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The District economy is still growing at a moderate pace. District firms continue to report growth in sales and employment, though tight labor markets persist in many parts of the District. Contacts are generally optimistic about near-term economic conditions. Residential construction still lags last year's levels even though half of the District's metropolitan areas saw increases in their monthly permit levels in May. Total loans outstanding at large District banks rose slightly during the past two months, with commercial and industrial lending posting the largest increase. In sharp contrast to our previous report, when below-average temperatures and above-average rainfall were the norm, hot and dry weather has prevailed in most areas, causing crop and pasture conditions to deteriorate somewhat.
Manufacturing and Other Business Activity
District contacts continue to report that favorable economic conditions are allowing them to increase sales and employment, though tight labor markets still plague many parts of the District. While demand remains greatest for skilled trade workers�especially those with electronic skills, master electricians, and drafters�contacts are reporting that health service workers�particularly nurses and occupational therapists�and hotel and restaurant managers are also needed. In addition, many firms are still having trouble finding and retaining qualified entry-level workers. Still, most contacts have not reported added upward wage pressure in the face of ongoing labor market tightness.
The District's furniture industry got a boost when a manufacturer decided to consolidate two of its plants into an Arkansas plant, bringing about 900 new jobs. Two new distribution warehouses will be built in the District, one that will employ almost 400 in Illinois and another that will employ about 450 in Mississippi. Truck engine and parts sales have recently exceeded expectations, according to a contact who expects this trend to continue in the coming months. Most contacts remain optimistic about economic conditions in the foreseeable future.
The District's apparel industry, however, is still experiencing plant closures because of overseas competition. For example, a shirt manufacturer closed at the end of last month, eliminating 135 jobs. In addition, the District's paper industry will shrink some as a major producer shutters two plants in a companywide restructuring. About 300 jobs will be lost at the two plants.
Real Estate and Construction
Monthly residential construction permits in May picked up in six of the District's 12 metropolitan areas, mostly in the southern and eastern parts of the District. Permit levels in almost all District metro areas remain below year-ago levels, which were record highs. Fort Smith and Evansville are the only District metro areas where residential construction is ahead of last year's pace. In most other cities, though, the gap has been narrowing as the year progresses. Contacts report that apartment construction is booming in Little Rock and Memphis. Other nonresidential construction also remains strong in many parts of the District.
Banking and Finance
Total loans on the books of six large District banks increased 1.5 percent between mid-May and mid-July, after increasing just 0.7 percent between mid-March and mid-May. Commercial and industrial (C & I) loans rose 2 percent in the most recent period, while real estate loans rose 1 percent. Consumer loans outstanding declined 2.1 percent. During the same period one year ago, C & I loans increased by just 0.2 percent while real estate loans rose 0.6 percent.
Agriculture and Natural Resources
In a marked departure from May and early June, when below-average temperatures and above-average rainfall were the rule rather than the exception, hot and dry weather has prevailed over much of the Eighth District over the past month or so. As a result, reports from several areas indicate a deterioration in the condition of pasture and row crops. For the time being, however, crops are generally in good condition, with most farmers continuing to expect above-average production this fall. Still, the cotton crop, owing to its slow start this spring, remains modestly behind schedule and in somewhat less favorable condition in many areas. Above-average rainfall over much of Mississippi has produced loss rates of up to 100 percent in isolated instances, leading cotton farmers to plow under their crop and replant with soybeans.
The harvesting of the District's wheat crop is largely complete. Early reports from Illinois suggest yields were above average in many areas and exceeded many farmers' expectations. Yields are expected to be above average in Indiana and Missouri also, but close to average or slightly below average elsewhere.
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