August 9, 1995
Summary
The District's economic expansion continues to slow. The pace of
consumer spending is unchanged to up slightly from year-ago levels,
but some retailers are less optimistic about upcoming back-to-school
sales. Relative to the robust growth of a year ago, building permits
for new home construction on a year-to-date basis are down in most
parts of the District. Loan demand continues strong at District
financial institutions. Soil moisture conditions arc deteriorating
across much of the District.
Consumer Spending
District retailers report recent sales at or above their year-ago
pace, with sales growth meeting or exceeding expectations in many
cases. Retailers cite business expansion and population growth as
reasons for robust sales. Compared with previous years, most
retailers have used less discounting to stimulate sales. About half
report wage pressures because of labor shortages. Although back-to-
school sales activity is expected to be down from last year,
retailers are modestly optimistic about the last two quarters of
this year. One pessimistic retailer, however, anticipates that it
will be "a hard fight with a short stick."
District car dealers report mixed sale activity. Most are experiencing flat to moderately strong sales growth, although dealers in Little Rock report slowing growth because of inventory shortages. Factory incentives and rebates have been used more than usual to spur sales in the District. Dealers generally report an increase in used car sales, but are divided about whether this increase is affecting new car sales. Assuming they can maintain inventory, dealers are generally optimistic about the rest of 1995.
Manufacturing and Other Business Activity
Most contacts continue to see a slowing in the economy. Many report
that overtime and temporary employees are no longer needed to meet
demand, although scattered comments like "sales remain steady" and
"there still remains a shortage of skilled workers" mitigate these
reports somewhat.
For the first time in a few years the furniture industry in northeast Mississippi reports a slowdown in its rate of growth. Overall, though, the contact notes that the region continues to grow modestly. In northwest Mississippi, contacts believe the current slowing will continue through the fall. A St. Louis-based baking company will relocate to Kansas City after being bought by a firm from that area. Most of the company's 250 St Louis employees will not be relocated to Kansas City. A maker of household appliances is laying off 600 workers, most of whom were hired to meet last year's record-setting demand. A supermarket chain is dosing a Louisville distribution center, eliminating about 150 jobs.
An automaker announced it will choose one of two District plants to assemble a new luxury sport-utility vehicle. Two firms that supply parts to the auto industry will build new plants in Missouri, employing about 250 workers in total. The steel industry in northeast Arkansas is expanding east into Tennessee with the construction of a mini-mill that will employ about 300.
Real Estate and Construction
Residential building permits for new houses are down in most parts
of the District on both a year-ago and year-to-date basis. Memphis
is the only District region reporting an increase in permits, which
are up about 6.5 percent so far this year. Home sales in Memphis,
however, are down from a year ago. Total construction permits
(residential and commercial) in northwest Mississippi are up
slightly in the most recent month, but down significantly on a year-
ago basis. Interestingly, when Tunica County--where there has been a
sharp dropoff in the construction of riverboat casinos--is excluded
from these tallies, the area reports relatively robust growth.
Banking and Finance
Loan demand and competition among leaders are still reported to be
strong in most areas of the District. Though some areas report a
small uptick in loan delinquencies, most have experienced no change.
A number of banks report eroding net interest margins, resulting
primarily from intense competition in deposit pricing. Some areas
report stronger demand for agricultural loans this year as farmers
have been forced to replant crops because of earlier flooding.
Agriculture and Natural Resources
Hot, dry weather during much of July across the District has caused
soil moisture levels to deteriorate markedly when compared with
June. Although crops are generally in good-to-fair condition, there
is widespread concern among farmers about the variability and growth
of their crops, particularly corn and soybeans in the northern
portions of the District. The wheat harvest in Arkansas was reported
as one of the best in years, while yields in Missouri and Illinois
were disappointing because of a crop disease caused by too much
moisture in May and June.