St. Louis Fed issues latest report on district economy

The economy of the Federal Reserve Eighth District continues to exhibit strong growth. Retailers report strong back-to-school sales and expect robust sales to continue through year-end, according to a report from the Federal Reserve Bank of St. Louis.

Manufacturers still report strong growth despite continuing to have difficulties filling vacant positions. Tight labor markets aside, a recent employment survey showed that more firms plan to hire additional workers this fall than did last fall.

Home sales in the district remain strong, although the pace of growth of new construction has waned a bit. Credit conditions at district banks have not changed during the past few months. Drought-like conditions are affecting many of the district's crops.

Consumer spending

District contacts report that retail sales were up on average between 7 percent and 8 percent in July and August from a year earlier. Almost all reported that back-to-school sales either met or exceeded expectations.

The recent hot and dry weather, however, hampered sales of lawn-and-garden supplies. Contacts remain very optimistic that sales during the upcoming holiday season will be strong.

Car dealers report relatively strong year-over-year sales gains in July and August in many cases, up more than 10 percent. The demand for pickup trucks and sport-utility vehicles continues to outstrip the supply, hampering some dealers' sales.

While vehicle prices, for the most part, remain unchanged, values of rebates have recently increased somewhat. Dealers remain optimistic about fourth-quarter sales, assuming they can get the inventory to meet the anticipated demand.

Manufacturing activity

District contacts report healthy manufacturing conditions. Strong growth was reported by metal-products manufacturers and automobile producers. Many firms, especially in the manufacturing, construction and trucking industries, are still experiencing difficulty filling vacant positions, which continues to hamper production.

To address this problem, some communities have set up committees such as the Construction Industry Advisory Group in Kentucky to try to attract qualified workers to certain areas and match them with job openings. District contacts still report no unusual upward wage pressures, however.

Several firms are planning to expand or move to the district. Four firms, for example, chose to expand or move to the Louisville and Memphis areas because of their accessibility to the FedEx and UPS hubs. All told, these firms will create nearly 2,000 jobs.

Employment outlook

According to Manpower's latest employment outlook survey, employment growth in the district's four major cities is expected to be greater than it was a year ago. On average, 35 percent of firms surveyed in the Little Rock, Louisville, Memphis and St. Louis regions plan to increase their employment this fall.

One year ago, only 25 percent of firms surveyed expected to increase their employment. Employment expectations rose the most in St. Louis and Memphis. The share of firms planning to reduce employment this fall is small and virtually unchanged from a year ago.

Real estate and construction

Home sales remain strong throughout the district, with many real estate agents optimistic that sales will continue to thrive. Year-to-date residential building permits are above their year-earlier levels in almost all district metropolitan areas, although the rates of growth appear to have moderated somewhat.

Monthly permits, on the other hand, declined moderately in many district metro areas in July. Commercial real estate agents report that demand remains strong. In fact, they note that speculative building has picked up in many areas, especially Louisville, which the agents interpret as an indication of continued growth in this sector.

Banking and finance

A recent survey of district senior loan officers indicated no change in standards for approving commercial and industrial loans, although some respondents noted a moderate decline in demand for them. Credit standards for commercial and residential real estate loans, consumer loans and credit cards remained unchanged.

A mild weakening in demand for real estate and consumer loans was noted. Meanwhile, banks are still finding it difficult to attract deposits because of strong market alternatives for customers.

Agriculture and natural resources

Although the lack of rainfall continues to adversely affect crops district-wide, the drought-like conditions are worst in western Kentucky and western Tennessee. Without additional rainfall, particularly in these regions, the soybean crop may not reach its full yield potential.

In northern parts of the district, the estimated average yield-per-acre for corn and soybeans has declined. Overall, the corn and soybean crops remain in poor to fair condition, while the cotton and rice crops remain in good condition.

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