March 13, 1996
Summary
District economic activity continues to expand at a slow and steady
pace. While a few contacts noted some softening in the economy at
the beginning of the year, they expect a slight pickup as the second
quarter approaches. Reports indicate that the southern part of the
District is growing somewhat faster than the northern part. Monthly
residential and nonresidential building permit levels declined in
most District metropolitan areas in December. Loan demand,
especially for commercial loans, is still strong in most parts of
the District. Significant crop and livestock damage occurred because
of February's arctic cold snap.
Manufacturing and Other Business Activity
District firms report that economic growth has proceeded at a slower
pace than that of the past few months. Firms in the southern part of
the District report slightly stronger activity than their northern
counterparts. Some contacts expect the pace to pick up somewhat as
the second quarter of the year approaches. For example, a survey of
small businesses in the District found that about one-quarter plan
to hire additional workers over the next three months, with about
three-quarters planning no changes. This survey also found that
about one-quarter of the respondents increased employee compensation
during the past three months, while one-fifth plan to increase it
over the next three months. Contacts report, however, that there has
been little upward pressure on costs so far this year, and that
competition is not allowing firms to raise consumer prices.
Contacts in northern Mississippi generally report that sales for the past month or two are at levels comparable with a year ago, but signs of new growth have appeared. A producer of prefabricated metal buildings and several furniture manufacturers report unchanged sales in January, but have seen slight increases in February. Expectations are for less than 5 percent growth in the coming months. A brick manufacturer reports record sales for 1995, noting that this pace has continued into 1996. Demand for mobile homes has been particularly strong in Mississippi, requiring several local manufacturers to add employees. Firms targeting specialty markets, like gourmet stoves and home decorating, report that sales are remaining steady at high levels.
In Arkansas, a cement supplier recently had to purchase 15 new delivery trucks to meet its high demand. A maker of glass containers reports that sales since the beginning of the year are up about 12 percent over the same period last year. A company producing military and civilian boots will take over a recently closed shoe factory in western Tennessee and hire about 150 of the previously laid-off workers. A producer of truck transmissions and a maker of outdoor leisure products, however, have seen year-to-date sales fall 2 to 5 percent from last year.
In Missouri and Kentucky, reports are more mixed. A large defense contractor in the St. Louis area announced layoffs for about 470 workers because of lulls in production for some products. At the same time, this company received a new fighter jet contract worth almost $600 million, which will secure other jobs for the time being. An auto producer has reopened its Missouri plant as scheduled, employing about 2,400 people. A printing company in southern Illinois, trying to reorganize through bankruptcy, closed in late February, eliminating 850 jobs. Another high-sulfur coal mine in Illinois is closing, leaving behind 200 jobs. A major department store retailer, however, moved its credit department from Maryland to St. Louis and created 350 new jobs.
Real Estate and Construction
Residential building permits in December 1995 were above their year-ago levels in five of the District's 12 metropolitan areas. Only two
metro areas, though-Fayetteville, Arkansas, and Memphis, Tennessee-
experienced an increase in the number of residential permits between
November and December. Most other District metro areas saw sharp
declines in activity in December, including some of the areas that
had levels above those of one year ago. Nonresidential building
permits in December were above their year-ago levels in only three
of the District's metropolitan areas. Pine Bluff, Arkansas, was the
only District metro area to experience an increase in permits
between November and December. The level of nonresidential permits
in all other areas fell off sharply in December.
Banking and Finance
Loan demand continues to be characterized as strong by most
respondents, although signs of softening are scattered throughout
the District. Commercial and industrial (C & I) loans appear to be
the strongest segment of the loan market; respondents are divided,
however, about the riskiness of new C & I loans. Pricing is still
described as aggressive in a number of District markets, but
respondents in other markets report a lessening of competition. A
few respondents report a recent surge in refinancing in their areas.
Agriculture and Natural Resources
February's cold snap adversely affected the District's agricultural
sector. Reports from crop analysts suggest that the wheat crop in
Illinois, Indiana and Missouri, which was already hurting from
inadequate soil moisture, suffered additional freeze damage.
Although the true extent of the damage is yet unknown, one report
indicates that a five-county area in southern Illinois was
especially hard hit. Some farmers will be forced to plow their wheat
fields under this spring and plant corn, soybeans or milo.
The cold weather also hurt livestock producers. For example, Mississippi catfish farmers reportedly suffered substantial losses because of ponds freezing over. On the positive side, cotton analysts said the cold weather destroyed a significant percentage of the boll weevil population. An increasing number of farmers indicate that the uncertainty surrounding the 1996 Farm Bill legislation has delayed final plantings. As a result, many farm lenders are reportedly proceeding at a cautious pace. Delta farmers are expected to reduce planted cotton acreage by about 10 percent this spring. In response to high grain prices, most of this acreage will be planted to corn or soybeans instead.