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Federal Reserve Districts

Eighth District - St. Louis

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Full report

The District economy continues to operate at what appears to be full capacity. Contacts have noted some moderation in growth lately that they attribute partly to ongoing shortages of workers. Examples of upward wage pressures have recently become more frequent. Home sales continue to be strong in most parts of the District, although pockets of weakness are popping up. Commercial real estate markets remain robust. Consumer loan demand is boosting loan growth moderately at banks, although bankers are becoming increasingly concerned about delinquency rates. The fall harvest is ahead of schedule for most crops, although yields are generally below average.

Manufacturing and Other Business Activity
District contacts report that growth has moderated slightly in the past two months, partly because tight labor markets continue to limit production at many firms, especially small ones. Ongoing record low unemployment rates have forced many firms to search for workers outside their local areas. FedEx, for example, reports recruiting hourly workers from outside the Memphis region. Firms also continue to use cash bonuses to attract and retain workers. Concerns about finding a sufficient number of qualified workers have delayed some firms' expansion plans.

Contacts report that upward wage pressures have picked up recently-in some cases, wage increases are approaching 6 percent. Contacts also note that health care costs are rising dramatically, and hikes of 10 to 15 percent are common. Rising pharmaceutical costs are a primary reason.

Strong sales growth has been reported in the plastics and building-materials industries. Computer hardware- and software-support companies are also flourishing, with many high-tech firms moving into, and expanding within, the District. Truck producers continue to enjoy a boom, with year-to-date sales through September topping 1998 totals.

Despite the overall robust economy, several plant closings and downsizings have also been reported. Declining demand for major household appliances has led to ongoing workforce reductions at General Electric. Even though the poultry market has recently rebounded somewhat, poultry prices are still off about 20 percent from a year earlier. Cutbacks in the industry are expected. Because of poor conditions in the agricultural sector, farm equipment dealers have seen demand fall off sharply and inventories rise to unusually high levels.

Real Estate and Construction
Although most residential real estate agents report that home sales around the District remain strong, with many areas continuing to experience growth, some agents have noted a slight weakening. Inventories of available homes have grown recently in several areas, especially Memphis, relieving some of the shortages that had existed for much of this year.

After a moderate decline in July, monthly residential building permits rebounded sharply in August, spurred by strength in the multi-family housing market. Year-to-date residential permits are above their year-earlier levels in almost all District metropolitan areas. Many contractors are still concerned, though, that ongoing shortages of skilled workers and certain materials will continue to delay some projects.

Commercial real estate markets remain strong. However, some commercial real estate agents report that the demand for industrial space is not being met because rental rates in some areas have not yet risen enough to justify new construction.

Banking and Finance
Total loans outstanding at a sample of large District banks grew less than 2 percent between mid-August and mid-October. This growth came entirely from consumer loans. Real estate loans were unchanged, and commercial and industrial loans were down mildly. Recent conversations with contacts at small and mid-sized banks revealed that deposits have picked up recently and that loan demand remains strong, particularly for consumer loans. Many bankers are becoming increasingly concerned about delinquency rates, especially for agricultural loans, and have upped their loan loss reserves accordingly.

Agriculture and Natural Resources
Despite recent rains, fall harvest conditions have generally remained quite favorable throughout the District. For example, the District-wide corn harvest, and the cotton harvest in Arkansas, Mississippi, Missouri and Tennessee are ahead of both last year's paces and their five-year averages. The soybean harvest is also ahead of schedule in all District states except Mississippi.

Persistently dry conditions in August and September, however, have reportedly reduced soybean yields below last year's levels in most District states. Cotton growers are experiencing lower-than-average cotton yields. In addition, they are worried that below-average crop quality will exert downward pressure on revenue. Corn yields in Arkansas, Illinois, Mississippi and Tennessee, on the other hand, are up from a year earlier. Early reports suggest that rice yields will be either average or slightly below average this season. A shortage of subsoil moisture in Illinois may hinder the emergence of the winter wheat crop.

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Last update: November 3, 1999