March 7, 2001
Federal Reserve Districts
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With energy prices remaining high, manufacturing activity weaker and several spates of severe winter weather, the pace of District economic activity has slowed noticeably. Businesses generally report little or no employment growth and slowing demand. Concerns about tight labor markets have abated lately. Residential construction is down, although low mortgage rates recently have revived home sales. Credit standards for loans, especially consumer loans, have tightened, while loan demand has weakened. Crop and livestock prices have rebounded somewhat from their lows. Timber farms suffered major damage from ice storms earlier in the season.
Manufacturing and Other Business Activity
High natural gas prices, coupled with cold winter weather during the past two months, are squeezing profit margins at many firms, especially in the health care and manufacturing industries. Most firms, however, have been reluctant to pass on higher costs to consumers and, instead, are attempting to minimize their use of natural gas, while exploring options for other sources of energy. A scattering of firms, some in the chemical industry, have reacted to higher energy prices by laying off workers to reduce costs. Contacts suggest that layoffs and plant idlings will spread if high energy prices persist. On top of cost concerns, many firms in Arkansas are still recovering from severe ice storms, which caused heavy damage and forced many to shut down temporarily.
Through it all, some industry contacts remain optimistic that demand and employment will rebound. In fact, FedEx Express has announced that it will add 1,500 jobs at its Memphis hub this summer because of its contract with the U.S. Postal Service. Contacts in Mississippi and in the Louisville area anticipate a pick-up in demand and employment growth over the next few months.
Real Estate and Construction
Nonresidential construction has also felt the bite of bad weather. In Memphis, for example, commercial contractors report that the number of bidding opportunities has declined, which translates into projects not being booked as far in the future as usual. In Mississippi, contractors report that the number of major projects being planned, such as casinos and hotels, is waning.
Banking and Finance
Agriculture and Natural Resources
Ice storms in the southern part of the District severely damaged timber farms, leaving many trees unusable for lumber. To recoup some of these losses, several producers chipped the damaged timber into pulp. Demand for lumber, however, has continued to decline, as southern pine lumber mills report that orders and production in 2000 were markedly below 1999 levels.