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The District economy continues to grow at a steady, sustainable pace. Although retailers report varied results for April and May, with unseasonably cool weather slowing sales of summer clothes, most expect sales to pick up as summer arrives. Car dealers have noticed a general slowing in sales recently, which they expect will continue for the rest of the year. District firms, for the most part, are still reporting moderate gains in sales and employment, although tight labor markets in some areas continue to stall expansion plans. Relative to a year earlier, a slightly smaller percentage of District small businesses plan to increase prices during the next three months. Meanwhile, these small businesses report facing pressure on wages and salaries similar to a year ago. While levels of sales and construction in residential and nonresidential real estate markets are continuing their upward trend, they are still below last year's record levels. A cool, wet spring has retarded the growth of crops in many areas.
Although retailers report varied sales results for April and May, most agree that sales growth either met or slightly exceeded their expectations. With the approach of summer, outdoor furniture and gardening products have been the biggest sellers. Below-average spring temperatures, however, have hampered sales of summer clothing and swimwear around the District. Contacts report that current inventories are at desired levels, and they do not anticipate having to use much discounting to move stock. Many retailers remain optimistic about sales for the rest of 1997.
Most surveyed automobile dealers report a slowing in sales for April and May compared with one year ago. Because of this slowdown, many have offered more frequent rebates to move stock. Dealers report that relatively more buyers are purchasing new cars rather than used cars. Dealers are somewhat pessimistic about car sales for the rest of 1997, however, expecting it to be a "soft" year.
Manufacturing and Other Business Activity
District contacts continue to report moderate sales and employment growth. Tight labor markets, especially for construction and other skilled trade workers, are still being reported from most parts of the District. Some firms are unable to meet higher demand because they are understaffed. One firm reports that it raised its starting wage about 15 percent to attract qualified candidates. More than 300 Teamsters who drive concrete trucks in the St. Louis region went on strike June 2, slowing or halting much residential and commercial construction in the area.
To supply the soon-to-open Toyota plant in Indiana, a new aluminum smelting plant will open in eastern Missouri next year. Several firms that supply materials to building contractors have recently seen sales increase as construction has picked up. One of these suppliers notes that he was able to pass along a 3 percent price increase, which seems to be sticking, to his customers.
On the other hand, a maker of ice cream and other frozen products has seen sales slip recently because of unusually cool weather. Public utilities have also seen usage fall below last year's levels because of cool weather. One contact remarked, though, that on a weather-adjusted basis, usage is most likely up slightly.
For the most part, Manpower's third-quarter employment outlook survey shows increased job opportunities compared with three months earlier. Prospects for additional hiring are best in St. Louis, with somewhat less upbeat prospects noted in Louisville and Memphis. Third-quarter hiring intentions are modestly lower in Little Rock—albeit coming off a strong second quarter.
According to a survey of 223 small businesses in the District, about 18 percent plan to boost sales prices over the next three months, while only about 3 percent plan to lower prices. Last year, a similar survey showed that 21 percent planned to increase prices. The same survey shows little change in wage pressures compared with a year earlier, with a little more than a fifth planning to boost wages and salaries over the next three months. In contrast, less than 1 percent plan to reduce compensation — again, roughly unchanged from a year earlier.
Real Estate and Construction
Residential real estate markets continue to expand, with increases in both sales and the number of new building permits issued. This year, however, has not been as strong as last year, which featured record numbers of sales and new construction. Pockets of slowing, which had occurred a few months ago because of early spring flooding and storms, have started to reverse themselves. A lack of qualified workers still hampers building in some areas, though. Nonresidential construction remains strong in parts of the District, although the average size of new projects this year is smaller than it was last year.
Banking and Finance
Loan demand appears to be slowing somewhat in most areas of the District, although many banks are still experiencing double-digit, year-over-year loan growth rates. Most contacts cite residential real estate and construction lending as the strongest areas of growth. Consumer and commercial loan demand have weakened slightly. A number of contacts continue to report strong competition in their markets for commercial loans, resulting in more generous underwriting terms and narrower interest rate spreads.
Agriculture and Natural Resources
Contacts in the Delta region report that the cotton and rice crops are off to sluggish starts because of the cool, wet spring. In general, though, these crops are in fair-to-good condition. Prices for cotton farmers continue to slump from year-earlier levels; weakening foreign demand is cited as the primary reason. A contact in Arkansas notes that agricultural land sales have picked up, a development not seen since the mid- to late-1970s.