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The District economy continues to exhibit strong growth. Retail sales were up between 4 and 5 percent from a year earlier, meeting most contacts' expectations. Auto and light truck sales were not as brisk, but have showed renewed strength recently. Manufacturers and other businesses continue to report growth in demand, which, in some instances, they are unable to meet because of persistent labor shortages. Signs of growing upward wage pressures are emerging, as the strong demand for labor shows few signs of tapering off. Residential real estate markets continue to boom throughout the District, while strong demand and shortages of available homes are driving up prices in some regions. District loan demand and credit conditions have remained essentially unchanged over the past few months. Supported by good soil moisture and ideal growing conditions, the spring planting proceeded as planned in most areas.
Consumer Spending
District retailers reported that sales in April and May were up on average between 4 and 5 percent compared with one year earlier. Only one-fourth of those surveyed said growth was below expectations. Home furnishings, appliances, electronics, and home and garden products were the most popular purchases. Nearly all respondents reported that inventories are currently at desired levels; moreover, they do not plan to boost inventories later this year in preparation for Y2K. Contacts expect sales to increase in the second half of the year, but do not anticipate price increases.
District auto dealers reported that sales, after a somewhat sluggish start in May, picked up by the end of the month. Some GM dealers noted that a lack of inventory of popular models, particularly pickup trucks, hampered sales. Other dealers reported that inventories are at desired levels. Only one contact noted holding extra inventory because of the then-pending truckers' strike. Most dealers expect vehicle sales by the end of the year to be up moderately from last year.
Manufacturing and Other Business Activity
District contacts continue to report strong economic conditions. Orders for many products, such as manufactured homes, copper tubing and electrical equipment parts, continue to grow at a brisk pace, although not all demand can be met because of an ongoing shortage of qualified employees. Suppliers of building materials continue to report solid growth because of the booming construction industry. Poultry processors reported a rebound in sales and profits in the past few weeks and expect this trend to continue through the summer. Many contacts, however, noted strains on profit margins because of increasing operating costs that cannot be passed along to customers in the current competitive environment. Labor costs are the biggest concern for most contacts. In one instance, for example, a maker of home appliances has reportedly budgeted a 5.5 percent wage increase for the upcoming fiscal year.
The FedEx and UPS hubs continue to attract distribution centers to the region. Several firms, including Amazon.com and an apparel manufacturer, have announced plans to open new distribution warehouses in the coming months. The weak farming sector, however, has led to reduced orders for farm equipment. One producer has eliminated overtime and cut its work schedule back from a seven-day to a five-day work week because of falling demand. Because Boeing did not win new contracts for its F-15 fighter, about 7,000 jobs at its St. Louis plant will be eliminated as production is phased out by 2001. Some analysts believe, however, that this layoff might help the region attract businesses that had previously been reluctant to come because of a shortage of qualified workers.
Labor Market Conditions
The demand for labor remains robust in the District's four major cities, according to Manpower's employment outlook survey for the third quarter of 1999. On average, about a third of the firms surveyed in Little Rock, Louisville, Memphis and St. Louis expect to add employees in the upcoming three months-slightly exceeding the rate from a year earlier-while about 8 percent plan to reduce their workforces. Of the four cities, Little Rock and Memphis had the largest shares of firms seeking to hire additional workers.
Real Estate and Construction
Sales of new and existing homes remain strong throughout the District. In some parts of the District, sales are up more than 10 percent from a year earlier. In fact, many markets are experiencing a shortage of available houses, leading to price increases and quick sales. Through April of this year, residential construction permits outpaced last year's levels by 10 percent or more in almost all of the District's metropolitan areas. Many nonresidential real estate agents believe that new office construction may be getting ahead of demand, despite low vacancy rates in most regions. The market for industrial/warehouse space remains tight, with regional vacancy rates well below the national average.
Banking and Finance
A recent survey of District senior loan officers indicated no change in standards for approving commercial and industrial (C&I) loans to large, mid-sized and small firms. A couple of respondents noted, however, that they had recently increased the premiums charged on riskier C&I loans. Demand for C&I loans was reportedly unchanged. In fact, demand and credit standards remained unchanged for commercial real estate loans, home mortgage loans, consumer installment loans and credit cards.
Agriculture and Natural Resources
Most of the District is experiencing ideal growing conditions, although parts of Kentucky and Mississippi could use some rain. Planting of the major crops, which was aided by favorable moisture conditions, came off without a hitch in most areas. Accordingly, crop conditions appear to be in good-to-excellent shape in most parts of the District. About a third of the wheat crop has been harvested in Mississippi, with early reports suggesting above-average yields.
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