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Business activity in the Eighth District expanded modestly since our previous
survey. In manufacturing, a majority of contacts reported plans to open plants
and hire additional workers. Most contacts in the services sector continued
to report improved economic activity. Retail and auto sales declined in September
and October with respect to year-earlier levels. Residential real estate markets
continued to do well, while commercial real estate markets remained soft. Overall
lending conditions at a sample of District banks were mostly unchanged in the
three months ending in October.
Consumer Spending
Contacts reported that retail sales in September and October were down, on average,
over year-earlier levels. While 26 percent of the retailers surveyed noted that
sales levels met their expectations, 70 percent reported that sales were below
what they had anticipated and 4 percent reported sales above expectations. Women's
fashion accessories, jewelry, cosmetics, shoes, athletic apparel, and computers
were all strong sellers, while furniture, big appliances, luxury and specialty
items, and toys were moving more slowly. Nearly 80 percent of contacts noted
that inventories were at desired levels. Retailers appear generally optimistic
about sales during the upcoming holiday season, and more than 80 percent of
contacts expect that sales will increase over 2003 levels.
Car dealers in the District reported that, compared with last year, sales in
September and October were slightly down, on average. About 64 percent of the
car dealers surveyed reported decreases in sales, while another 24 percent reported
increases. About one third of the car dealers noted that used car sales had
increased relative to new car sales, and about 32 percent reported an increase
in low-end vehicle sales relative to high-end vehicle sales. About 38 percent
of the contacts surveyed reported increased use of rebates, while 43 percent
reported no change. Nearly all of the respondents reported no change in the
acceptance rates of finance applications. About 60 percent of the car dealers
surveyed reported that their inventories were at desired levels, while 32 percent
reported that their inventories were too high, with a few contacts reporting
excess of sport utility vehicles. A slight majority of the car dealers surveyed
expect increased sales over 2003 for the remainder of the year.
Manufacturing and Other Business Activity
Manufacturing has shown modest improvement since our previous report, with a
majority of firms reporting plans to open plants and expand operations and fewer
firms reporting plans to close plants and lay off workers. Several firms in
the aerospace, food manufacturing, auto parts, electrical equipment, manufactured
home, and fabricated metal product industries announced plans to open new plants,
which will likely result in more than 750 new jobs by 2006. A firm in the paper
manufacturing industry reported plans to relocate its headquarters to the District
and add several hundred new jobs. Firms in the household appliance, auto parts,
and fabricated metal products industries reported plans to expand existing plants
and hire as many as 640 workers. In contrast, firms in the plumbing fixture,
nonmetallic mineral, and furniture industries reported plans to close plants,
displacing as many as 500 workers. Other firms in the auto parts and household
appliance industries reported plans to lay off approximately 310 workers.
Most contacts in the services sector continued to report improved economic
activity. Firms in the freight transportation, recreation, financial and insurance
services, traveler accommodation, and health services industries reported openings,
expansions, and increases in hiring, likely resulting in more than 1,020 new
jobs. A firm in the freight transportation industry plans to hire as many as
425 temporary workers to meet increased holiday demand. In contrast, firms in
the food services and air transportation industries reported facility closures
and workforce reductions. A firm in the utility industry plans to reduce its
workforce with a voluntary termination package offered to as many as 950 workers.
Real Estate and Construction
Residential markets continued to do well in most of the Eighth District in September.
In the greater Louisville area, September year-to-date sales increased by 2.1
percent compared with the same period in 2003. The increase in year-to-date
sales was 4.7 percent for the greater St. Louis area and 15.8 percent for Memphis.
Sales were still strong in Little Rock and the Tupelo region. Year-to-date single-family
housing permits increased in most of the District's metropolitan areas compared
with the same period last year. September year-to-date permits in St. Louis
City and County grew by 19.6 percent compared with the same period in 2003.
Residential construction has been flat in Jackson, Tennessee but remained steady
in southern Indiana and northeast Arkansas.
Commercial real estate markets continued to lag behind residential markets
in most of the District. The third-quarter industrial vacancy rate in the greater
Louisville area remained virtually unchanged at 18.2 percent compared with the
previous quarter. The overall office vacancy rate in Louisville's central business
district rose to 21 percent in the third quarter from 20.4 percent in the previous
quarter. Contacts reported that office leasing was very slow in downtown Little
Rock. There was some improvement in commercial construction in most of the District.
Construction activity has been picking up in Little Rock, and it has remained
steady in southern Indiana.
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 October. During
this period, credit standards and demand for commercial and industrial loans
remained unchanged for both large and small firms. Similarly, credit standards
for commercial real estate, residential mortgage, and consumer loans remained
basically unchanged. The demand for commercial real estate loans showed some
indication of being moderately stronger. During the same period, the demand
for residential mortgage loans varied from moderately weaker to moderately stronger
and the demand for consumer loans was basically unchanged.
Agriculture and Natural Resources
Recent rains in the District have improved pasture conditions and soil moisture
levels. The corn harvest is now virtually complete in all District states. The
soybean harvest is mostly complete in Illinois, Indiana, and Mississippi, but
it is behind its average pace in the remaining District states. The cotton harvest
is running behind its average pace because of wet conditions, and the rice harvest
is complete. November yield and total production estimates for corn, soybeans,
rice, and cotton surpass those of last year. With the exception of Illinois
and Indiana, winter wheat planting in the District states is far behind because
of delays caused by wet weather conditions.
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