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The District economy continues to operate at a high level. District contacts, while still having trouble finding qualified workers because of tight labor markets, also report relatively strong growth in their industries and firms. Despite heightened upward pressures on wages, attempts to raise prices have been largely unsuccessful. The solid economy and low mortgage rates are leading to a housing boom in most parts of the District. Housing sales, construction and prices are up. Loan demand remains relatively strong at large District banks. The District's winter wheat crop looks to be in good-to-excellent condition in most areas. Recent rains, however, have slowed spring tillage and planting activities.
Manufacturing and Other Business Activity
Despite the continuing struggle to find qualified workers to meet production demands, most contacts report vigorous economic activity. In some instances, though, margins are starting to be squeezed as firms remain unable to pass along input price increases to consumers. For example, a contact in the temporary staffing industry reports that because the larger firms in this industry are keeping the price charged to customers for temporary workers steady, smaller, more localized agencies are having to hold the line on their prices. This inability to raise prices is depressing margins, since fierce demand for temporary employees is driving up the wages agencies must pay workers. Besides the ongoing shortage of skilled construction workers, contacts are also reporting a scarcity of engineers, nurses and maintenance technicians. Because of the shortage of construction workers and high demand for building contractors, projects in some areas are coming in 20 to 30 percent over budget as wages are being pushed up more than had been expected. More contacts than previously have commented about experiencing increased wage pressure.
A contact in the poultry processing industry reports that production will likely be slowed moderately to allow inventories to shrink somewhat. Inventories had been building in part because of sharply lower pork prices. Several steel manufacturers have noted a huge influx of foreign steel recently, especially from Asia, which will likely drive down the price of their finished product. Similar reports have been heard from the automotive industry. A contact in the chemicals industry reports that softness in Asian markets has cut exports about 40 percent, which translates into about a 12 percent decline in total sales.
Auto parts manufacturers are increasing production because of rising demand, mostly associated with the soon-to-open Toyota plant in southern Indiana. In addition, Toyota has already announced that it will double the size of this plant and hire an extra 1,000 workers on top of the 1,300 already scheduled to work there. Elsewhere, call centers and telemarketing firms are adding workers as more companies outsource this function.
Real Estate and Construction
Low mortgage rates, solid local economies and the start of spring have all combined to spur strong sales of new and existing homes, particularly in the District's metropolitan areas. Turnaround time for newly listed houses is down to just a few days in many cases, and prices are up. In the St. Louis region, for example, the median home sale price in March was up about 9 percent over one year earlier. Other regions of the District report similar gains.
Monthly residential construction permits were up in half of the District's 12 metropolitan areas in February. So far this year, permit levels in seven District metro areas are up over last year, rebounding from mild declines in 1997 relative to 1996. Construction of multifamily housing, especially apartment complexes, remains strong in some southern parts of the District. Markets for office and retail space are becoming even tighter in the major metropolitan areas, as vacancy rates continue to decline.
Banking and Finance
Total loans on the books of a sample of large District banks rose 1.9 percent between mid-February and mid-April; loans declined 0.6 percent during the same period one year ago. Commercial and industrial loans jumped 5.4 percent during the two-month period, while real estate loans increased 1.6 percent. Consumer loans fell 2.8 percent. District bankers continue to report aggressive competition for loans and difficulty gathering deposits.
Agriculture and Natural Resources
Favorable weather conditions in most areas between late March and early April allowed farmers to get ahead of schedule with their spring field preparation. Considerable rainfall across much of the District in mid-April, though, has caused many farmers to fall modestly behind schedule. In many areas, the winter wheat crop is in mostly good-to-excellent condition, except in Kentucky, where heavy rains have reportedly damaged parts of the wheat and tobacco crops. Standing water from recent rains and the early-March freeze appear not to have damaged the winter wheat crop to the degree many expected. The freeze did cause damage to the peach crop in Arkansas, Mississippi and Tennessee, although most other fruit and vegetable crops seem to have escaped relatively unharmed. Delta cotton farmers expect to plant about 10 percent fewer acres this spring, in part because the prices of cotton and cottonseed meal have fallen to their lowest levels in about three years. Neither the current work stoppage of some towboat operators, nor the recent high river levels along the Mississippi River near St. Louis, have significantly hampered barge traffic.
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