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The District economy continues to operate at a high level. Contacts report little or no change in the level of economic activity since the last report and continue to be optimistic about the near term. Labor markets remain tight in much of the District. A few contacts noted some slowing of sales at the beginning of the year, but are now seeing renewed growth. Tornadoes and severe flooding ravaged much of Arkansas and parts of Kentucky; effects on economic activity are still unknown. Residential construction in 1996 was stronger than a year earlier in most areas, despite the usual slowing at the end of the year. Commercial construction remains strong. Loans outstanding at large District banks have declined slightly since the start of the year. Surveys of District employers indicate that prospects for employment gains, although mixed, are expected to be less favorable in the second quarter of 1997 compared with the same period in 1996. State sales and income tax receipts for the last three months of 1996 showed strong growth compared with the last three months of 1995.
Manufacturing and Other Business Activity
Overall, District contacts report little change in sales and employment levels since the last report and remain optimistic about their near-term prospects. Contacts are concerned that continued tight labor markets will hamper their ability to hire new employees. Construction workers are very scarce, especially in southern parts of the District.
Many contacts report stable sales levels overall since the beginning of the year, although some experienced a slight slowing early on that appears to be reversing itself. For example, a contact in the heating and cooling industry reports that orders have recently slowed somewhat, but the industry is currently building inventory for the upcoming cooling season, its strongest season. A firm that manufactures oil reclamation equipment is seeing orders delayed because of bottlenecks and postponements by its customers, many of whom are overseas. Several contacts, particularly from the poultry processing industry, report temporary production delays, as ice and extremely cold temperatures earlier this winter prevented employees and deliveries from reaching plants. The furniture industry reports strong sales, especially for wood furniture. The District’s apparel industry, however, continues to shrink, as additional shirt and shoe makers move their production to Mexico and southeast Asia.
Many tornadoes struck Arkansas, leaving much devastation in their wake, and severe rains flooded parts of western Tennessee and northern and western Kentucky, including the Louisville area. Damage estimates and the impact on short-term economic activity are not yet available.
Real Estate and Construction
Residential real estate markets showed their usual slowing in December. Only two of the District’s 12 metropolitan areas had increases in the number of permits issued in December. Overall, though, 1996 was a good year in most markets, with eight metro areas experiencing more building than the year before. In many areas, real estate agents report record levels of sales for 1996. Commercial construction continues to be strong around the District. One banker noted that applications for commercial real estate loans were up substantially.
Banking and Finance
Total loans outstanding at six large District banks have declined 1.2 percent since the start of the year, after increasing 0.4 percent over the same period last year. All major categories show declines, with consumer loans dropping the most, 0.8 percent. Commercial and industrial loans have declined 0.2 percent, after rising 2.1 percent during the same period a year ago. Real estate loans have dropped by 0.5 percent, following a 1.2 percent increase a year ago.
Compared with the same period a year earlier, Manpower’s second-quarter employment outlook survey depicts a mixed bag for major Eighth District cities. Employers in Little Rock were the most upbeat, with nearly half of surveyed firms planning to add to their payrolls, and none anticipating reductions. Prospects were somewhat less ebullient in Memphis, as the same percentage of firms plan to increase hiring this year compared with last; however, those planning workforce reductions have dropped modestly. The outlook was decidedly less upbeat in Louisville and St. Louis, with a far lower percentage of Louisville firms planning workforce additions, while a somewhat greater share of St. Louis firms are planning reductions compared with a year earlier. In general, employment prospects appear more favorable for those in nonmanufacturing than manufacturing industries.
A separate survey of District small businesses confirms this cautious outlook: Slightly more than 20 percent of firms plan to increase their payrolls in the second quarter, which is modestly smaller than the nearly 25 percent that reported they would last year. For the most part, employment prospects at retailers are more favorable than they were last year at this time, while those in the manufacturing and construction sectors are more uncertain.
State and Local Finances
State sales and income tax receipts showed fairly robust growth over the last three months of 1996 compared with a year earlier. Nominal District sales tax receipts (a seven-state total) over the last three months of 1996 were running a little more than 7 percent above the last three months of 1995, with receipts from Illinois, Indiana and Tennessee exhibiting the largest increases. District income tax receipts, on the other hand, showed slightly less growth, increasing by a little less than 7 percent over the last three months of 1996 versus a year earlier.