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Summary
The District economy continues to grow at a steady pace. District retailers report moderate sales growth during September and October, but are expecting a strong holiday season. General business contacts remain optimistic, seeing relatively strong sales and demand growth despite increasingly tight labor markets. Some building wage pressures have been noted. Residential construction picked up somewhat in many District metropolitan areas in September. Loan demand, although still moderately strong, appears to be softening. Rainfall reportedly continues to slow the cotton harvest in parts of the Delta. The Union Pacific rail disruption is affecting mainly Arkansas.
Consumer Spending
Retail contacts generally report sales growth in the neighborhood of 3 to 4 percent in September and October compared with a year earlier. Inventories are at desired levels, so greater-than-usual discounting has been unnecessary. Most retailers anticipate a strong holiday season this year, surpassing sales of previous years.
On average, car dealers report that sales were up about 1 percent in September and October over a year earlier. Most dealers are offering rebates to help compensate for the sluggish sales. Contacts also note that, while demand for sport utility vehicles is strong and rising, the market for minivans seems to have dried up. Overall, contacts are expecting sluggish sales to persist through the end of 1997, and are approaching the first quarter of 1998 with guarded optimism.
Manufacturing and Other Business Activity
District contacts remain optimistic about economic conditions, although many continue to have difficulty finding qualified workers. Some contacts, especially retailers, have noted recently that labor market conditions have tightened more, putting a squeeze on merchants just before the holiday season. In some instances, contacts have reported increasing wage pressure along with the tighter labor markets. But most contacts are planning for a "usual" 4 percent salary increase in 1998.
Sales remain strong, and many manufacturers expect to hire additional workers to meet the increasing demand. Ford, for example, is expanding its truck production in Louisville, creating about 1,000 new jobs. Processing centers for mortgages and insurance claims are opening or expanding, bringing 200 jobs to St. Louis and almost 400 jobs to Louisville. The gaming region of northwest Mississippi will employ 15,000 by the end of this year, and expectations are that it will add another 1,800 workers next year, although it is unclear where the workers will come from.
The District's apparel industry sustained several new blows. After letting 2,000 workers go from two Kentucky plants this past August, Fruit of the Loom has announced that another 1,000 will be let go from the same two plants; production is moving overseas. And because the demand for jeans has dropped so much, Levi Strauss will close two plants in Arkansas, eliminating 675 jobs.
Real Estate and Construction
Monthly residential construction permits in September picked up in nine of the District's 12 metropolitan areas, a turnaround from earlier reports when only two or three metro areas showed gains. Year-to-date permit levels, however, were still below last year's levels in nine metro areas. Nonresidential construction remains strong in many parts of the District, especially in northern Mississippi where public school renovation and university student housing construction are quite active.
Banking and Finance
Loan demand appears to have eased somewhat over the past several months, according to contacts at several mid-sized District banks. Nevertheless, contacts still describe demand as moderately strong. Consumer loan demand appears to have softened the most, although contacts expect some rebound because of the holiday season. Business loan demand has also softened in recent months. Credit quality is still very high, and a number of banks expect record earnings again this year. Deposits are still hard to come by, and many banks continue to seek other funding sources.
Agriculture and Natural Resources
Favorable weather during much of October compressed this fall's harvest schedule in many areas. In the Delta region, however, persistent rainfall continues to disrupt harvest of the cotton crop, with some farmers about two weeks behind schedule. In general, though, there appears to have been only a slight effect on quality. A contact in the cotton industry reports that, with a vibrant U.S. economy, domestic mill consumption is the strongest in several years. Moreover, foreign demand is reported to be very strong. However, there is heightened concern in the industry that the Asian currency crisis will take a significant bite out of U.S. cotton exports this marketing year.
Rail disruptions in the Eighth District, stemming from the Union Pacific-Southern Pacific merger, continue to be confined primarily to Arkansas, where the bulk of UP's rail lines in the District are located. Accordingly, a contact in the grain supply and delivery industry in St. Louis notes minimal disruptions in Illinois, Indiana and Missouri.
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