March 8, 2000
Federal Reserve Districts
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The District economy continues to operate at a high level. Reports of worker shortages at a variety of firms are still the norm. Firms and communities continue to respond to shortages with innovative training/bonus programs. Some firms have upped their starting wages as well. Residential real estate markets remain robust overall despite some slowdown in the growth rates of sales and construction near the end of last year. Banks continue to search for additional sources of funds as loan demand remains relatively strong while deposit growth is flat. Drier-than-normal weather, which has resulted in low river levels, has restricted barge traffic on the Upper Mississippi River.
Manufacturing and Other Business Activity
A scattering of downsizings have also been reported, most notably the layoff, in response to falling prices, of 425 workers in western Kentucky at one of the nation's two uranium plants. Makers of commercial kitchen equipment expect a moderate slowdown this year due to higher interest rates. A dip in the demand for athletic gear led to the downsizing of an athletic store chain, eliminating 450 jobs. The sharp rise in oil prices over the past few weeks has been affecting not only customers, but also the District's trucking and transportation industry, which has been attempting to pass on the higher cost to customers because profit margins are being squeezed. On the other hand, higher oil prices have spurred a moderate resurgence of drilling and exploration activity at some firms in the District.
District employers still report having difficulty hiring and retaining qualified workers, which, in some cases, continues to hinder plans for expansion. Labor shortages are affecting both skilled and unskilled labor at a wide range of firms, including manufacturers, banks, hotels and retailers. In addition, the health care industry is experiencing a severe shortage of nurses. Some communities, however, are using job-training programs and expanded vocational training programs in high schools to successfully attract new workers, such as teenagers, and older and disabled people, into the labor force to help alleviate the problem.
Contacts note that some firms are raising wages to attract workers. Several fast food restaurants in some regions, for instance, are paying $8 an hour for what a contact calls "warm bodies." In all, though, most contacts report that wage increases are in the 3 to 5 percent range. On top of higher starting wages, firms continue to offer incentives to workers who stay at a job or refer other new employees. One health care company, for example, is offering $1,000 bonuses to new hires and $50 awards for successful referrals.
Real Estate and Construction
New construction has mirrored sales. Monthly residential building permits in almost all District metropolitan areas were down in December, although year-to-date they were above their year-earlier levels. Despite this late-year slowing, new permit levels were still at historically high levels, especially in parts of Mississippi and Kentucky. Homebuilders continue to report construction backlogs, although they have been declining somewhat since November. Overall, most real estate agents and builders remain optimistic about sales in early 2000.
Banking and Finance
Agriculture and Natural Resources
In February, the USDA announced that this year's tobacco quota will be 45 percent lower than last year's. Since this is the third consecutive year of quota cuts, and since burley tobacco is Kentucky's largest cash crop, contacts are concerned that many farmers may be pushed deeper into financial trouble. In fact, agricultural lenders in general remain concerned about agricultural loans, as crop prices are expected to remain low in the foreseeable future.