April 24, 2002 Federal Reserve Districts Eighth District - St. Louis

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Economic activity in the District has picked up considerably. In particular, many firms in the manufacturing sector have experienced increased sales and orders and, as a result, are expanding production and employment. Retail and auto sales have remained steady, while residential real estate sales have been strong throughout the District. Although commercial real estate markets continue to be weak, commercial construction has been strong. Total loans outstanding at small- and medium-sized banks have risen, as have deposits. Unfavorable weather has hampered spring planting in the southern part of the District, although the mild winter has led to a good-to-excellent winter wheat crop in most areas. Manufacturing and Other Business Activity The District manufacturing sector has been gaining strength. Contacts report an increase in sales and orders, which has led many firms to expand employment and hire back employees who previously had been laid off. Manufacturers reporting increased orders include those in the furniture, boats, airplanes, steel, food and drug, apparel, and auto parts industries. Several contacts note that some of the increase in activity stems from contracts with the U.S. Defense Department for items including camouflage clothing and military aircraft parts. While the manufacturing sector is still seeing closings and bankruptcies, there has been more good news than bad. Retail sales held steady in the Eighth District. A few contacts report that sales have been higher at discount stores than at department stores and malls, although mall traffic is noted to be relatively normal for this time of year. Auto sales have been mixed, with reported sales levels ranging between good and flat. Additionally, while some dealers report increased sales of used vehicles, others report that it has been new vehicles that have been selling well. Several dealers report that their inventories of new vehicles are a little lower than usual as they take a "wait and see" approach to ordering. Real Estate and Construction Reports from each of the District's metropolitan areas indicate that residential real estate sales have been strong since the beginning of the year. Sales volumes in Memphis and Little Rock were higher in January and February than a year earlier. Realtors in several northern Mississippi markets report improved sales are correcting the oversupply of homes in those markets. Sales of new homes in Louisville are higher than normal for this time of the year. Nonetheless, slow sales in homes valued over $250,000 reflects caution among District homebuyers. The Memphis market for industrial space recorded lower absorption for 2001 than for 2000, leading to lower lease rates in 2002. The lease rate for commercial space in Little Rock remains steady. Net absorption and construction of office space in St. Louis continued to decline in the first quarter. Residential and commercial construction has been strong in the District, despite the slump in the markets for office space. In all District metropolitan areas the number of building permits issued in February was higher than that for February 2001. Commercial construction in Arkansas has picked up, with large projects concentrated in central and northwest Arkansas. Public construction projects and work on dams have kept commercial construction steady in western Kentucky. Commercial contractors in Memphis expect a delay in new projects until they see lower vacancy rates for industrial space. Banking and Finance Total loans outstanding at a sample of small- and medium-sized District banks were up slightly by 0.5 percent between late January and late March this year. Loans to individuals and to other commercial banks in the country have decreased significantly: 7.4 percent and 7.2 percent, respectively. Over the same period, the decrease in real estate loans was a milder 2 percent, while commercial and industrial loans increased by a relatively small 1.3 percent. Some contacts attributed the slowing of loan growth to more-stringent underwriting. Total deposits at these banks increased by 1.6 percent during the period. Contacts in northeast Mississippi, west Tennessee, and Arkansas report high levels of bankruptcy filings and foreclosures. Agriculture and Natural Resources The weather across the District included abnormally cool temperatures and considerable rainfall in March and early April, leading many farmers in the southern part of the District to fall behind modestly in field preparation and planting. After a relatively mild winter, the District's winter wheat crop is in good-to-excellent condition in many areas. Exceptions to this are northern Mississippi and Arkansas, where contacts report that heavy rains have damaged some of the crop. One contact reports that as much as 10 percent of Arkansas's crop will not be harvested due to flooding and that another 15 percent of the crop was severely damaged. Farmers in the northern portion of the District expect to plant slightly more corn acreage this year, which will be offset by slightly reduced soybean plantings. Mississippi farmers, however, intend to increase soybean acreage. Contacts report that the unresolved federal farm bill has led to uncertainty about loan rates for soybeans. This may contribute to a decline in planting intentions and affect producers' ability to obtain financing. Cotton farmers in the southern portion of the District expect to plant about 11 percent fewer acres this spring, substituting corn and rice for cotton on some acreage. This follows the significant drop in cotton and cottonseed meal prices. Partly as a result of a Russian ban on U.S. poultry imports, the quantity of poultry on the market increased over the last month and poultry prices have declined modestly. Meanwhile, cattle prices have also declined modestly, while hog prices have declined substantially. Return to top Chicago Minneapolis