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The District economy continues to generate stable business growth coupled with few signs of rising consumer prices. Retail sales growth met most contacts' expectations, and they anticipate stronger growth this spring. District manufacturing firms are experiencing growth in sales and new orders, while continuing to cope with tight labor markets and moderate wage pressures. A Manpower survey of District firms shows the pace of hiring picking up in the second quarter compared with the first quarter. Unseasonably mild winter conditions supported higher than usual levels of residential and commercial construction and real estate sales in most parts of the District. Loans outstanding at large District banks rose 2.4 percent in the first two months of 1998, compared with a 0.8 percent decline in the same period a year ago. The Asian situation is not yet pulling down cotton exports to the degree that many District producers expect.
Consumer Spending
Retailers report that January sales were up about 4 percent over the previous year�a pace that met contacts' expectations. Sales of winter clothes have been very slow due to mild winter weather, while sales of home furnishings have picked up in anticipation of an early spring. Although most contacts report that current inventories are at desired levels, several noted that their inventories are slightly high. Retailers are anticipating a moderate increase in sales growth in the second quarter. Sales in Missouri may be boosted by the recent refund of state budget surpluses; these refunds averaged $300 per household.
Automobile dealers report that sales in January were down an average of 12 percent to 15 percent over the previous year. Several speculated that high levels of consumer debt kept buyers away. More than half of the contacts have been using rebates and incentives more than usual to move stock. In addition, nearly half of the respondents indicate that their current inventories are too high. Dealers remain optimistic, though, that sales will pick up in the second quarter.
Manufacturing and Other Business Activity
Overall, District contacts report that business conditions remain favorable, and that growth in sales and new orders continues to chug along at a moderate pace. Contacts also report that competitive markets and productivity improvements are keeping price increases at bay, even though input costs continue to increase modestly. Tight labor markets continue to plague District firms. Contacts in Kentucky are concerned that UPS will have a difficult time finding the 6,000 workers or so it will need as part of a just-announced $860 million expansion in Louisville.
Contacts from a variety of District industries report growth in sales and orders. A contact in the furniture industry, for example, reports that industry sales have been high and growing modestly recently. That said, some smaller furniture manufacturers aren't faring well compared with their larger competitors. District auto plants are stepping up production of pickup trucks and sport utility vehicles, and a tire producer is considering going to seven day (from six), 24-hour shifts to keep up with demand. To cut costs, however, a maker of home appliances will shift production from Kentucky to plants in Georgia and Mexico. In anticipation of costly settlements or lawsuits, tobacco firms are cutting back on workers to preserve profits.
Employment Outlook
According to Manpower's second-quarter employment outlook survey, the pace of hiring will pick up in Little Rock, Louisville and Memphis relative to the first quarter. Gains are expected to be most pronounced in Little Rock, where about half of surveyed firms intend to boost their payrolls. In St. Louis, by contrast, little change in second-quarter hiring is expected. Compared with a year earlier, though, considerably less hiring is expected, with only Memphis firms anticipating higher employment levels.
Real Estate and Construction
Mild winter conditions led to unseasonably high levels of residential building construction in most parts of the District in January. In almost all of the District's 12 metropolitan areas, monthly and year-over-year building permits were up. Sales of new and existing homes also were unseasonably high, with most contacts reporting moderate increases in average selling prices. Commercial construction�dominated by office, retail and apartment�is also strong in many parts of the District. Some contacts are concerned, however, that apartment construction might be too aggressive in some areas, given the expected demand.
Banking and Finance
Total loans on the books of a sample of large District banks have increased 2.4 percent since the start of the year. One year ago, total loans declined 0.8 percent over the same period. Commercial and industrial loans have risen 1.3 percent, while real estate loans have increased 3.3 percent. Consumer loans have declined 1.8 percent over the period.
Agriculture and Natural Resources
Cotton industry contacts report that the Asian situation has not yet affected export quantities to the degree anticipated a few months back; the largest effect, they believe, has been on prices. Although exports to certain Asian markets have been reduced, the drop in cotton prices has spurred additional sales to other markets, such as Mexico and Turkey. Overall, cotton producers still expect some reduction in exports to Asia, although not to the extent anticipated three months ago. A cotton industry report suggests that cotton plantings this spring could be the lowest in 15 years.
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