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The District economy continues to grow at a brisk pace. Most contacts report growth in sales and demand. Despite continuing difficulties filling some job vacancies, upward wage pressures remain at bay. Housing markets throughout the District are still very strong, with many still on pace for record sales and growth this year. District banks remain very healthy; however, booked loans have declined recently. Despite persistent heat and the lack of adequate rainfall in July, crops remain in mostly good condition across District states.
Manufacturing and Other Business Activity
District contacts, for the most part, continue to report increases in the pace of economic activity, although many are still being hampered somewhat by a lack of available, qualified workers to fill job vacancies. A number of construction projects are delayed because of backlogs in contractors' schedules, caused by shortages of skilled workers and, in many cases, materials (especially drywall). Several contacts in the construction industry have noted that it has become extremely difficult to attract young workers into the trades, which adds to the labor strain. A contact in the trucking industry reports that the lack of available drivers has forced his firm to recruit from overseas. Despite the ongoing shortage of workers in these and many other industries, nominal wage increases remain subdued, averaging between 3 and 3.5 percent for most workers.
UPS and FedEx continue to attract distribution operations to the regions near their hubs. For example, BMW announced that it is building a new parts distribution center in northern Mississippi because of the area's proximity to Memphis. A bit of the silver lining some analysts had anticipated from the recent Boeing layoffs has appeared, as several firms have expressed an interest in locating and expanding in the St. Louis region because of the recent availability of skilled machinists. For instance, an aviation firm chose southern Illinois for its aircraft conversion and maintenance facility, which will initially employ between 300 and 350 workers.
Examples of weakness exist too. For instance, contacts in the poultry-processing industry report an unusually weak season at a time when demand normally soars. Falling feed prices are helping a bit, though. Historically low prices in hog markets, coupled with increased competition from beef and poultry, have led to some slaughterhouse closings. General Electric noted that its current refrigerator production levels are outstripping previously anticipated demand; it plans to permanently lay off about 300 workers.
Real Estate and Construction
Sales of new and existing homes--especially at the high end of the market--remain strong throughout the District. Many real estate agents believe that sales are on pace to set a new record this year. May and June monthly residential building permit growth matched sales; it was up in almost all District metropolitan areas. Compared with a year earlier, year-to-date building permits are also up almost across the board, although the rates of increase have recently moderated somewhat, particularly in parts of Arkansas. A contractor noted, though, that more buyers of mid-priced homes are requesting upgrades--especially in bathrooms and kitchens--that have usually been found only in more expensive homes.
Activity in nonresidential real estate markets appears to have picked up over the past few weeks. Some commercial real estate agents expect continued growth in demand for Class A office space. Industrial markets, especially in the Memphis area, remain strong as demand for warehouse space continues to grow.
Banking and Finance
Total loans outstanding at a sample of large District banks declined 1.5 percent between mid-May and mid-July. Despite thriving real estate markets, this decline was driven entirely by a more than 5 percent drop in the level of real estate loans (the banks' largest loan category), likely the result of higher mortgage rates, a broadening mortgage market in which commercial banks play a dwindling part, and the sale of some real estate loans to the secondary market. The decline also followed on the heels of a more than 4 percent drop in real estate loans two months earlier. Both of the other main categories--consumer loans and commercial and industrial loans--increased during this period. Two months earlier, though, consumer loans had shown no growth. All the while, the level of total deposits at these banks has been declining. Overall, however, contacts report that the banking industry remains extremely healthy.
Agriculture and Natural Resources
Hot and dry conditions persisted across most District states in July. The steady depletion of soil moisture caused an overall decline in the condition of most crops, with pasture conditions generally in worse shape. The extent of the depletion, however, appeared to vary somewhat geographically. Although the lack of adequate rainfall was prevalent in most states, a greater percentage of the major crops (corn, rice, soybeans and cotton) in Arkansas, Kentucky, Mississippi and Tennessee, than in Illinois, Indiana and Missouri, are in good-to-excellent condition. All told, though, the pace of crop development is ahead of its five-year average in most areas.
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