September 8, 2004
Federal Reserve Districts
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Economic conditions in the Eighth District continued to improve slowly since our last survey. Many firms in the manufacturing and services sector reported expansions and new hiring. Some contacts, however, reported closings and layoffs. Retail sales in June and July decreased compared with year-earlier levels. Car sales increased over the same period. Residential real estate markets continued to do well, and commercial markets showed additional signs of improvement. Overall lending conditions at a sample of District banks were mostly unchanged in the three months ending in July.
Contacts reported that retail sales in June and July were down about 2.5 percent, on average, over year-earlier levels. While 56 percent of the retailers surveyed noted that sales levels met their expectations, 35 percent reported that sales were below what they had anticipated; 9 percent reported sales above expectations. Electronics, women's apparel and accessories, jewelry, and computers were all strong sellers, while home accessories, gift items, and children's apparel were moving more slowly. Nearly 70 percent of contacts noted that inventories were at desired levels. Retailers appear generally optimistic about sales in the fall, and more than 80 percent of contacts are hopeful that sales will increase over 2003 levels.
Car dealers in the District reported that, compared with last year, sales in June and July were up about 3.5 percent, on average. About 44 percent of the car dealers surveyed reported increases in sales, while another 44 percent reported decreases. About 33 percent of the car dealers noted that new car sales had increased, and more than half reported increases in low-end vehicle sales. About 57 percent of the contacts reported increased use of rebates, while 33 percent reported no change. Approximately 35 percent of contacts reported a decrease in the acceptance rates of finance applications, while 12 percent reported an increase in acceptance rates. About 32 percent of the car dealers surveyed reported that their inventories were at desired levels, while 48 percent reported that their inventories were too high. Nearly 70 percent of the car dealers surveyed expect increasing sales this fall.
Manufacturing and Other Business Activity
Manufacturing activity in the Eighth District continued to expand in many areas since our last report. Firms in the window and door, small engine, aerospace, and home appliance manufacturing sectors reported plant expansions that, in total, included hiring 1,100 new employees. Firms in the steel, recycling, and processed foods sectors reported new plant openings that included hiring new employees. A District aluminum manufacturer employing over 500 workers cancelled the sale of its plant and decided to continue operations. Despite reports of plant expansions and openings, some District manufacturers reported plant closures and workforce reductions. Firms in the home fixtures, furniture, and electronic cable manufacturing sectors will close plants, which may result in as many as 1,300 displaced workers.
The District's services sector has improved in many areas. Firms in the aviation, consumer products distribution, freight transportation, travel and tourism, general retail, and health care services sectors reported expansions and new hiring. In contrast, firms in the banking and education services sectors reported office closures and workforce reductions. An automotive maintenance and repair services union group is on strike in the St. Louis area. Car dealers suggested that, although the strike has not affected vehicle sales, it has negatively affected maintenance and repair services at the dealerships where workers are striking.
Real Estate and Construction
Sales of single-family homes continued to increase throughout the District. Memphis posted record sales in July, with year-to-date sales increasing 25.6 percent compared with the same period in 2003. The increase in July year-to-date sales was 5.5 percent for the greater St. Louis area and 7.9 percent for Louisville compared with July 2003. Southern Indiana had a 15.4 percent increase in its June year-to-date sales compared with the same period last year, while Madison County in Illinois had a 20.9 percent increase. July year-to-date single-family housing permits were up in most of the District's metropolitan areas compared with July of last year. Year-to-date permits through July in the greater St. Louis area increased by 23.3 percent in July compared with the same period last year. Home construction in July increased by 31 percent in the Louisville metro area compared with July 2003, and contacts in southern Indiana and north central Arkansas reported that construction is still increasing in these areas.
The office and industrial real estate markets are improving slowly in most of the District. The overall office vacancy rate in Louisville's central business district fell to 20.3 percent in the second quarter from 21.4 percent in the first quarter. Both office and industrial vacancy rates decreased slightly in the greater St. Louis area compared with this year's first quarter. The overall vacancy rate fell to 16.8 percent from 17.1 percent, and the overall industrial rate fell to 6.6 percent from 6.8 percent. Commercial construction is also improving in most of the Eighth District. Contacts in southern Indiana noted that commercial construction has remained stable and that it is still growing in north central Arkansas.
Banking and Finance
A survey of senior loan officers at a sample of District banks indicated little change in overall lending activity in the three months ending in July. During this period, credit standards and demand for commercial and industrial loans remained unchanged for both large and small firms. Credit standards and loan terms for commercial real estate loans remained basically unchanged, while the demand for these loans showed some indication of being moderately stronger. Meanwhile, both the credit standards and the demand for residential mortgage loans, credit cards, and other consumer loans were generally unchanged.
Agriculture and Natural Resources
Dry conditions and cooler-than-normal temperatures have slowed the development of soybeans and cotton in some parts of the District. Corn and soybean development in each District state remains on pace with or ahead of their five-year averages. The corn harvest has begun in southern regions of the District. The pace of cotton growth in the District and the pace of sorghum growth in Missouri have fallen behind normal. District crops, including corn, soybeans, sorghum, cotton, rice, and tobacco, are mostly in good condition; however, some soybean fields in Illinois, Indiana, and Missouri suffer from Sudden Death Syndrome, a fungal disease. Pastures throughout the District would benefit from more rain, and livestock remains in good condition.