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Economic conditions in the Eighth District were mixed but showed further signs of improvement in some areas. Manufacturing activity, in particular, increased since our previous report. Services activity, in contrast, declined since our previous report. Retail sales were down in January and February over a year ago, while auto sales were about even over the same period. Residential real estate market conditions were mixed while commercial and industrial residential markets remained slow. Overall lending at a sample of large District banks decreased moderately during the fourth quarter of 2009.
Consumer Spending
Contacts reported that retail sales in January and early February were down, on average, over year-earlier levels. About 52 percent of the retailers saw decreases in sales, while 32 percent saw increases and 16 percent saw no changes. About 53 percent of the respondents noted that sales levels met their expectations, 42 percent reported that sales were below expectations, and 5 percent reported that sales were above expectations. Lower-priced items and men's apparel were strong sellers, while higher-priced items moved more slowly. About 64 percent of the contacts noted that inventories were at desired levels, while 20 percent reported too-high inventories and 16 percent reported too-low inventories. The sales outlook among the retailers was mostly positive for March and April. About 54 percent of the retailers expect sales to increase over 2009 levels, while 25 percent expect sales to decrease and 21 percent expect sales to be similar to last year.
Car dealers in the District reported that, compared with last year, sales in January and early February were roughly the same, on average. About 55 percent of the car dealers surveyed saw decreases in sales, while 41 percent saw increases and 4 percent saw no changes. About 32 percent reported an increase in low-end vehicle sales relative to high-end vehicle sales, while 14 percent reported the opposite. About 30 percent reported more acceptances of finance applications, but another 30 percent reported more rejections. About 27 percent of the car dealers surveyed reported that their inventories were too low, while 18 percent reported that their inventories were too high. The sales outlook among the car dealers was generally optimistic for March and April. About 68 percent of the car dealers expect sales to increase over 2009 levels, but 27 percent expect sales to decrease. The remaining 5 percent expect sales to be similar to last year.
Manufacturing and Other Business Activity
Manufacturing activity increased since our previous survey. More contacts reported plans to expand or start new operations and increase employment than contacts who reported that order volumes remain slow and that they have no plans to expand employment. Several firms in auto parts manufacturing reported an increase in new orders and are expanding operations and hiring new employees accordingly. Firms in aerospace products; furniture; cosmetics; and heating, ventilation, and air conditioning manufacturing announced expansion plans. Firms in plastic products and fabricated metal products also announced plans to open new plants in the District and expand employment. In contrast, a smaller number of firms reported that order volumes remain slow and anticipate negative effects on employment. A firm in animal slaughtering and processing announced that it will close its operations, resulting in a large number of job losses.
Employment in the District's service sector contracted since our previous report. Several contacts in business support services announced layoffs. Similarly, firms in transportation/warehousing and medical services announced large job cuts. A firm in the leisure/hospitality business declared bankruptcy, resulting in a large number of seasonal job losses. In contrast, two firms in medical services announced an expansion in their local regions, with new facilities and additional hires.
Real Estate and Construction
Home sales were mixed throughout the Eighth District. Compared with the same period in 2008, December 2009 year-to-date home sales were up 3 percent in Louisville and 1 percent in St. Louis while home sales were down 2 percent in Little Rock and 10 percent in Memphis. Residential construction continued to decline throughout most of the District. December 2009 year-to-date single-family housing permits fell in most District metro areas compared with the same period in 2008. Permits declined 4 percent in Little Rock, 13 percent in St. Louis, 15 percent in Louisville, and 32 percent in Memphis.
Commercial and industrial real estate market conditions remained slow throughout the District. Compared with the third quarter of 2009, fourth-quarter 2009 industrial vacancy rates increased in Little Rock and Louisville but decreased in Memphis and St. Louis. During the same period, the suburban office vacancy rate increased in Louisville but decreased in St. Louis, Memphis, and Little Rock. The downtown office vacancy rate increased in Louisville and Little Rock but remained the same in St. Louis and Memphis. A contact in northeast Arkansas reported that construction is at a standstill with the exception of a large hospital project. A contact in Evansville, IN, noted that major construction projects are lagging and that improvement is not expected for six to twelve months.
Banking and Finance
A survey of senior loan officers at a sample of large District banks showed a moderate decrease in overall lending activity during the fourth quarter of 2008. During this period, credit standards for commercial and industrial loans remained unchanged, while demand for these loans ranged from about the same to moderately stronger. Credit standards for commercial real estate loans were tightened somewhat, while demand for these loans was about the same. Meanwhile, credit standards for consumer loans remained unchanged, while demand ranged from about the same to weaker. Credit standards for residential mortgage loans ranged from unchanged to tightened somewhat, while demand for these loans ranged from about the same to moderately weaker.
Agriculture and Natural Resources
Total production of corn, soybeans, and rice increased from 2008 to 2009 in the District states, while total production of sorghum, winter wheat, cotton, and tobacco decreased. In the District states, the prices of corn, winter wheat, rice, and tobacco decreased from 2008 to 2009 while the price of cotton increased; the prices of soybeans and sorghum were down in most District states. The total value of field crops in District states fell by 7 percent from 2008 to 2009.
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