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The economy of the Eighth District has weakened further since our previous report. Activity in the manufacturing and service sectors declined further. Retail and auto sales in April and the first half of May were down from a year ago. Residential and commercial real estate markets continue to be weak. Overall lending at a sample of large District banks decreased moderately during the first quarter of 2009.
Consumer Spending
Contacts reported that retail sales in April and the first half of May were down, on average, over year-earlier levels. About 56 percent of the retailers surveyed saw decreases in sales, 40 percent saw increases, and 4 percent saw no change. About 39 percent of respondents reported that sales levels met their expectations, 33 percent reported that sales were below expectations, and 28 percent reported that sales were above expectations. Lawn and garden products were strong sellers, while bedroom furniture moved more slowly. About 40 percent of contacts reported that inventories were at desired levels, 44 percent reported too-high inventories, and 16 percent reported too-low inventories. About 52 percent of retailers expect summer sales to decrease over 2008 levels, 32 percent expect sales to increase, and 16 percent expect sales to be unchanged.
Car dealers in the District reported that, compared with last year, sales in April and the first half of May were down, on average. About 83 percent of the car dealers surveyed saw decreases in sales, 13 percent saw increases, and 4 percent saw no change. About 21 percent of the car dealers noted that used car sales had increased relative to new car sales, while 17 percent reported the opposite. Also, 29 percent reported an increase in low-end vehicle sales relative to high-end vehicle sales, while 8 percent reported the opposite. About 58 percent reported more rejections of finance applications, and none reported fewer rejections. About 29 percent of the car dealers surveyed reported that their inventories were too high, while 25 percent reported that their inventories were too low. About 71 percent of the car dealers expect summer sales to decrease over 2008 levels, 21 percent expect sales to increase, and the remaining 8 percent expect sales to be unchanged.
Manufacturing and Other Business Activity
Manufacturing activity has continued to decline since our previous report. A large number of firms announced job layoffs and contraction of production, while a much smaller number of contacts reported plans to hire additional workers. Several manufacturers reported plans to close plants and reduce operations in the near future. Several firms in the auto parts and automobile manufacturing industries reported plans to permanently lay off workers, and at least one firm announced that it will close its operations in the District. Two firms in metal product manufacturing announced plans to close a facility in the District. Firms in primary metal manufacturing announced layoffs and idled production. Firms in machinery manufacturing and furniture manufacturing also closed plants, and a major firm in animal slaughtering/processing idled production. Finally, a number of firms in the machinery, climate control systems, food/beverage, electrical components, paper, and plastic product manufacturing industries announced job layoffs. In contrast, a firm in furniture manufacturing and another firm in food/beverage manufacturing announced plans to hire additional workers and expand existing operations.
The District's service sector has continued to decline in most areas since our previous report. Contacts in education, government, medical, and information services announced job cuts. Two firms in transportation/warehousing services announced that they will close a facility in the District and lay off workers. Several cities in the District announced that they will be hiring temporary and part-time summer workers in a range of service industries, using funds allocated through the American Recovery and Reinvestment Act of 2009.
Real Estate and Construction
Home sales continued to decline throughout the Eighth District. Compared with the same period in 2008, April 2009 year-to-date home sales were down 13 percent in St. Louis, 23 percent in Little Rock, 26 percent in Louisville, and 27 percent in Memphis. Residential construction also continued to decline throughout most of the District. April 2009 year-to-date single-family housing permits fell in most District metro areas compared with the same period in 2008. Permits declined 29 percent in Little Rock, 46 percent in Louisville, 45 percent in St. Louis, and 61 percent in Memphis.
Commercial and industrial real estate market conditions were little changed throughout the District. Compared with the fourth quarter of 2008, first quarter 2009 industrial vacancy rates increased in Little Rock but held steady in St. Louis, Louisville, and Memphis. During the same period, suburban office vacancy rates remained roughly the same in St. Louis, Louisville, and Memphis but decreased in Little Rock. Downtown office vacancy rates remained fairly constant in St. Louis, Louisville, and Little Rock but increased slightly in Memphis. Commercial and industrial construction markets continued to decline. Commercial construction contacts throughout the District noted that current credit conditions are stifling new projects and that the overall outlook for the upcoming months is dim. Industrial construction contacts reported that the effects of the recession are just now being fully realized as backlogs have dried up and more projects are being put on hold.
Banking and Finance
A survey of senior loan officers at a sample of large District banks showed a moderate decrease in overall lending activity in the first quarter of 2009 relative to the fourth quarter of 2008. During this period, credit standards for commercial and industrial loans ranged from unchanged to tightened somewhat, while demand for these loans ranged from about the same to moderately weaker. Credit standards for commercial real estate loans were tightened during this period, while demand for these loans was weaker. Credit standards for consumer loans ranged from unchanged to tightened somewhat, while demand varied slightly from weaker to moderately stronger. Credit standards for residential mortgages were tightened, while demand for these loans ranged from about the same to moderately weaker.
Agriculture and Natural Resources
Frequent wet and cool conditions since early April have caused fieldwork delays throughout the District. Planting of the major crops--corn, soybeans, sorghum, cotton, and rice--was behind its 5-year average pace. Emergence of the major crops was also behind normal throughout most of the District. At least 80 percent of the winter wheat and at least 88 percent of the pastures in every District state were rated fair or better. The average rating for pastures in the District states was slightly better, while the average rating for winter wheat was slightly worse than the same time last year.
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