Economic conditions across the District remain exceedingly good. Retail sales were up modestly in April and May. Large rebates and other incentives have helped boost car sales from their sluggish start at the beginning of the year. Other District firms continue to report strong activity, although the construction industry is feeling the squeeze from worker shortages. Real estate sales and construction are still surging from strong economies and low mortgage rates. The latest Manpower survey indicates that measurably more firms plan to boost their hiring in the third quarter compared with the second quarter. Strong demand from business customers has boosted loan demand at large District banks. Crop conditions are generally viewed as good-to-excellent across most of the District.
District contacts report that, on average, sales were up 2 percent in April and 2.5 percent in May over a year earlier. With summer approaching, athletic apparel and summer clothing have been hot sellers, while home electronic equipment has remained on the shelves. Most contacts state that their inventories are smaller than usual because of better inventory management. Most retailers have extremely positive outlooks for the summer.
Most of the automobile dealers surveyed have strong incentive plans in effect, which are scheduled to last at least through June. Dealers believe that recent strong sales increases, on the average of 4 percent in April and 5 percent in May over a year earlier, are a result of these incentives. While most dealers report inventories at satisfactory levels, some are still struggling with inventories that are too large. Most dealers believe they will have steady sales this summer, with some anticipating strong sales.
Manufacturing and Other Business Activity
Most contacts report continued vigorous economic activity. Because of a scarcity of skilled workers, some additional upward pressure on wages has been noted. Contacts reports that this pressure has not passed through to consumer prices, with many citing productivity gains as the primary reason. Construction projects continue to be delayed because of labor shortages. And construction industry executives note that they are having trouble getting the "best and brightest into [the] industry."
Several recent mergers in the District are expected to have wide-ranging employment effects on local economies; however, precise estimates are unavailable. Jefferson Smurfit bought Stone Container Corp. and will move its headquarters to Chicago. Monsanto plans to merge with American Home Products and move its headquarters to New Jersey. The new company plans to keep its agriculture division in St. Louis, however, which could leave employment unchanged or even increase it. United HealthCare of Minneapolis bought Humana Inc. of Louisville. United HealthCare believes it may move a division to Louisville, which could increase employment in the region.
Real Estate and Construction
Low mortgage rates and solid local economies continue to spur strong sales of new and existing homes all around the District. Median home sales prices continue to rise and, in some cases, are up more than 10 percent from a year earlier. Construction of new homes is also on the rise because of strong demand. Monthly residential permits in April were up in nine of the District's 12 metropolitan areas. In many cases, permit levels were up 20 percent or more. Compared with a year earlier, residential permit levels were up in eight metro areas. Memphis is the District's only major metro area that is somewhat behind its year-earlier level. Nonresidential markets also remain relatively strong, with demand for office space staying tight as vacancy rates nudge down.
The demand for labor remains strong across most areas of the District. Manpower's quarterly survey of businesses in the four major cities of the Eighth District shows that employment gains in the third quarter are expected to improve further from three months earlier. Labor market conditions are expected to strengthen the most in Memphis, with nearly 50 percent of surveyed firms expecting to add to their payrolls over the next three months. Somewhat less optimism was expressed in Little Rock and Louisville, where 30 percent of those firms surveyed expect to add to their workforces. In St. Louis, only 18 percent of firms expect to add staff. In all four cities, however, the percentage of firms anticipating payroll reductions was 5 percent or less, compared with almost 10 percent a year ago.
Banking and Finance
Total loans outstanding at a sample of large District banks rose 1.5 percent between late March and late May, compared with a 2.1 percent increase in the prior two months. The increase was mostly attributable to strength in business lending. Commercial and industrial loans jumped 4.4 percent over the period, while real estate loans rose 0.8 percent and consumer loans declined 3.1 percent. Bankers across the District continue to describe loan demand and competition among lenders as strong.
Agriculture and Natural Resources
Favorable growing conditions were the rule rather than the exception during the month of May. In early June, conditions were enhanced further by widespread rainfall, which was quite heavy in some areas. The colder-than-usual temperatures that accompanied the rain, though slowing crop progress appreciably, is not expected to be much of problem, except in a few isolated areas where spring planting was already behind. Regardless, the corn, soybean and winter wheat crops are in good-to-excellent condition in most areas.