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Economic activity in the Eighth District expanded modestly since our previous
survey. Reports from manufacturing continued to be positive and contacts indicated
that the services sector continued to grow. Reports from contacts in residential
real estate markets were mixed; similarly, commercial real estate market conditions
varied across the District. Total loans at a sample of small and mid-sized District
banks increased slightly from mid-June to the end of August.
Manufacturing and Other Business Activity
Manufacturing activity in the District continued to expand since our previous
survey. Several manufacturers reported plans to open plants and expand operations
in the near future, while a smaller number of contacts reported plans to close
plants and reduce operations. Firms in the biofuel and fabricated metal product
industries reported plans to open new facilities in the District. Contacts in
the machinery, food, furniture, and miscellaneous industries reported plans
to expand existing facilities and operations. Firms in the nonmetallic mineral
and paper product industries reported plans to hire additional workers. In contrast,
contacts in the motor vehicle parts industry reported plans to lay off workers
and decrease operations, and a firm in the computer equipment industry announced
that it will close a plant in the District.
The District's services sector continued to expand. Firms in the freight
transportation, recreation, and professional business services industries reported
plans to build new facilities and expand operations. In contrast, a firm in
the business support services industry reported plans to close a facility in
the District. Car dealers in the District reported that sales from late August
through early September were down, on average, over year-earlier levels. Sales
of domestic cars and sport utility vehicles were particularly slow.
Real Estate and Construction
August year-to-date home sales were mixed throughout the Eighth District. Home
sales increased 11 percent in Memphis and were relatively unchanged in Louisville
compared with the same period in 2005. August year-to-date home sales declined
about 2 percent in both St. Louis and Little Rock. Residential construction
remained weak throughout the District. August year-to-date single-family housing
permits were down in nearly every metro area. Compared with the same period
last year, permits fell 34 percent in Louisville, 21 percent in greater St.
Louis, 11 percent in Memphis, and 8 percent in Little Rock. Permits, however,
increased 12 percent in Jackson, Tennessee, and 2 percent in Fayetteville, Arkansas.
Commercial real estate market conditions continued to be mixed throughout
the District. In Little Rock, the second-quarter 2006 industrial vacancy rate
increased slightly, the downtown office vacancy rate decreased, and the suburban
office vacancy rate increased. Contacts in east Memphis reported high demand
for Class A office space. Contacts in Little Rock reported that several large
construction projects are expected or underway. Contacts in northeast Arkansas
reported that commercial building remains slow, while contacts in Madison County,
Tennessee, reported that commercial construction is booming. In St. Louis, contacts
reported that new industrial construction is vibrant.
Banking and Finance
Total loans outstanding at a sample of small and mid-sized District banks showed
a modest increase of 0.6 percent from mid-June to the end of August. Real estate
lending, which accounts for 71.9 percent of total loans, increased 0.4 percent.
Commercial and industrial loans, accounting for 18.0 percent of total loans,
increased 1.1 percent. Loans to individuals, accounting for 4.3 percent of total
loans, fell 0.7 percent. All other loans, roughly 5.8 percent of total loans,
increased 1.8 percent. Over this period, total deposits at these banks increased
1.4 percent.
Agriculture and Natural Resources
Ample rainfall in much of the District since August slowed harvesting progress
in some areas. The District's overall corn harvest is behind its average
pace by 14 percent because of slower-than-normal paces in Illinois, Indiana,
and Kentucky; the soybean harvest is behind by 20 percent because of slower-than-normal
paces in Illinois, Indiana, Kentucky, and Missouri; and the sorghum harvest
is behind by 4 percent because of the slower-than-normal pace in Illinois. In
contrast, the cotton harvest in Arkansas and Mississippi is ahead of its normal
pace by 88 percent, while the rice harvest is ahead by 12 percent. The rain
improved pasture conditions in all District states, but at least one-third of
the pastures in Arkansas, Mississippi, Missouri, and Tennessee still remain
in poor condition.
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