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The District economy is still operating at a high level and growing moderately. Weakness in the agricultural sector is the only notable exception. The District's position as a distribution center continues to solidify, as UPS and FedEx attract more businesses to their hubs. District auto production is expected to increase because of a new line at a Ford plant. According to Manpower's second-quarter employment outlook survey, firms in the District's four major cities have upped their hiring expectations significantly from the previous survey. Most District metropolitan areas ended 1998 with more residential building permits issued than a year earlier; in several instances, it was a record year. Nonresidential real estate markets have been mixed. Total loans at large District banks have been down since the beginning of the year, with consumer loans seeing the biggest decline. Most major crop and livestock prices trended modestly lower since our last report.
Manufacturing and Other Business Activity
Most District contacts continue to see growth in sales and employment. Although reports of tight labor markets have tapered off somewhat, other market indicators suggest that, rather than there being a real change in market conditions, contacts have just stopped mentioning it. Energy producers and agricultural areas of the District, especially the southern states, have been hit extremely hard by falling prices.
The District continues to attract new businesses that see it as a distribution hub, especially in the Louisville and Memphis regions. The presence of UPS and FedEx and their geographic locations are most often cited as reasons for firms picking these areas. Several firms have announced that they have chosen the St. Louis region for their new service-response (calling) centers. The District furniture industry is seeing more mixed results recently. Larger, more efficient plants report continued strong sales, while smaller, less efficient plants are struggling due to cost disadvantages. District auto production will grow as Ford adds a line to produce its new sport-utility vehicle to the Louisville truck plant. Employment in St. Louis will receive a boost as Boeing consolidates its missile production there.
Several other reorganizations and consolidations, however, mean job losses. Declining domestic demand for cigarettes has led Philip Morris to announce it will close its Louisville plant. The ever-dwindling District apparel sector is seeing additional fallout: Levi Strauss is closing a plant because of slack demand for jeans, and a shirt manufacturer is shuttering its plant because of overseas competition. Some contacts mentioned a falloff in their exports because of the devaluation of the Brazilian real.
Employment Outlook
Current labor market conditions, while solid, are expected to improve further, according to Manpower's February employment outlook survey. Labor demand in the District's four major cities is expected to be even greater during the March-June 1999 period than was anticipated in the previous survey taken in November 1998. In particular, the current survey shows that, on net (percentage reporting increase less percentage reporting decrease), 24 percent of the surveyed firms in the District's major cities plan to increase employment. This is a sizable uptick from the 8 percent net reported in the November 1998 survey, but identical to the percentage noted in the February 1998 survey. Employment gains in the second quarter are expected to be strongest in Little Rock, Louisville and Memphis, with somewhat less strength evident in the St. Louis market.
Real Estate and Construction
By the end of 1998, ten of the District's 12 metropolitan areas had issued more residential construction permits than they had in 1997. In all, four metro areas had record years for total residential construction in 1998, and six metro areas had built more single-family homes than ever before. This pace seems to have continued into 1999. District real estate agents report continued strong sales (adjusted for the season) and moderate price gains. Nonresidential markets are more mixed. Several agents have noted a softening in the office market and mildly increasing vacancy rates in central business districts. Commercial and industrial markets, however, remain relatively strong in most parts of the District.
Banking and Finance
Total loans on the books of a sample of large District banks have declined 2.5 percent since the start of the year. All loan categories have dropped from their 1998 year-end levels, with consumer loans posting the sharpest decline at 2.4 percent, followed closely by real estate loans with a 2.1 percent decline. Commercial and industrial loans, however, are essentially unchanged, declining just 0.1 percent. One year ago, total loans at these banks increased 2.4 percent during the same period.
Agriculture and Natural Resources
Crop and livestock prices generally trended downward during the past month and a half, paced by a more than 14 percent decline in soybean prices. At the other end of the spectrum, cotton prices rallied a bit after falling to a five-year low in February, and feeder cattle prices continue to rally from their lows posted last September. Two major surveys of U.S. cotton farmers' 1999 planting intentions show a modest increase in acreage from a year earlier. In the mid-South region, however, a major trade organization expects cotton acreage to dip modestly this year. Indeed, reports from contacts in the southern part of the District suggest that some farmers plan to devote more acres to soybeans this year, a flexibility offered by the recent Freedom to Farm legislation.
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