November 4, 1998
Federal Reserve Districts
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Despite some slowing in the rate of growth, the District economy is still operating at a high level. District firms are experiencing some declines in their levels of international sales, but domestic sales have held steady. Tight labor markets remain the norm throughout the District. Some firms have had profit margins narrow, though, and cite fierce competition and rising costs as the cause. Housing sales and construction remain strong, with many areas expecting a record year. Commercial and industrial lending is still increasing at large District banks. With the fall harvest in full swing, it appears that bumper crops will be the norm in northern parts of the District. Unusually dry conditions during a good portion of the growing season in southern parts of the District, however, have adversely affected crop yields.
Manufacturing and Other Business Activity
Several automotive parts plants have been reporting record levels of production as they recoup from GM's strike earlier this summer. As a result, permanent employment has been boosted at these plants. The District's package delivery industry has been strengthened with the opening of a high-tech center in Kentucky. A maker of private jets has had such brisk sales lately that it is expanding its District plant, adding almost 300 new employees.
Several District firms producing electrical equipment and food products have seen year-over-year sales increase recently, but profits have been down. They attribute the decline in profits to stronger domestic competition restraining prices and somewhat higher costs. One contact noted that his firm has engaged in "aggressive pricing to maintain market share." The District furniture industry has seen some slowing lately—sales are down, and labor and materials costs are up—leading to a less-than-optimistic outlook. And General Electric has announced it will outsource its dryer production and close its Louisville line, eliminating about 400 jobs. This move was not a surprise, though.
Most contacts around the District continue to talk about the tight labor markets in their regions, and how this situation is affecting their ability to meet demand. Small businesses, in particular, have been vocal about the problem, saying they generally cannot compete with larger firms in their compensation packages. Several contacts have noted that the Census Bureau, gearing up for the decennial census, is drawing more and more workers from the labor force. Some reports have shown a growing dependence on immigrant labor at nonfarm establishments. In one instance, the immigrant share of a firm's workforce jumped almost 20 percentage points in about six months. Meanwhile, home builders and general contractors continue to experience severe shortages of skilled tradespeople. These shortages are straining production timetables and raising costs.
Real Estate and Construction
Banking and Finance
Agriculture and Natural Resources