January 20, 1999 Federal Reserve Districts Eighth District - St. Louis
Summary Districts Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Full report		Economic growth in the District continues at a moderate pace, despite less-than-glowing reports from retailers. District retailers remain optimistic, however, about sales prospects in the first half of 1999. Other business contacts saw relatively healthy conditions, with some reporting an unexpected growth in sales because of unusually warm weather. Labor markets remain tight, and worker "poaching" is on the rise again in certain areas. Residential real estate markets remain strong, with a lengthy backlog in some regions. Loan demand at large District banks remains strong, especially on the business side. Despite the recent cold snap, the District's winter wheat crop appears to be in good condition. Consumer Spending District retailers reported that holiday sales were up on average about 2.5 percent from a year earlier. Slightly more than half of the respondents said that sales growth was below expectations. As a result, most consider their current inventories to be too high. Certain products, however, sold very well this season. Electronics, especially computers and televisions, topped many holiday shopping lists. Contacts have high expectations for the first half of 1999, with most anticipating sales to increase about 5 percent from the same period in 1998. District car dealers reported that December sales were up on average about 6 percent from a year earlier. Most dealers noted that current inventories were not at desirable levels: some too high; many others too low. Contacts also indicated that buyers have recently substituted purchases of new cars for used cars; used car sales have slowed as a result. Overall, dealers are optimistic about 1999, anticipating sales to remain on their current track through the second quarter. Manufacturing and Other Business Activity District contacts continue to report overall healthy economic conditions and remain optimistic about the near-term economic outlook. Many contacts report a pickup in sales over the past few weeks, with most attributing it to the unseasonably warm weather throughout the region during the late fall. Industries that normally cut back because of winter weather, like construction and building products producers, were able to extend their productive seasons. Labor markets remain tight in most parts of the District. In the Evansville area, for example, the Toyota plant is said to be exhausting the available workforce, and smaller businesses are unable to compete with Toyota's compensation packages. In other areas, contacts have noticed an increase in employee poaching. Despite tight labor markets, though, parts of the District, especially the Louisville and Memphis areas, are increasing their large importance as distribution centers. Many incoming firms cite the region's central location and the presence of UPS and FedEx hubs. Shifting demand has also affected employment at some District firms. After many years of operating an intense production schedule to meet the demand for minivans, DaimlerChrysler has laid off about 500 workers at its St. Louis plant because of reduced sales. Other firms are reporting employee cutbacks because of slack Asian demand. There are also reports that weakened Asian demand is leading to a pileup of empty cargo containers at regional ports. Real Estate and Construction Monthly residential construction permits in almost all District metropolitan areas were down in November, although year-to-date, these areas are still on record pace. Despite the recent slowdown in permit issuance, construction continues to boom, and the backlog of contracts remains unusually high. Some parts of the District are reporting two years' worth of housing in the pipeline. Housing sales remain strong, although the usual seasonal slowing has appeared, and price increases have moderated. Nonresidential construction in the District remains spotty. Banking and Finance Total loans outstanding at a sample of large District banks rose 2.8 percent in the final two months of 1998, compared with an increase of 2.6 percent in the same period a year earlier. Commercial and industrial loans jumped 4.6 percent-more than double their year-earlier growth-while real estate loans increased 2.9 percent. Consumer loans outstanding rose 1.5 percent. Agriculture and Natural Resources The winter wheat crop is reportedly in good-to-excellent condition in most areas. Adequate soil moisture District-wide, along with favorable growing conditions this past fall, appear to have helped considerably. Although it is too early to know for sure, the unusually cold temperatures in late December and early January may have caused some damage to the wheat crop. Cotton prices dropped about 10 percent between the end of November and early January. Although a bigger-than-expected crop has helped reduce cotton prices, contacts report that the expectation of reduced exports, perhaps because funding for the so-called Step II cotton subsidy program has run out, has had a bigger effect. Despite the recent financial problems in much of the Farm Belt, credit availability does not appear to have been restricted for most farmers. There are some reports, though, of a small number of farmers selling tangible assets to raise needed funds. Continued low crude oil prices have led several producers to shut down a large number of low-volume stripper wells, which, accordingly, has adversely affected the demand for oil field services in a number of areas. Return to top Chicago Minneapolis

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Last update: January 20, 1999