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The pace of District economy activity has continued to slow, particularly in the manufacturing sector, with reports of falling demand and cuts in employment. Employment in the retail trade and services sectors, on the other hand, has increased recently. Expectations in most sectors are for some upticks in both employment and demand sometime this summer. Retail sales have shown only modest gains in March and April, although April has been somewhat stronger than March. Real estate markets have been the bright spot, with sales of existing homes and construction of new homes picking up after a slow start to the year. Low mortgage rates are often cited as boosting sales and construction. Loan growth has remained modest, while deposit growth has picked up recently. Excessive rain and wide temperature fluctuations have delayed spring planting and new crop emergence.
Consumer Spending
Contacts report that sales growth in March and April is up slightly, around 3 percent on average from a year earlier, with April's growth being somewhat stronger than March's. Nearly half of the retailers note that growth has been above expectations. Electronics and luxury items, such as jewelry, have been slow sellers; home decor and women's clothing have posted strong sales. About half of the contacts remark that inventories are at desired levels, while the other half are paring excessive inventories through significant discounting. Most retailers, citing economic uncertainty and low consumer confidence, are cautious about summer sales, with many expecting little or no growth over a year earlier.
Car dealers report that March and April sales are down 5 percent on average over the same period last year. Many cite low consumer confidence and high gasoline prices as causes. Higher-priced vehicles, such as luxury cars and SUVs, are posting the slowest sales, while lower-priced and used vehicles are moving faster. Half of the dealers report that inventories are at desired levels. Dealers with excess inventories state that trucks, SUVs and luxury vehicles are the ones sitting on the lots. Most contacts expect moderate sales growth during the summer, though high gas prices may hinder sales of all but fuel-efficient models.
Manufacturing and Other Business Activity
Contacts report that over the past six weeks the manufacturing sector has continued to post slow employment growth and shrinking profit margins, although demand in the retail trade and service sectors has been picking up as of late. Layoffs are occurring in many industries, including steel, timber, electronics and plastics. Falling demand has led furniture manufacturers in Mississippi and Tennessee to lay off nearly 400 workers and a toy manufacturer in Kentucky to close a plant with almost 1,000 workers. High-tech firms, most notably in Memphis, continue to trim their workforces. Also due to slack demand, the steel industry continues to idle plants for one week or more. Some contacts in southern parts of the District, however, remark that employment growth in the retail trade and services sectors remains strong.
High energy costs remain a major concern for many industries. Hit especially hard have been small trucking companies and freight haulers, which are experiencing substantial profit losses because of high diesel prices. Labor shortage concerns are waning, as most contacts note that workers have been readily available in the last few months.
With some signs that consumer confidence is on the rise, contacts in many industries are anticipating moderate upticks in employment growth and demand by this summer. Most manufacturers, however, remain cautious because slowing demand has been the trend for several months now.
Real Estate and Construction
Housing sales in early April have picked up in most parts of the District, which real estate agents generally attribute to low mortgage rates. Inventories of homes, which were high earlier this year, have begun to decline, especially in the Memphis and northeast Mississippi areas. In Arkansas, agents note that sales of existing homes have remained stable, while new home sales are down; in some other District areas, sales of existing homes remain sluggish, while new home sales have increased.
Residential construction has been mirroring sales recently, with monthly building permit levels up in almost all District metropolitan areas in February. Year-to-date permit levels through February in most District metro areas, however, are down from the same period in 2000, which had started out relatively strong. Commercial contractors report that the recent flow of new projects has been steady, a trend they are optimistic will continue.
Banking and Finance
Total loans outstanding at a sample of small and mid-sized District banks are up modestly, growing only 0.9 percent between late January and late March, and continuing a trend of mild growth. Growth in commercial and industrial loans and real estate loans hovered around the 0.9 percent rate as well. Consumer loan growth, on the other hand, has continued its recent slide, falling about 3.5 percent during the same period; it was down in the previous period as well. Deposit growth has picked up recently, posting a 2.5 percent gain through late March. This hike continues a trend started late in 2000.
Agriculture and Natural Resources
Excessive rain and wide swings in day-to-day temperatures in April have delayed spring planting and the emergence of crops in many areas of the District. The planting of the corn crop is behind schedule in most District states; rice planting in Arkansas and Mississippi, on the other hand, is ahead of schedule. An early look at the planting intentions of farmers in the northern portion of the District shows modestly less acreage devoted to corn and modestly more devoted to soybeans. Contacts report that this shift from corn to soybeans is due to corn's high costs and low price prospects. In the southern portion of the District, farmers intend to substitute cotton for corn and soybeans on some acreage.
Soil moisture levels are closer to normal this year than a year ago, with all District states reporting adequate-to-surplus topsoil moisture. Boosted by abundant moisture levels, the winter wheat crop in all areas is in good-to-excellent condition.
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