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Growth in the District economy remains slow, particularly in the manufacturing sector, which is experiencing almost no growth. Retail sales are flat when compared with a year earlier, although sales have picked up recently. Manufacturers report a further slowing of activity, with accounts of layoffs and downsizing now outnumbering those of employment increases. Residential real estate markets have remained strong, with sales and prices on the rise. Commercial real estate markets have been mixed. Loans on the books of District banks are down somewhat, although deposits have been rising. Loan delinquencies are up slightly, but remain at manageable levels. Crops are generally in good-to-excellent condition around the District. Recent rains have helped restore topsoil moisture levels.
Consumer Spending
Retail sales in June and July are reported to be flat when compared with those of the same period last year, although activity has been picking up since the beginning of the summer. High-end kitchen and laundry appliances, as well as tools and supplies for home improvement, have been posting strong sales. Automobile sales are mixed throughout the District. Dealers in Little Rock and Louisville report softness, especially in sales of domestic autos. Memphis car dealers, however, report recent sales increases, which they attribute to lower gas prices and interest rates, as well as to more generous manufacturer incentives.
Manufacturing and Other Business Activity
Growth in the manufacturing sector has slowed further throughout most of the District to a barely perceptible rate. Reports of layoffs and downsizing are now outnumbering those of employment increases. Firms in the furniture, chemical, and automobile parts industries have laid off workers or closed plants because of reduced demand. Managers in these industries do not expect sales to pick up until the first quarter of 2002. Steel manufacturers continue to face low prices due to excess supply. The trucking industry continues to face driver shortages and some profit losses. A few trucking industry contacts have indicated, though, that the recent declines in gas prices have prompted a moderate resurgence of activity. Information technology and telecommunications firms are posting slow growth, with some layoffs and narrowing profit margins. The distribution and logistic services industry is also experiencing a downturn, as large direct mail and package handling companies decrease employee hours and eliminate jobs to cut costs. Contacts at some District power generation, food, and paper plants, on the other hand, are reporting moderate growth and expansion.
Real Estate and Construction
Residential real estate sales and median prices have continued to show strength in most parts of the District over the past six weeks, which contacts attribute to mortgage rates remaining relatively low and a usual seasonal upswing. Homes in the $150,000-to-$250,000 range have been the fastest sellers. A shortage of available homes still exists in several parts of the District; the Memphis region, however, has seen a mild increase in housing inventories. Real estate agents generally describe current markets as sellers' markets and expect them to remain that way into the fall. Commercial real estate sales and leasing in the Memphis region have rebounded from a slow start at the beginning of the year. Despite a recent uptick in the demand for industrial space in the St. Louis and Louisville regions, a large amount of it is still available, creating a buyers' market. A St. Louis contact has noted that the office absorption rate has risen recently.
Residential construction is steady in most of the District. With the market for skilled construction workers still tight in parts of the District, some contacts have recently noted a decline in the number of sub-contractor bids per project. In most District metropolitan areas, June monthly building permit levels are down from their relatively strong May numbers. On a year-to-date basis, more than half of the District's metro areas have June permit levels that are up from a year earlier.
Banking and Finance
Total loans outstanding at a sample of small and mid-sized District banks are down modestly, falling 0.4 percent between early May and early July. This decline stems from weak consumer loans, which are down 1.3 percent over the same period. Commercial and industrial loans and real estate loans have remained essentially unchanged over the period, growing only 0.1 percent each. At the same time, total deposits at these banks are up 1.3 percent, continuing a trend that started in late 2000.
Several bankers report that loan delinquencies have been increasing, but remain at manageable levels. Bankers also have recently tightened credit standards somewhat, particularly for business loans. Many banks are looking into new programs and technologies to increase non-interest income and reduce non-interest expenses.
Agriculture and Natural Resources
The harvest of the District's winter wheat crop is now complete. Several Illinois contacts describe the crop as disappointing; others in Illinois, however, consider it to be the best crop in several years. Early USDA estimates indicate that 2001 wheat production and acreage harvested are expected to be down by an average of almost 20 percent across District states.
The corn, cotton, soybean, and rice crops are generally in good-to-excellent condition in most of the District. In Missouri, however, the soybean and cotton crops are in only fair condition. Contacts in Kentucky and Tennessee report that the tobacco crop is in mostly good-to-excellent condition, despite minor disease problems.
Although most District states experienced hot and dry weather in early July, widely scattered showers later that month helped restore topsoil moisture to adequate levels, which enhanced development of the corn, cotton, soybean, and rice crops. That said, small pockets of dry soil persist in some areas of the southern part of the District.
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