November 4, 1998 Federal Reserve Districts Eighth District - St. Louis

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Despite some slowing in the rate of growth, the District economy is still operating at a high level. District firms are experiencing some declines in their levels of international sales, but domestic sales have held steady. Tight labor markets remain the norm throughout the District. Some firms have had profit margins narrow, though, and cite fierce competition and rising costs as the cause. Housing sales and construction remain strong, with many areas expecting a record year. Commercial and industrial lending is still increasing at large District banks. With the fall harvest in full swing, it appears that bumper crops will be the norm in northern parts of the District. Unusually dry conditions during a good portion of the growing season in southern parts of the District, however, have adversely affected crop yields. Manufacturing and Other Business Activity Most District firms continue to operate at high levels of production. For the most part, credit has not tightened, domestic sales and orders have remained stable, and qualified workers are still scarce. Firms have seen international orders slacken somewhat, particularly from some Asian and South American countries. For example, a firm that exports machinery to Brazil has seen this market dry up over the past six months. Contacts have also recently noticed a moderate retreat in consumer confidence, leading them to be slightly less optimistic about near-term economic conditions. Several automotive parts plants have been reporting record levels of production as they recoup from GM's strike earlier this summer. As a result, permanent employment has been boosted at these plants. The District's package delivery industry has been strengthened with the opening of a high-tech center in Kentucky. A maker of private jets has had such brisk sales lately that it is expanding its District plant, adding almost 300 new employees. Several District firms producing electrical equipment and food products have seen year-over-year sales increase recently, but profits have been down. They attribute the decline in profits to stronger domestic competition restraining prices and somewhat higher costs. One contact noted that his firm has engaged in "aggressive pricing to maintain market share." The District furniture industry has seen some slowing lately�sales are down, and labor and materials costs are up�leading to a less-than-optimistic outlook. And General Electric has announced it will outsource its dryer production and close its Louisville line, eliminating about 400 jobs. This move was not a surprise, though. Most contacts around the District continue to talk about the tight labor markets in their regions, and how this situation is affecting their ability to meet demand. Small businesses, in particular, have been vocal about the problem, saying they generally cannot compete with larger firms in their compensation packages. Several contacts have noted that the Census Bureau, gearing up for the decennial census, is drawing more and more workers from the labor force. Some reports have shown a growing dependence on immigrant labor at nonfarm establishments. In one instance, the immigrant share of a firm's workforce jumped almost 20 percentage points in about six months. Meanwhile, home builders and general contractors continue to experience severe shortages of skilled tradespeople. These shortages are straining production timetables and raising costs. Real Estate and Construction Although monthly residential building permits in August were down in many of the District's metropolitan areas, residential real estate markets remain strong throughout the District, with both sales and prices on the rise. Many regions continue to expect this to be a record year. Recent declines in the stock market do not appear to have slowed this trend. Commercial and other nonresidential construction has been much spottier around the District. Much less speculative building is occurring, and commercial real estate agents are reporting a pickup in uncertainty in these markets. Banking and Finance Total loans on the books of a sample of large District banks rose just 0.1 percent between early August and early October, after increasing 1.2 percent during the same period one year ago. The decline in growth was entirely due to a drop in real estate loans outstanding, which fell 0.9 percent over the period. Consumer loans rose just 0.2 percent. Commercial and industrial lending, on the other hand, remains robust, increasing 2.1 percent over the past two months. These numbers are consistent with statements by District loan officers and loan customers that business credit is still readily available. Agriculture and Natural Resources The fall harvest is largely on schedule, although recent rains have slowed the pace of the harvest in parts of Missouri, Illinois and Indiana. On average, the corn and soybean crops look exceptional in the northern parts of the District, with record or near-record crops expected. In parts of Kentucky and the southern reaches of the District, in contrast, unusually dry conditions during much of the growing season have limited the overall size of crops. Early reports from Delta cotton farmers, for example, suggest yields are running modestly below what many farmers had expected. The lack of rainfall in parts of Arkansas and Kentucky has reportedly caused pasture conditions to deteriorate to the point where many farmers are feeding their livestock from winter hay stocks. Because of last year's bumper hay crop, however, hay supplies seem adequate at this time. Return to top Chicago Minneapolis