May 3, 2000 Federal Reserve Districts Eighth District - St. Louis

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The District economy continues to grow at a moderate pace. Contacts report growth in employment and sales, although many firms still face tight labor markets. High fuel prices have bitten into several industries' profits. Sales of existing homes have continued to slow in some regions in the District, while in other regions housing demand continues to be strong. Loan demand has increased modestly, but banks continue to struggle to attract deposits. A mild increase in some crop prices has been noticed lately. Manufacturing and Other Business Activity Contacts report sound overall business conditions in the District, with output remaining high and demand growing. The high-tech industry, for example, continues to flourish, creating numerous skilled jobs in the District. A provider of cable-based Internet services is opening in Louisville, and a firm that services Internet retailers is opening in Memphis; together they will create about 1,450 jobs. Southwestern Bell Wireless will create 500 jobs by year-end at a new call center in Little Rock. A few contacts, however, have noted a slowdown in demand for their products over the past few months. For example, the demand for durable goods, such as automobiles and home furnishings, has tapered off slightly. The textile industry continues to weaken, with several more clothing manufacturers moving their jobs abroad. A printing plant in western Tennessee closed, eliminating 425 jobs. Markets for skilled and unskilled labor remain tight; consequently, reports that firms are unable to expand production are becoming more frequent. A District steel mill, looking to increase production, reports that it cannot find the 100 workers it needs. Problems with worker retention and absenteeism have forced an automotive parts producer to shut down all non-critical production lines. The health care and hospitality industries are being hit particularly hard by the labor shortage. Nurses and pharmacists are very scarce, leading many hospitals to raise wages to attract such workers. Casinos, restaurants and hotels report staffing problems as well, with worker vacancy rates reaching 25 to 35 percent in some cases. To address this problem, firms are using creative techniques, which include recruiting over the Internet and outside of their local areas, to find workers. Also, to attract workers, the hospitality industry has begun offering benefits, such as pension plans and health insurance, and wages that are $2 to $3 above the minimum wage. To retain workers, some employers are paying bonuses to workers who stay on the job more than 90 days. All told, however, overall wage pressures remain moderate. High fuel prices continue to bite into the trucking and transportation industries' profits. In response, many of these firms, including UPS and FedEx, are tacking on delivery surcharges--in some cases, of 6 percent or more. In addition, trucking companies are adopting efforts to improve efficiency and reduce fuel consumption by cutting idling times and organizing driving routes better. Fuel prices are also harming many District businesses indirectly. For example, car dealers report that SUV sales are down moderately because of high gas prices. Real Estate and Construction Sales of existing homes slowed somewhat in March in several areas of the District, especially in West Tennessee and Memphis. Real estate agents cite higher interest rates as a reason. On the other hand, some areas, such as parts of Arkansas and northeast Mississippi, continue to experience strong housing demand, with several agents in the region reporting a shortage of available houses, particularly mid-priced (about $200,000) ones. Sales of new homes have continued to weaken somewhat District-wide. Residential construction picked up significantly in February, partly because of the unseasonable weather. Year-to-date permits in February were above their year-earlier levels. Commercial construction has maintained its moderate growth trend, especially in southern parts of the District, where agents note healthy demand. Banking and Finance Although District banks continue to struggle to raise deposits, outstanding loans on the books continue to show a moderate increase. Between January and March, total deposits at a sample of large District banks remained flat, while total loans outstanding increased by slightly more than 1 percent. Almost all of the loan growth came from the commercial and industrial category, which grew by 2.4 percent. Real estate and consumer loans were basically unchanged. Nevertheless, all of these loan categories were up substantially from a year earlier. For example, despite higher interest rates, commercial and industrial loans were up by more than 15 percent, while real estate loans grew by more than 6 percent. Over the same period, total deposits grew by less than 1 percent. Confidence in the economy is often cited as a reason for the continued loan growth. Agriculture and Natural Resources Although still relatively low, prices for corn, soybeans and cotton seem to have turned around somewhat during recent months, ending an almost three-year decline. Wheat prices also remain low and have shown no sign of recovery. Hog prices, on the other hand, rebounded significantly from year-ago levels due to a slight decrease in production and growing demand. With favorable spring weather, many farmers are slightly ahead of schedule with field preparation and planting. Soil-moisture levels, however, remain low in Illinois, Missouri and southern Indiana; they are reportedly adequate in Kentucky and the southern portion of the District. The District winter wheat crop is in good-to-excellent condition in many areas. In the northern part of the District, planting intentions for corn and soybeans are estimated to be about the same as last year. In the southern portion of the District, farmers intend to increase acreage for corn and cotton, and decrease it for soybeans and rice. Return to top Chicago Minneapolis