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Economic activity increased modestly in the Eighth District since our previous
report. Both the services and manufacturing sectors expanded. Retail sales were
down in April and May compared with a year ago; car sales were down over the
same period. Home sales declined in most of the District, while commercial real
estate market conditions were mixed. Overall lending activity at a sample of
District banks experienced little change in the first quarter of 2006.
Consumer Spending
Contacts reported that retail sales in April and May were down, on average,
over year-earlier levels. Approximately 48 percent of the retailers saw increases
in sales, while another 48 percent saw decreases. About 39 percent of the retailers
surveyed noted that sales levels met their expectations, 48 percent reported
sales below expectations, and 13 percent reported sales above expectations.
Summer seasonal items, children's clothing, and furniture were all strong sellers,
while gift items and higher-end electronics were moving more slowly. Approximately
79 percent of contacts noted that inventories were at desired levels. About
46 percent of contacts expect that summer sales will increase over 2005 levels,
and about 33 percent are cautiously optimistic.
Car dealers in the District reported that, compared with last year, sales
in April and May were down, on average. About 63 percent of the car dealers
surveyed reported a decrease in sales, while 25 percent reported an increase.
About 42 percent of the car dealers noted that used car sales had increased
relative to new car sales, and 17 percent reported the opposite. One-third reported
an increase in low-end vehicle sales relative to high-end vehicle sales, and
13 percent reported the opposite. Nearly 61 percent of the car dealers surveyed
reported that their inventories were too high, mostly with new vehicles. About
58 percent of the car dealers surveyed expect sales for the next two months
to increase over 2005 levels; about 17 percent of contacts are cautiously optimistic,
and about 17 percent expect sales to decrease.
Manufacturing and Other Business Activity
Manufacturing in the Eighth District showed signs of moderate expansion since
our previous report. Many manufacturers expressed concern over increasing transportation
costs. Contacts in the transportation equipment and furniture industries reported
plans to expand operations and hire additional workers. Several small businesses
expanded activity. A firm in the auto parts industry reported plans to open
a plant in the District next year. In contrast, firms in the household appliance
and electrical equipment industries reported plans to close plants in the District
by the end of the year. Firms in the fabricated metal product and machinery
industries announced plans to lay off workers or relocate outside of the District.
The District's service sector continued to expand steadily in most areas since
our previous report. Contacts in the freight transportation, warehousing, and
utilities industries reported plans to expand operations in the District. Firms
in the rail transportation and business support services industries reported
plans to hire additional workers.
Real Estate and Construction
Home sales declined in most of the Eighth District. Compared with the same period
in 2005, April year-to-date sales were up 14 percent in Memphis, but fell 6
percent in Little Rock and 1 percent in Louisville and St. Louis. Residential
construction continued to slow throughout most of the District. Compared with
the same period last year, April year-to-date single-family residential permits
declined over 50 percent in Louisville, 13 percent in St. Louis, 4 percent in
Memphis, and 1 percent in Little Rock. Permits, however, were up 15 percent
in Texarkana, Arkansas, and 22 percent in Jackson, Tennessee.
Commercial real estate market conditions throughout the District were mixed.
Compared with the fourth quarter of 2005, the industrial vacancy rate declined
in the first quarter of 2006 in St. Louis and Little Rock, but increased in
Memphis and in Louisville. During the same period, the office vacancy rate declined
in St. Louis and Little Rock, but increased slightly in Memphis and Louisville.
Contacts in northeast Arkansas reported that commercial construction activity
is very limited, while contacts in northeast Mississippi and south central Arkansas
reported that commercial development remains strong.
Banking and Finance
A survey of senior loan officers at a sample of District banks showed little
change in overall lending activity in the first quarter of 2006. In this period,
credit standards and demand for commercial and industrial loans remained basically
unchanged for both large and small firms. During the same period, credit standards
for commercial real estate, residential mortgage, and consumer loans remained
virtually unchanged. Meanwhile, demand for commercial real estate loans remained
virtually unchanged, demand for residential mortgage loans was moderately weaker,
and demand for consumer loans ranged from moderately weaker to moderately stronger.
Agriculture and Natural Resources
Planting of the major District crops--corn, soybeans, sorghum, cotton, and rice--is
ahead of its 5-year average pace in most areas. Planting of soybeans in Indiana,
however, is behind normal pace because of recent rains. Soybean emergence is
also behind normal pace in Illinois, Indiana, and Kentucky. The winter wheat
harvest has begun in Arkansas and Mississippi. The majority of the District's
crops were rated in good condition, although cotton in Arkansas and Missouri
was rated mostly in fair or good condition. At least 90 percent of the pastures
were rated in at least fair condition in all states except Missouri, where only
three-fourths obtained that rating.
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