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The District economy continues to grow at a moderate pace. Most contacts are still reporting sales and employment growth; however, some have noticed a moderate slowing in growth. Although labor markets remain tight in much of the District, there are fewer reports of tightness. Moderate upward pressure on raw materials prices persists, but firms are generally still not able to pass these increases along to consumers. Damage estimates from storms and flooding earlier this spring are still preliminary. Residential real estate markets around the District experienced a slight pickup in February, but levels of new construction are below last year's levels. Loans outstanding at large District banks have declined slightly since mid-February. Abnormally cool temperatures have hindered the planting and emergence of spring crops in many areas.
Manufacturing and Other Business Activity
Although most contacts continue to report steady growth in sales and employment, some have noted a moderate slowing of growth at their firms and in their regions. Fewer reports of tight labor markets have been received than previously; construction and clerical workers, including bank tellers and loan processors, are reported to be in short supply. A strike at a Chrysler engine plant in Detroit has idled about 2,500 workers at the pickup truck plant in St. Louis. It is unclear when the workers will be recalled.
A maker of small power tools saw first-quarter sales jump 10 percent because of increased demand from a major retailer. Many regional suppliers to the auto industry are also experiencing increases in demand, leading to additional hiring. Several suppliers are building plants near the new Toyota plant in Indiana. At the same time, a firm that supplies paint to automotive manufacturers reports a slight weakening in demand, which is apparently tied to the production of models that have not been selling well. McDonnell Douglas got the go-ahead to start production on a new Navy contract for fighter jets, securing about 7,000 St. Louis jobs for the next 20 years. A large chemical firm reports that, while first-quarter sales volumes dropped slightly in the United States, business picked up strongly in Europe. A national construction and engineering design firm reports that orders through the first quarter are on a record pace; it sees little letup in the near term.
The apparel industry, however, continues to close plants and lay off workers, generally because of fierce competition from offshore firms. Two Arkansas shirt factories are closing, eliminating about 365 jobs. Another 100 jobs at a stitching factory are being eliminated. A flannel shirt factory in Indiana is also laying off half of its work force�about 160 people.
Wages and Prices
Reports from several medium-to-large District firms provide little evidence of an acceleration in the rate of wage increases. Contacts expect wages to increase between 3 and 3� percent this year. At the same time, reports of persistent upward pressure on other input prices remain, although these pressures have been largely offset by productivity gains or other cost saving measures. One contact in the paper industry notes that wood prices are up about 7 percent over last year. Although contacts in the chemical and furniture industries report current raw materials prices as stable, one in the trucking industry notes higher fuel expenses. Some contacts expect steel prices to increase later this year. Most contacts, however, still cannot pass these increases along to consumers because of competition.
Flood and Tornado Damage
Preliminary estimates of storm damage from the flooding of the Ohio and Mississippi rivers and the tornadoes that ripped through Arkansas, Tennessee and Kentucky in early March are sketchy. To date, FEMA has paid slightly more than $21 million on about a quarter of the claims filed. Kentucky residents have received about 75 percent of the total payout. About 6,000 claims for unemployment insurance because of storm damage have been received by the affected states.
Real Estate and Construction
Residential real estate markets saw a mild pickup in February. Nine of the District's 12 metropolitan areas had increases in the number of permits issued in February; however, permit levels in most areas lag their year-ago levels. Construction in many areas along the Ohio and Mississippi rivers has been delayed because of flooding. Commercial real estate agents continue to report generally strong markets. In particular, there is increased activity in multi-family housing construction, especially apartment complexes. Office development is also strong in many areas.
Banking and Finance
Total loans outstanding at six large District banks declined 0.6 percent between mid-February and mid-April compared with a 2 percent increase in the same period one year ago. Declines in real estate loans other than home equity lines of credit were responsible for the drop. Real estate loans declined 2.6 percent between mid-February and mid-April, while business loans rose 0.6 percent and consumer loans showed no growth.
Agriculture and Natural Resources
Early reports from farmers suggest that abnormally cool temperatures have delayed spring planting activities and the emergence of crops already planted in many areas. An early spring freeze has damaged some fruit orchards, as well as some wheat fields in low-lying areas. Certain low-lying fields remain inundated with water because of the flooding that afflicted many parts of the District.
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