September 20, 2000 Federal Reserve Districts Eighth District - St. Louis

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Some moderation in the pace of District economic activity has been noticed since the last report. Retail sales are up this year over last, despite some sluggish back-to-school sales. Overall, retail sales generally met expectations. Business contacts report that sales of apparel have slowed somewhat recently. Home sales and construction continue their downward trends. Banks are still experiencing lethargic deposit growth, although loan growth remains relatively steady. Demand for real estate loans, however, has continued to decline along with the demand for new homes. Dry, hot weather in the southern parts of the District has dramatically affected the quality of the soybean and cotton crops. Consumer Spending Retailers report that sales during July and August were up about 4 percent on average from a year earlier. Grocery and department stores show the strongest growth, while many stores report slow back-to-school sales. In most cases, sales growth has met expectations; however, at some discount stores and gift shops, sales growth has fallen below expectations. Across the board, contacts note that sales of men's and women's apparel have waned in the last two months. Sales of home furnishings, gardening supplies and electronics, such as big-screen television sets and refrigerators, have been robust. Nearly all retailers' inventories are at desired levels. Most contacts are very optimistic about the holiday season, expecting strong sales increases over last year. Car dealers report that sales in July and August were down slightly from a year earlier. About a third of contacts cite a lack of inventory of some models and higher interest rates for the sluggish sales. About another third have excess inventories that they have tried to pare by increasing the dollar amounts and availability of rebates. Sales prices, however, remain unchanged from last year. Even though car dealers report somewhat erratic sales so far this year, most expect to finish the year with double-digit sales increases over last year. Manufacturing and Other Business Activity Contacts report that business activity has moderated slightly in the past two months, with demand for most goods declining a bit. Demand for some durable goods, such as furniture and appliances, is reportedly stable, however. Internet companies continue to locate in the District. In Louisville, for example, a web-based insurer will create almost 200 jobs, and an Internet service center is hiring 290 for its expansion. In northern Kentucky, a large clothing company will open a distribution center and hire about 850 workers. Several closings are also occurring in the District. In Memphis, FedEx plans to cut 200 technology jobs, and an electronics firm will send more than 300 manufacturing jobs abroad in the next three months. The recent tire recall forced Ford to close an assembly plant near St. Louis for two weeks to free up needed tires. With qualified workers difficult to find, labor shortages continue to be a problem for nearly all industries, although contacts note that wage pressures have been negligible. With gasoline prices moderating, trucking companies are starting to feel some relief from the profit cuts they had previously been forced to accept. Real Estate and Construction Home sales continue to slow in most District areas. Year-to-date sales of homes, especially in the $200,000 to $400,000 price range, are below their year-earlier levels. Consequently, most real estate agents note that home inventories are on the rise. Still, agents believe that declining demand will turn around, and are optimistic that sales will level out over the rest of the year. Mirroring sales, residential construction has been declining throughout the District over the past two months when compared with a year earlier. Monthly and year-to-date residential building permits are down from their month- and year-earlier levels. Commercial construction has recently been mixed. In some areas, such as western Tennessee, builders report a decline in the number of new projects, while in other regions, such as the Louisville area, construction remains brisk, with several large projects under way. St. Louis has felt the effect of the eight-week-long concrete drivers' strike, which held up numerous construction projects. Banking and Finance Bankers continue to see a decline in the use of deposit accounts by customers. Reports of declines in total deposits of up to 10 percent year-to-date, when compared with a year earlier, are not uncommon. At the same time, loan growth remains relatively stable, with commercial and industrial loans still carrying the load. Some bankers note, though, that average loan size in this category is shrinking. Real estate loans continue to be hit hard, as demand for new homes falls. One contact indicates, for example, that residential real estate loans at a sample of banks in one region are off by almost one half in volume and 40 percent in value this year when compared with last year. Banks are generally less willing to lend for speculative home building this year than last. Agriculture and Natural Resources Record hot, dry weather in August has continued to adversely affect crop and pasture conditions in the southern parts of the District, where soybeans and cotton are reportedly in poor-to-fair condition. Irrigated cotton fields, however, are faring somewhat better. The weather has also hastened the maturation of the cotton crop and the pace of the corn harvest, which, according to early USDA estimates, has resulted in moderate yield declines in Arkansas and Mississippi. The soybean crop in the northern parts of the District is in good-to-excellent condition, while the rice crop is reportedly in good shape overall. Return to top Chicago Minneapolis