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Economic activity in the Eighth District has increased modestly since our previous report. Manufacturing activity increased on balance, while activity in the services sector was mixed. Retail and auto sales in April and early May increased over a year ago. Residential real estate market conditions improved throughout the District, while commercial and industrial market conditions continued to lag behind. Overall lending activity at a sample of large District banks increased modestly in the first quarter of 2010 compared with the fourth quarter of 2009.
Consumer Spending
Contacts reported that retail sales in April and early May were up, on average, over year-earlier levels. About 52 percent of the retailers saw increases in sales, while 36 percent saw decreases and 12 percent saw no changes. About 41 percent of the respondents noted that sales levels met their expectations, 32 percent reported that sales were below expectations, and 27 percent reported that sales were above expectations. Lower-priced items, apparel, and shoes were strong sellers, while higher-priced items and gifts moved more slowly. About 61 percent of the contacts noted that inventories were at desired levels, while 27 percent reported too-high inventories and 12 percent reported too-low inventories. The sales outlook among the retailers for this summer was mostly optimistic. About 73 percent of the retailers expect sales to increase over 2009 levels, while 23 percent expect sales to decrease and 4 percent expect sales to be similar to last year.
Car dealers in the District reported that, compared with last year, sales in April and early May were up, on average. About 64 percent of the car dealers surveyed saw increases in sales, while 9 percent saw decreases and 27 percent saw no changes. About 33 percent of the car dealers noted that used car sales had increased relative to new car sales, while 29 percent reported the opposite. Also, 25 percent reported an increase in high-end vehicle sales relative to low-end vehicle sales, while 13 percent reported the opposite. About 38 percent of contacts reported more acceptances of finance applications, but 17 percent reported more rejections. About half of the car dealers surveyed reported that their inventories were too low (mostly on new vehicles), while 8 percent reported that their inventories were too high. The sales outlook among the car dealers for this summer was generally optimistic. About 67 percent of the car dealers expect sales to increase over 2009 levels, but 12 percent expect sales to decrease. The remaining 21 percent expect sales to be similar to last year.
Manufacturing and Other Business Activity
Manufacturing activity has increased since our previous report. A greater number of contacts reported new hires and plant openings than reported job layoffs and plant closings. Firms in the fabricated metal product, office supplies, plastics product, and "hand and edge" tool manufacturing industries reported plans to expand operations and hire new employees. A major firm in semiconductor and related device manufacturing announced a significant amount of new hires along with the opening of a new plant. Two smaller firms in primary metal manufacturing also announced plans to open a new plant in the District and expand employment. In contrast, firms in synthetic dye and pigment manufacturing and pharmaceutical and medicine manufacturing reported plans to lay off workers and decrease operations.
The District's services sector activity has been mixed since our previous report. A firm in business support services announced job layoffs in response to decreased demand. A major electrical utility announced layoffs at several power plants and support service facilities. Several regional government agencies and education services providers announced job cuts in response to budgets cuts. In contrast, a major firm in the telecommunications industry announced that it will lose significantly fewer employees from a recent merger than previously expected. Additionally, a firm in the rail transportation industry announced plans to make significant capital improvements to the rail network.
Real Estate and Construction
Home sales increased in many areas of the Eighth District. Compared with the same period in 2009, April 2010 year-to-date home sales were up 25 percent in Louisville, 19 percent in Little Rock, and 9 percent in St. Louis. Home sales declined 2 percent in Memphis over the same period. Several contacts noted, however, that part of the increase was likely the result of the expiring home buyer tax credit. Residential construction continued to improve throughout the District. April 2010 year-to-date single-family housing permits increased in nearly all District metro areas compared with the same period in 2009. Permits increased 65 percent in Memphis, 56 percent in St. Louis, 39 percent in Little Rock, and 38 percent in Louisville.
Commercial and industrial real estate market activity continued to be slow throughout the District. Compared with the fourth quarter of 2009, first-quarter 2010 industrial vacancy rates decreased in Memphis but increased in Little Rock, Louisville, and St. Louis. During the same period, the suburban office vacancy rate increased in Little Rock, Louisville, and Memphis and remained the same in St. Louis. The downtown office vacancy rate decreased in Little Rock but increased in Louisville, Memphis, and St. Louis. Several contacts throughout the District reported that commercial and industrial construction is at a standstill and is not expected to pick up until sometime in 2011.
Banking and Finance
A survey of senior loan officers at a sample of District banks showed a modest increase in overall lending activity in the first quarter of 2010 relative to the fourth quarter of 2009. During this period, credit standards for commercial and industrial loans remained basically unchanged, while demand for these loans varied slightly from moderately weaker to moderately stronger. Credit standards for commercial real estate loans ranged from unchanged to tightened somewhat, while demand for these loans was moderately stronger. Credit standards for consumer loans remained basically unchanged, while demand was about the same. Credit standards for residential mortgages were unchanged, while demand for these loans ranged from about the same to moderately stronger.
Agriculture and Natural Resources
Recent rains throughout the District caused some fieldwork delays. Planting of corn, cotton, and rice was ahead of its 5-year average pace, while planting of soybeans and sorghum was behind normal pace in most District states. Emergence of these crops was ahead of normal in most cases. About two-thirds of the winter wheat in Illinois and Missouri and at least 90 percent in the other District states were rated in fair or better condition.
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