December 4, 1996
The Eighth District economy continues to grow at a steady pace. District retailers report that sales were up about 4 percent in September and October over one year ago, and most are expecting a strong holiday season. Auto sales were mixed over the same two-month period, but most contacts expect a pickup through year?s end. Most other contacts report continued growth in their industries, although some have noted a slowing in this growth. Labor markets remain tight around the District. Materials prices are generally stable to up slightly. Real estate markets are strong in most parts of the District. Loan demand, particularly for business loans, remains relatively strong. Farmers appear to have had a good crop year, with prices and yields generally above average.
Consumer Spending
Retail contacts report that September
and October sales were up about 4 percent
from one year ago. Toys, home
improvement products and women?s
apparel were the biggest sellers. Contacts
also report that their inventories are at
desired levels. Most are expecting a strong
holiday season, with electronic products,
toys and jewelry leading the way. Moreover,
most believe that the first quarter of 1997
will yield better sales than a year earlier.
Car dealers were split in their sales reports for September and October. While about half saw sales increase about 8 percent over the year before, the rest saw sales decline about 10 percent. Rebates have not been used any more than usual to move product. Most dealers are optimistic about sales prospects through year?s end, and are even more upbeat about the first quarter of 1997.
Manufacturing and Other Business Activity
Most District contacts continue to
report growth at their firms and in their
industries. Hiring and keeping qualified
workers because of tight labor markets
remains a big concern for many companies.
One contact remarked that firms are having
particular difficulty finding qualified
workers because the skills needed today are
much more specialized than they were in the
early 1970s, when similar unemployment
rates existed.
Providers of transportation and delivery services are growing in the District, with both railroads and trucking firms adding workers. Trucking companies report that there is currently a severe shortage of drivers. The food and beverage industries also report sales and employment growth, with poultry processing firms adding workers and a beverage firm reporting sales increases over last year.
Other firms, while still reporting growth, have recently noted a slowing in this growth. A chemicals company reports that sales are still above last year?s, but they are not as robust as they were a few months ago. Die cast producers have also seen a slowing in their volumes. A contact in the scrap metal industry has noted a slowdown in the steel industry?s rate of inventory increase, perhaps portending a downturn in that industry. The District?s apparel industry is still contracting, with two more plants closing because of foreign competition. About 750 jobs will be lost in total.
Prices
Most firms report that materials
prices have been stable to up somewhat, but
any increases have generally not been
passed along to customers. Lumber,
aluminum and natural gas prices, in
particular, are reportedly higher, while
scrap steel prices have recently fallen.
Contacts also report nominal wage increases
of between 3 percent and 4 percent for the
coming year. One contact mentioned that
some large customers are requesting rebates
from suppliers in lieu of lower prices for
large contracts.
Real Estate and Construction
Residential real estate markets are
strong in most parts of the District. Prices
for both new and resale houses are rising.
Monthly residential construction permits in
September were up in only five of the
District?s 12 metropolitan areas. On a
year-to-date basis, permits were up in nine metro
areas. The three areas that were below last
year?s levels are all in the southern part of
the District. Nonresidential construction is
particularly strong in the southern part of
the District, especially in northwest
Mississippi. Parts of southern Illinois and
western Kentucky are also seeing strong
commercial construction.
Banking and Finance
Bankers across the District report
continued strength in loan demand,
especially on the commercial side. Credit is
described as plentiful by most District
contacts. Bankers in St. Louis and central
Kentucky report aggressive competition for
business loan customers. Some bankers
have noted a softening of consumer loan
demand and report being much more
cautious in extending consumer credit in
response to rising personal bankruptcies
and consumer debt loads.
Agriculture and Natural Resources
With the fall harvest winding down,
substantial rainfall during early- to mid-
November in several parts of the District
slowed the pace of activity to a near
standstill. Initial reports suggest that yields
were generally above average and, in some
instances, outstanding for most crops. For
example, Arkansas rice farmers expect
yields to surpass the all-time high set just
two years ago. Southern pine lumber mills
report that orders on a year-to-date basis
continue to outstrip last year?s pace by a
little more than 7 percent.