November 1, 2000 Federal Reserve Districts Eighth District - St. Louis

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District economic activity is expanding moderately overall, with various high-tech and manufacturing firms reporting expansions and some growth in demand. Nevertheless, many District firms continue to have difficulty meeting their staffing needs. Not only have some firms upped their referral and retention bonuses, but upward wage pressures appear to be surfacing. High fuel costs continue to bite into some firms' profit margins, particularly at trucking companies. In other sectors, signs of a moderate slowing in the pace of economic activity are still apparent. Home sales and new residential construction are down from their year-earlier levels. Median home prices are also down slightly in most parts of the District. Loan growth at District banks has been marginal, with most strength coming from commercial and industrial loans. Total deposits continue to fall somewhat. The hot and dry weather conditions that continued through late summer hurt cotton production and yields. Early reports also indicate that some of the soybean crop was damaged by an early frost in southern parts of the District. Manufacturing and Other Business Activity Sales and employment growth remain steady at District firms, as contacts report moderate demand growth overall. However, with parts of the District reporting some of the lowest unemployment rates in the country, firms in nearly all industries continue to struggle finding workers. Contacts still note that skilled jobs, such as those in the high-tech industry, are particularly hard to fill. Firms report that job fairs and referrals from current employees have been the most successful avenues for recruiting new employees. Current employees who refer successful job candidates are reportedly receiving large bonuses--in some cases, more than $1,000. (One firm reports that it recently increased its referral bonus to $1,500 from $500.) Some upward wage pressures also appear to be surfacing. For example, in Columbia, Missouri, which has an unemployment rate of about 1 percent, firms report that $7 per hour has become the typical wage for many low-skilled jobs, which would traditionally pay minimum wage. Similar reports are arriving from other parts of the District as well. Although the technology sector continues to report difficulty recruiting workers, high-tech companies are still opening and expanding facilities in the District. In the Louisville and St. Louis regions, expansions of several technology firms over the past few months have created strong high-tech belts in those areas. A handful of other expansions have been reported as well. Toyota, for example, has broken ground at its Indiana campus for a new minivan plant, which will eventually employ 2,000 additional workers. Hewlett-Packard plans to open a new distribution center in Memphis, creating 500 jobs. A contact reports that strong demand for household appliances has led an Arkansas firm to expand its production line. A mild decline in demand was felt in a few industries, such as mining, chemical production and some heavy manufacturing, which led a few firms to downsize. Many District firms, especially smaller trucking companies, continue to see their profit margins being squeezed because of higher fuel costs. The recent tire recall forced the Ford plant in St. Louis to remain closed for a third week because it was not receiving tires for its vehicles. At the same time, though, Bridgestone/Firestone plans to lay off 450 workers at its Decatur, Illinois plant because of a drop in demand for its tires. Real Estate and Construction During September and into October, home sales in most District areas have continued their slowing trend. Real estate agents still cite relatively high interest rates as a reason. As a result of the slower sales, inventories of homes, especially those in the $120,000 to $200,000 price range, continue to rise in several parts of the District. Still, agents believe that home sales this year will come close to setting another record. Median prices of homes in many areas of the District are currently down from their year-earlier levels. The trend in new construction has mirrored that of recent sales. Residential construction (year-to-date) in almost all District metropolitan areas has continued its decline in September, when compared with year-earlier levels. Monthly construction numbers in September, however, are up somewhat from August. Commercial construction has started slowing in many parts of the District, which has resulted in a number of commercial contractors laying off workers. Banking and Finance Total loans outstanding at a sample of mid-sized and small District banks are up slightly since the end of August, with almost all of this growth coming from commercial and industrial loans. Both real estate and consumer loans are essentially unchanged over the period. During this same time, total deposits at these banks have declined slightly. District banks continue to struggle to find funding sources for their (even mild) loan growth. Agriculture and Natural Resources USDA cotton production estimates for District states are down in October, reflecting a smaller-than-expected increase in harvested acres and a sizable drop in yield. Hot and dry weather conditions, which continued through late summer, hurt the cotton crop, especially in Mississippi. Reports from Delta cotton farmers suggest that yields are running far below what many had expected. Winter wheat planting in Illinois, Indiana, Kentucky and Mississippi is behind last year's pace because of dry soil conditions. Although recent rainfall has improved the general outlook for the winter wheat crop, more rain is needed to ensure proper germination and to replenish topsoil moisture overall. An unexpected frost in early October has reportedly damaged some of the soybean crop in southern parts of the District, leading to yield loss and quality concerns. On a positive note, the soybean and corn harvests are ahead of last year's pace in many District states. Return to top Chicago Minneapolis