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The economy of the Eighth District has slowed since our previous report. Manufacturing activity has declined, while reports of activity in the services sector have continued to be mixed. Retail sales in September and October declined slightly over year-earlier levels, and auto sales increased over the same period. Residential real estate market activity has continued to decline, while commercial real estate market conditions have been mixed. Overall lending at a sample of large District banks was unchanged during the three-month period ending in October.
Consumer Spending
Contacts reported that retail sales in September and October were down slightly, on average, over year-earlier levels. About 46 percent of the retailers saw increases in sales, while 37 percent saw decreases and 17 percent saw no changes. Roughly 57 percent of the retailers reported that sales levels met their expectations, 33 percent reported that sales were below expectations, and 10 percent reported that sales were above expectations. About 17 percent of the retailers reported that their inventories were too high, while 9 percent reported that their inventories were too low. The sales outlook through the end of the year was mostly optimistic: About 58 percent of the retailers expect sales to increase over 2010 levels, while 29 percent expect sales to decrease and 13 percent expect sales to be similar to last year's sales.
Car dealers in the District reported that sales in September and October were up, on average, compared with last year's sales. About 46 percent of the car dealers surveyed saw increases in sales, while 33 percent saw decreases and 21 percent saw no changes. Twenty-five percent of the car dealers reported that new car sales had increased relative to used car sales, while 21 percent reported the opposite. Roughly 29 percent of contacts reported an increase in sales of low-end vehicles relative to high-end vehicles, while 13 percent reported the opposite. Thirty-three percent of the car dealers surveyed reported that their inventories were too low, while 13 percent reported that their inventories were too high. The sales outlook through the end of the year was somewhat optimistic: 50 percent of the car dealers expect sales to increase over 2010 levels, while 25 percent expect sales to decrease and 25 percent expect sales to be similar to last year's sales.
Manufacturing and Other Business Activity
Manufacturing activity has declined since our previous report. Several manufacturers reported plans to close plants and decrease operations in the near future, while a smaller number of contacts reported plans to open plants or expand operations. Firms in the primary metal product, surgical appliance and supplies, small engine, paper, and cleaning compound manufacturing industries announced plans to decrease operations and lay off workers. Additionally, a major firm in the refrigeration equipment manufacturing industry announced plans to close a plant and lay off a large number of workers. In contrast, firms in the fabricated metal product, clothing, appliance, hair care product, and air conditioning manufacturing industries announced plans to hire new employees.
Reports of activity in the District's services sector have continued to be mixed since our previous survey. Firms in business support services, medical research services, and transportation services announced plans to expand operations and hire new workers. In contrast, contacts in temporary help services, government services, and education services announced plans to decrease operations in the District and lay off employees.
Real Estate and Construction
Home sales continued to decline throughout most of the Eighth District. Compared with the same period in 2010, September 2011 year-to-date home sales were down 5 percent in Memphis, 6 percent in St. Louis, 7 percent in Louisville, and 9 percent in Little Rock. Residential construction also continued to decrease throughout the District. September 2011 year-to-date single-family housing permits decreased in the majority of the District metro areas compared with the same period in 2010. Permits decreased 10 percent in Memphis, 23 percent in St. Louis, 19 percent in Louisville, and 25 percent in Little Rock.
Commercial and industrial real estate market conditions varied throughout the District. Compared with the second quarter of 2011, third quarter 2011 suburban office vacancy rates increased in Little Rock and Louisville but decreased in St. Louis and Memphis. The downtown office vacancy rates increased in Louisville and St. Louis but decreased in Little Rock and Memphis. Industrial vacancy rates increased in Memphis and St. Louis but decreased in Louisville and remained the same in Little Rock. Commercial construction activity was slow throughout most of the District, while industrial construction showed signs of improvement in some areas. Contacts in southern Indiana noted that commercial construction activity continues to be slow. However, contacts in Evansville, Indiana, noted increased power plant construction projects. Similarly, contacts in south central Kentucky noted industrial plant expansions. Contacts in St. Louis reported continued limited commercial and industrial construction activity and expect mainly build-to-suit projects for the remainder of the year.
Banking and Finance
A survey of senior loan officers at a sample of large District banks indicates little change in overall lending activity in the third quarter of 2011 relative to the second quarter of 2011. Credit standards for commercial real estate loans, residential mortgage loans, and consumer loans remained basically unchanged, while the standards for commercial and industrial loans ranged from basically unchanged to somewhat eased. With the exception of the demand for commercial and industrial loans, which remained unchanged, changes in demand for these loans was mixed. The demand for commercial residential loans and residential mortgage loans ranged from relatively unchanged to moderately weaker. The demand for consumer loans, however, ranged from moderately weaker to moderately stronger.
Agriculture and Natural Resources
Winter wheat planting was ahead of its 5-year average completion rate in the Eighth District states, while the fraction of winter wheat crops rated fair or better was over 90 percent in all states except Mississippi. Monthly output of commercial red meat for September 2011 increased by 3.6 percent compared with September 2010. However, the total live weight and number of chickens slaughtered decreased by over 4 percent between August and September 2011. Year-to-date coal production at the end of October in the Eighth District was 3.8 percent higher in 2011 compared with the same period in 2010. Meanwhile, monthly production for October was 2 percent lower than in October 2010.
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