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Economic activity remains robust throughout the District. Contacts are reporting growth in both demand and sales and expect more of the same in the near future. Tight labor markets still prevail. Fallout from the UAW strike against GM is being felt at suppliers and other firms around the District. Several District employers report double-digit increases in health insurance costs for their employees. Real estate markets, both residential and commercial, are strong: Sales and prices are up. Real estate loans at large District banks, however, are down, which, together with consumer loans, have pulled down the total number of loans outstanding. The District's wheat crop looks to be significantly below last year's production.
Manufacturing and Other Business Activity
Most contacts continue to report strong growth and remain optimistic about economic prospects in the near future. Shortages of skilled workers, especially construction workers, are still hampering production gains at some firms. With real estate markets booming, this labor shortage is straining builders' ability to keep up with housing demand. But for contractors, the real estate market is a dream. As one contact remarked, "If you can't make money in today's market as a contractor, you'll never make it."
The furniture and household appliance industries are being carried along with the real estate wave. Demand for high-end furniture has grown, but to some degree at the expense of lower end merchandise. Demand for refrigerators has also increased; it is being met with overtime. Meanwhile, contacts at various metals firms are reporting sales growth in the range of 10 percent over a year earlier.
Labor disputes have also taken their toll on activity. Numerous GM suppliers around the District are reporting layoffs because of the UAW strike. This is the first time that some of these firms have had to layoff workers because of a GM strike. Unrelated to the GM strike, a maker of filters in Louisville closed its plant after management and UAW workers, on strike since April 1, failed to reach an agreement. And 530 Steelworkers are striking against an aluminum smelting firm in western Kentucky. The workers struck in late June; there has been no contract since the union was formed last summer.
District firms generally continue to report a ratcheting up of wage rates. To some extent, this remains most evident for high-skilled positions. Moreover, entry-level wages in many areas and at a cross-section of industries are reportedly well above the federal minimum wage. An increasing number of contacts are reporting outsized increases in their cost structure due to health insurance premiums. Increases in excess of 10 percent compared with a year earlier are not uncommon. In response, some firms have implemented more cost sharing with their employees.
Real Estate and Construction
Residential real estate markets remain strong throughout the District. Agents continue to report rising prices and a surge in sales of both new and existing homes. In many metropolitan areas, year-over-year median sales prices are up between 6 and 14 percent. Sales of homes priced between $120,000 and $175,000 are particularly strong, while the market for homes priced above $400,000 appears to be softening moderately. New residential construction tapered off somewhat in May from April, with only five of the District's 12 metro areas posting an increase in building permits. Year-to-date permits, however, are up in nine metro areas from a year earlier, with Little Rock and Louisville posting healthy 25 percent increases. Agents also report vibrant commercial real estate markets. Construction of new apartment complexes, particularly upscale, luxury apartments, is on the rise in several areas.
Banking and Finance
Total loans on the books of a sample of large District banks declined 2.7 percent in the two months between mid-May and mid-July. A large decline in real estate loans of 5.7 percent was mostly responsible for the downturn in outstanding loans. Consumer loans also declined, but by a much smaller 1.2 percent. Commercial and industrial lending, on the other hand, continues to expand, rising 2.8 percent over the period. One year ago, C& I loans rose 1.6 percent during the same two-month period.
Agriculture and Natural Resources
District row crops are reported to be in good condition in most areas, although some nonirrigated crops in southern parts of the District have recently deteriorated because of sparse rainfall and hot temperatures. Overall, though, the recent hot and dry weather throughout most of the District appears not to have harmed row crops yet significantly. Initial USDA projections indicate that the 1998 wheat production should be down by an average of nearly 10 percent in all District states except Arkansas, where increased plantings and a modest uptick in yields are expected to boost production by nearly 17 percent. In the remaining states, fewer planted acres and, in some instances, marked yield declines are expected to be the norm. Moreover, initial reports from a few areas indicate some deterioration in the quality of the harvested wheat crop. Poultry producers, however, have had higher-than-average death losses because of power outages during the heat spell. District farmers report that the drought-like conditions in parts of the Southeast have spurred an increase in the demand for hay.