction (less than $100,000) in
many parts of the District. "Trade-up" homes, especially those in
the mid-$100,000 to $200,000 range, are not moving well. On the
other hand, permits for multifamily buildings are on the rise in
many areas, especially for apartment complexes, and commercial
construction is continuing to show a moderate gain.
Banking and Finance
District bankers report little change in loan demand or supply
conditions over the last several months. A number of banks have
eased terms on commercial loans for small, mid-sized and large
borrowers in response to intense competition in some markets. Loan
demand is reported to be steady, although a number of institutions
have noted a pickup in residential mortgage demand in recent weeks.
Agriculture and Natural Resources
Heavy rains during May have slowed the pace of corn and soybean
planting in Missouri, Illinois, Indiana and parts of Kentucky and
have caused flooding in many areas. Planting that should have been
completed by mid- to late-May was reported as only half to two-
thirds complete by the first of June. In some areas, further delays
may force farmers to plant soybeans instead of corn. The heavy rains
have also caused substantial flooding along the Mississippi,
Missouri and Illinois rivers. Reports suggest that several thousand
acres have been flooded because of levee breaks. The amount of
flooded farmland has been especially acute in Arkansas, with 100,000
to 200,000 acres affected. The flooding also closed the port of St.
Louis for two weeks, stranding more than 1,000 barges and several
million bushels of grain. Cotton prices in the Memphis market
continue to trade above $1 per pound, as demand for cotton remains
strong.