October 24, 2001 Federal Reserve Districts Eighth District - St. Louis

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Economic activity in the District has continued to slow, particularly in the manufacturing sector. Automobile sales were lower for the period immediately following the attacks of September 11th, but have lower interest rates have bolstered sales more recently. The residential real estate market has softened, and some parts of the District are also seeing softer commercial real estate markets. Total loans by District banks are down slightly, but the recent trend toward stricter loan standards has become less pronounced. Although crop conditions and yields have been mixed due to recent rains, corn and soybean yields have been better than expected. Manufacturing and Other Business Activity Overall, the level of activity in the District's manufacturing sector is lower than in recent months. Districtwide, boat, auto and tire, furniture, packaging, carpet, and electronic materials plants are among those facing cutbacks and closures, citing reduced orders and weak consumer confidence. In contrast, contacts in northeast Arkansas note that, although there is little talk of expansion in the manufacturing sector, talk of impending layoffs or closures has actually decreased. Service industry contacts report flat-to-slowing activity throughout the District. In response to diminished air travel, increasing costs, and narrowing profits, the Northwest Airlines hub in Memphis cut 1,100 jobs and reduced services. Following the September 11th attacks, the trucking industry experienced a brief increase in activity while air service was grounded, but has since seen freight volumes decline. Automobile dealers throughout the District report that traffic has picked up after the initial drop in the two weeks following September 11th, but that sales still remain lower than usual for this time of year. In St. Louis, auto manufacturers stopped production for a week to allow sales to catch up with inventories, although this did not involve any permanent worker layoffs. Manufacturer incentives, including zero-percent interest rates, have helped to bolster sales of new autos, but not by as much as some dealers had hoped. Retailers, too, note flat sales. Nonetheless, they express guarded optimism as they prepare for the holiday season, which could make or break their year. Real Estate and Construction Residential real estate sales in the District were mixed over the past six weeks following the events of September 11th. Agents in Louisville and Little Rock report a drop in housing sales, while sales in northern Mississippi and Memphis remained steady. Without lower mortgage rates, sales levels would have been lower. Realtors throughout the District say that the number of appointments to show homes is also down from a year ago. The market for office and industrial space is still strong in Louisville and Memphis. A contact in St. Louis, however, reports a decrease in the number of tenants signing leases for office space along with an increase in vacancy rates. Residential construction still looks strong: over three-fourths of the District's metropolitan areas experienced an increase in monthly building permits from July to August, and August's levels were higher than a year earlier. Commercial construction in western Kentucky has slowed, although contacts in the rest of the District do not report any changes. Major projects to improve Kentucky's highways, dams, and bridges will expand construction opportunities in that portion of the District. Banking and Finance A recent survey of senior loan officers at District banks indicates tighter standards for commercial and industrial (C&I) loans to technology firms in the last three months. Credit standards for commercial real estate loans, residential mortgages, consumer loans, and credit cards were largely unchanged. Demand for C&I loans and consumer loans has become moderately weaker. Contacts report that demand for commercial real estate loans, residential mortgages, and refinancing has increased markedly following the recent reductions in the federal funds target. Contacts report that there were no problems with bank liquidity following the September 11th attacks. Small banks in western Tennessee and Mississippi continue to be troubled with bankruptcies and increases in the number of loan delinquencies. Larger urban banks have reported increases in loan loss provisions. Agriculture and Natural Resources The fall harvest is on schedule, although recent rains have delayed field activities in most areas of the District. Reports from northwest Mississippi suggest that, because of late-season rain damage, some early-planted soybeans were plowed under because of fungus. A light frost hit the northern parts of the District in early October, but no significant damage to soybeans was reported, as the soybean and corn crops, on the whole, had already reached full maturity. That said, in portions of Illinois and Indiana, farmers have focused on harvesting soybeans ahead of corn so as to avoid potential frost damage. The soybean harvest is ahead of last year's pace in Arkansas, Kentucky, Illinois, and Indiana, but behind schedule in Missouri, Mississippi, and Tennessee. The corn and cotton harvests in the District are, on average, behind last year's pace. In contrast, the rice harvest in Arkansas and Mississippi is ahead of last year's pace. Early reports from Illinois, Indiana, and Missouri farmers suggest that yields are widely mixed for corn and soybeans, as scattered rainfall throughout much of the growing season resulted in an uneven harvest. Contacts report that yields on corn and soybeans are running at or slightly above what many farmers had expected. Return to top Chicago Minneapolis