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The District economy continues to operate at a high level, and contacts remain optimistic about future economic prospects. Tightness in labor markets, though, continues to be a concern. Increased sales are prompting plant expansions and employment gains. State sales tax collections through August suggest fairly strong consumer demand for goods and services. Residential construction remains below last year's levels, and demand for apartments appears to be tapering off. Loans outstanding at large District banks rose slightly in the two months ending in September. Favorable harvest conditions prevail throughout most of the District; early reports on yields indicate they are meeting expectations.
Manufacturing and Other Business Activity
Most District contacts report a continued high level of economic activity and optimism. A few have commented that they see economic growth leveling off or slowing slightly from, as one stated, "the aggressive growth patterns of the recent past." Tight labor markets remain a general concern for contacts, who see this as potentially curbing future growth. Some labor shortages are being offset by more sophisticated inventory control systems and computer-based purchasing systems. In one area, a community college plans to open a job-training center that will be a public/private partnership to address the training needs of local businesses.
On the heels of increased sales and plant expansions and development, employment is generally on the rise. A telecommunications firm announced that it will convert an old manufacturing warehouse in the St. Louis region into a telemarketing center that will employ about 1,500 workers. A trust company is opening a regional office in St. Louis to handle some of the new accounts it bought from NationsBank. About 200 employees will be hired, many of whom previously worked for Boatmen's Trust. A contact in the furniture industry reports that a Canadian firm is relocating to northeast Mississippi, bringing about 200 jobs. A maker of office furniture will open a plant in northeast Arkansas, employing about 250 people.
Layoffs and closings have occurred in some sectors. A shoe manufacturer, noting that two of its domestic plants were no longer economically feasible, is closing these plants and laying off about 300 workers. A regional health management organization has opted to leave the pharmacy benefits management business, eliminating about 150 jobs in the St. Louis region; these services will be outsourced. A contact at a picture frame manufacturer reports that the loss of a major client and a 50 percent drop in projected sales is forcing it to close.
State Tax Receipts
State sales tax data for the District, on balance, indicate moderate to strong growth of consumer spending over the three-month period ending in August. Compared with the same period a year earlier, sales tax growth was most pronounced in Illinois, Missouri and Tennessee, where the year-over-year increases ranged from slightly more than 7 percent to nearly 13 percent.
Real Estate and Construction
Monthly residential construction permits in August picked up in Louisville and Little Rock, remained unchanged in Evansville, Ind., and fell in the District's other nine metropolitan areas. Year-to-date permit levels were up over last year's levels in Jackson, Tenn., and Evansville. They were unchanged in Memphis and below last year's levels in all other metro areas. Several contacts have begun to notice waning demand for apartments, citing shifting demographics as the cause. One contact noted a recent increase in the demand for mobile homes in Kentucky. Nonresidential construction remains relatively strong in the Memphis and St. Louis regions, as well as in parts of western Tennessee.
Banking and Finance
Total loans outstanding on the books of a sample of large District banks rose 0.4 percent in August and September, compared with a 0.3 percent drop in the same two-month period one year ago. Commercial and industrial loans, which rose 2.4 percent, were entirely responsible for the increase, as real estate loans declined 0.1 percent and consumer loans fell 4.9 percent. Loan demand is still reported as strong at smaller District institutions. Bankers at these institutions are concerned, however, about the increasing difficulty in obtaining deposits. Many of them are turning to the fed funds market and the Federal Home Loan Bank System for funding needs.
Agriculture and Natural Resources
Generally favorable harvest conditions prevailed across the Eighth District. Rainfall has caused some disruptions in the Cotton Belt, however, prompting concern about the quality of the crop. Early reports�although decidedly mixed�suggest average to slightly above-average yields for rice. Elsewhere, corn and soybean yields in Missouri, central and southern Illinois and southern Indiana are widely anticipated to be well below last year's levels. Still, scattered reports indicate yields in some corn fields are surprisingly high. It is thought, however, that these high yields are the result of planting typically higher-yielding, early-maturity varieties. Overall, the size of the harvest thus far is consistent with expectations.
Scattered instances of rail disruptions from the Union Pacific logjam have been reported in rural areas. A large Arkansas rice cooperative, for example, reports that a shortage of rail cars has hampered new crop shipments. It is not yet clear whether this problem is of a sufficient magnitude to cause harvest bottlenecks in other areas.
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