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Economic growth in the Eighth District appears to have accelerated somewhat. Retailers report a pickup in consumer spending during July and August, boosted by back-to-school sales that generally met or exceeded expectations. Car dealers are optimistic that sales, bolstered by the 1998 models, will increase through the end of the year. Most other District business contacts also report that their sales have met or exceeded expectations. A further tightening of already tight District labor markets is expected in the fourth quarter, according to the latest Manpower survey. District residential real estate markets are starting to experience an excess supply of available houses, especially higher-priced ones. Loans outstanding continue to increase at large District banks. Recent rains in mid- to late-August, while beneficial to the District's soybean crop, probably came too late to help the corn crop.
Consumer Spending
District retail contacts report that July and August sales were up 4 percent on average over one year ago. Back-to-school sales generally met or exceeded expectations; athletic shoes, sportswear and professional team clothing were the biggest sellers. A few contacts noted, however, that sales of other merchandise have been somewhat sluggish. Inventories are at desired levels, making retailers less likely to offer discounts to move merchandise. Most are optimistic about sales for the rest of the year, particularly during the holiday season.
On average, July and August car sales were up about 3 percent over one year ago. Many dealers have indicated that used car sales continue to be strong, but, for the most part, are not affecting new car sales. Most dealers are optimistic about sales during the rest of the year, particularly now that many 1998 models are available.
Manufacturing and Other Business Activity
The general sentiment among most District contacts is one of optimism. They report that sales have generally been stronger than forecast at the start of the year�a trend they expect to continue through the end of the year. For the most part, District contacts continue to report no unusual acceleration in input prices or slowdown in supplier delivery times. Most contacts report that increases in raw materials prices have recently averaged less than 2 percent; steel and shipping cartons have seen the largest price hikes. One contact commented that some of his input prices have fallen, and he is negotiating to keep these prices steady for next year.
A contact in the timber industry says that demand is on an upswing, and several new mills have opened in southern Arkansas to meet this higher demand. A furniture industry contact reports that sales are somewhat stronger than last year, a record year for his company. A telecommunications firm announced that it will open a new information technology center and a credit and collections center in the St. Louis region, bringing about 1,200 jobs by next year. A contact in the steel industry reports that it will add new capacity in northeast Arkansas and create about 100 new jobs.
The District's apparel industry, however, is taking another large blow. Fruit of the Loom announced it will lay off about 2,000 workers by October from two plants in southern Kentucky, bringing employment down to 5,000 from 11,000 just two years ago. At the same time, Fruit of the Loom will increase employment by about 300 at a Mississippi plant by December because of expansion. A contact in the paper industry reports that it is suffering from excess capacity worldwide, causing production slowdowns at local plants.
Outlook
A recent survey of 225 small businesses in the Eighth District suggests a moderation in output price pressures. About 17 percent of surveyed firms expect to boost their selling prices over the next three months, which is about a percentage point lower than three months earlier and 2.5 percentage points lower than 12 months earlier. Manpower's most recent employment survey indicates that a significantly higher percentage of firms in Little Rock, Louisville and Memphis plan to hire workers in the fourth quarter than planned to in the third quarter, putting further pressure on already tight labor markets. Still, wage pressures appear to have moderated slightly, as a little more than a quarter of the aforementioned small firms reported increasing wage rates over the past three months, which is modestly lower than the nearly one-third reported in the same survey a year ago.
Real Estate and Construction
Monthly residential construction permits in June picked up in only four of the District's 12 metropolitan areas. Permit levels in all District metro areas except Evansville and Memphis remain below year-ago levels, which were record highs. Several contacts have noted an excess inventory of available housing, particularly houses selling for more than $200,000. Nonresidential construction remains strong in many parts of the District, particularly in the gaming region of northwest Mississippi. One contact, though, noted that both multi-family housing and retail construction have likely peaked in the District.
Banking and Finance
Total loans on the books of large District banks rose 1.2 percent from mid-June to mid-August, compared with a 0.6 percent decline during the same period one year ago. Business loans rose 0.9 percent, while real estate loans increased 0.3 percent. Consumer loans, the smallest of the major loan categories, fell 1 percent.
Agriculture and Natural Resources
Significant rainfall during mid- to late-August helped ameliorate the extraordinarily dry conditions in many locales. Despite this much-needed rain, the consensus is that it occurred too late to help the corn crop. The rains, however, appear to have helped the District's soybean crop considerably. Likewise, in the Delta region, contacts report that prospects for this year's cotton crop look much better now than they did earlier this summer. Pockets of unusually dry areas persist, though, particularly in Missouri and parts of southern Illinois and western Kentucky.
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