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Business conditions remain strong. Tight labor markets in most parts of the District are affecting many firms' plans for expansion or relocation. Wage pressures, however, remain subdued, and materials costs, except those affected by the recent surge in oil prices, have shown little upward movement. Housing markets are vibrant with the spring home buying season in full swing. Contacts see a shortage of warehouse space, especially in southern parts of the District. Loans outstanding fell at large District banks over the past two months because of a sharp drop in real estate loans during that period. With the planting of spring crops under way, moisture conditions in most states are generally adequate or in surplus. Planting progress is still on schedule.
Manufacturing and Other Business Activity
The biggest concern of business contacts in most parts of the District continues to be tight labor markets. More comments than usual indicate expansion plans being put on hold because of lack of available, qualified workers surfaced. In addition, contacts at several local economic development organizations noted that some prospective firms chose to locate elsewhere because of a limited labor supply or availability of warehouse space. The trucking industry has been especially vocal about labor shortages recently. Demand for its services has been increasing steadily, but there are not enough truckers to meet this demand. Nurses also seem to be in short supply around the District. In general, businesses continue to see growth in sales and remain optimistic about future prospects. Several family resort areas in the District, especially in central Arkansas, are reporting summer bookings that are ahead of schedule; expectations are for a strong season. On the other hand, farm equipment sales are reportedly down because of a slumping agricultural market.
Wages and Prices
Despite the continued intensity of remarks noting tight labor markets, comments about wage pressures have been noticeably lacking. Tire wholesalers, for example, are beginning to see their materials costs stabilize and labor costs flatten. A contact in the hotel industry, while noting high turnover rates and unfilled positions, reports it is not bidding for labor. In his view, the industry has added too much capacity and is poised for a slowdown. In contrast, some contacts in northern Mississippi are reporting increases in starting wages of slightly more than 10 percent.
Outside of energy-related items, there appears to be only moderate, if any, pressure on the prices of goods and services, while materials costs are flat or falling. For example, an insurer in the commercial and passenger automobile market reports difficulty in passing along cost increases as higher premiums. The printing industry sees prices and costs remaining stable this year. Contacts in the poultry processing industry report that lower feed prices are enabling them to add breeder capacity. A St. Louis-based metal fabricator noted considerable downward pressure on the prices of its manufactured products.
Real Estate and Construction
Residential real estate construction continues to grow in most parts of the District, after starting the year a bit slowly compared with a year earlier. Monthly permits issued in February jumped in most areas, although not enough to push activity in these regions above last year's levels. In some regions, new construction projects are taking almost two months longer than usual to complete because subcontractors are backlogged. Bids are higher, but margins are being squeezed because higher costs cannot be passed on.
The spring home buying season is now in full swing: The average number of days a house is on the market has plummeted, and sale prices have begun to rise. Many real estate agents are calling this a seller's market, with some houses selling the day they are listed. In western Tennessee, on the other hand, an excess supply of starter homes (less than $100,000) is reportedly available.
Commercial real estate agents continue to see excesses in the market, particularly of office and industrial space. Warehouse and distribution space, though, is extremely scarce in some areas.
Banking and Finance
Total loans on the books of a sample of large District banks declined 1.5 percent between mid-February and mid-April, after rising 1.9 percent during the same period one year earlier. The decline in total loans was due solely to a drop in real estate loans, which fell 4.6 percent during the two-month period. Commercial and industrial loans increased 6.2 percent, while consumer loans outstanding did not change.
Agriculture and Natural Resources
Corn, cotton, soybeans and winter wheat prices have changed little since our March report. Hog prices, however, were up modestly--although they remain more than 15 percent below a year earlier. Boosted by favorable growing conditions and abundant moisture levels, the winter wheat crop District-wide is in mostly good-to-excellent condition. Planting progress of the corn crop is ahead of schedule in most District states. The first-of-the-season look at the planting intentions of District farmers shows modestly more acreage devoted to corn in the northern portions of the District; on balance, soybean acreage is about unchanged. In the Delta region, though, farmers plan to plant more cotton and rice, with fewer acres devoted to corn and soybeans.
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