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The pace of District economic activity has changed little since our last report. Sales and employment levels are generally up, and inventories are, for the most part, at or near desired levels. Contacts from around the District continue to report tight labor markets. Firms that have experienced price increases for materials have generally still not been able to pass them along to customers. Residential construction permit levels are ahead of last year, with recent upticks in most areas. Total loans outstanding at large District banks rose slightly during the past two months, led by consumer lending. Prices received by District milk producers have risen substantially over the past 12 months, although they are expected to fall somewhat before the end of the year. Record rice yields were reported in many areas, while some District cotton producers report a higher-than-usual outbreak of boll rot.
Manufacturing and Other Business Activity
Reports of sales increases, employment gains and plant expansions from contacts around the District far outnumber reports of declines and closures. Labor markets remain tight in most parts of the District. Striking McDonnell Douglas machinists voted to accept the company's contract offer in mid-September, allowing the 6,700 striking workers to return to their jobs. The strike lasted slightly more than three months. The strike by Canadian auto workers against General Motors has had little effect on District manufacturers and parts suppliers.
Contacts from a paper products company and a poultry processor report plant expansions, resulting in additional employment. A package delivery service has increased the size of its planned expansion, which will dramatically increase local employment and capacity. The District's heating and cooling industry is again posting a record year for shipments and profits. Firms in the District's apparel industry, though, are still feeling the bite of layoffs, predominantly because of price competition and inventory pressures. More than 900 jobs will be eliminated by year's end.
The largest bank in the Eighth District, Boatmen's Bancshares, agreed to merge with NationsBank of North Carolina. The precise employment consequences of this merger remain uncertain, although plans call for St. Louis to be the headquarters for the bank's western operations and to house the combined company's trust business.
Inventories and Prices
Most firms relaying information about inventories state that current levels are either at or slightly below desired levels. Some contacts continue to report increases in the prices of raw materials, which they are generally not able to pass along to customers. In some rare instances, large buyers have requested price cuts, threatening to take away business otherwise. In others, increased productivity has offset the higher costs. Several contacts, including carpet makers, furniture manufacturers and textile producers, have reported recent declines in raw material prices.
Real Estate and Construction
Sales of new and existing homes have slowed somewhat in parts of the District. However, the number of construction permits for new homes was up in August in more than half of the District's 12 metropolitan areas. All but two of the District's metro areas have posted permit levels that are above those of a year ago. Some builders in the southern part of the District are either behind schedule or unable to take on new projects because of a lack of workers. Reports from commercial real estate agents are still mixed, although some increase in the demand for suburban office space was noted.
Banking and Finance
Total loans on the books of 11 large District banks rose 0.2 percent between early August and late September, after declining 1.4 percent in the prior two-month period and 0.1 percent in the same period one year ago. Business loans rose 0.3 percent in August and September, while consumer loans increased 2.6 percent. Real estate loans, which comprise about 40 percent of the total, declined 0.8 percent. Banking contacts continue to describe loan and deposit competition as fierce.
Agriculture and Natural Resources
A Missouri dairy industry contact reports that milk prices paid to producers in September were up 27 percent from last year--an increase that is expected to prevail into November. Not all of the increase, however, has been passed on to retailers. In response, some farmers have reportedly increased their use of production-enhancing hormones, while very few have yet to increase their herd size. This same contact says that, with increased production and expected declines in feed costs, prices should start to decline in December. High feed costs have also spurred some cattle producers in the southern parts of the District to increase the number of acres planted for grazing purposes.
With a hard frost yet to hit most of the northern reaches of the District, the corn and soybean crops, generally speaking, have reached full maturity. Nevertheless, the pace of the corn and soybean harvest, at least in parts of Illinois and Indiana, is well below normal; in general, it is on or ahead of schedule elsewhere. Parts of the Arkansas cotton crop have been substantially afflicted with boll rot. An industry contact, however, reports that the Mid-South cotton crop will probably have only slightly higher-than-average boll rot this season. Rice yields in parts of Arkansas were reportedly the highest on record.
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