July 31, 2002 Federal Reserve Districts Eighth District - St. Louis

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Economic activity in the District continues to recover. Manufacturers in a range of industries report plans to expand production and employment, and retailers report that sales improved somewhat in June and July. The residential real estate market continues to be strong throughout most of the District, particularly for low- and mid-priced homes. On the other hand, commercial real estate markets continue to be weak throughout the District. Although infrastructure construction remains steady, state-government fiscal problems are causing concern about the future. Loan demand was strong throughout the District in the second quarter, particularly for residential mortgages. In the agricultural sector, the recent wheat harvest was down significantly from last year and crop conditions are reported to be fair or good throughout most of the District. Manufacturing and Other Business Activity Overall, manufacturing in the District is still recovering. Manufacturers in the furniture, metal, aircraft, biomedical, and auto parts industries are among those who have announced plans to expand. Contacts note renewed optimism about the rest of the year. Several reports indicate that companies previously facing difficulty have been bought and reorganized. Nonetheless, some contacts note that the level of activity is still lower than it had been in the recent past. For example, one contact reports that barge activity on the Ohio River is down substantially from last year's level. Retail sales have rebounded somewhat after a lackluster spring, which had been attributed to inclement weather. Accordingly, some retailers attribute the return of customers to the warm weather. While discount and moderate-priced stores continue to outperform other merchants, a number of these other merchants have posted sales that exceed expectations. Most layoffs in the retail sector are the result of cutting unnecessary or redundant positions. Automobile sales are a mixed bag as some dealers report strong sales while others have noted sales tapering off since May. Several dealers note that used and mid-range new cars remain relatively more popular. Real Estate and Construction Reports from most of the District's metropolitan areas indicate that residential real estate sales are strong compared with the beginning of the year, particularly for homes priced below $150,000. In contrast, sales volume has slowed over the last two months in northern Mississippi, and there is an oversupply of used homes in Louisville. Commercial and industrial real estate markets have remained sluggish. Contacts in Memphis and Louisville report a decrease in demand for office space, while lease rates for office space in Little Rock remain steady. During the first two quarters, the inventory for industrial space in St. Louis increased while the rate of absorption was negative and below its 2001 pace. Residential construction opportunities have improved over last year as May year-to-date building permits were higher than a year earlier for most of the District. Commercial construction opportunities are increasing in western Tennessee, although contacts in Arkansas and Kentucky report fewer projects for speculative space and more projects for space that has already been leased before construction. State-funded infrastructure projects continue to provide steady demand to the construction industry, although state-government fiscal problems are causing a great deal of concern. Banking and Finance Total loans outstanding at a sample of small and mid-sized District banks were up by 3.8 percent between early May and early July this year. This increase stems from real estate loans which are up by 3.6 percent over the same period and loans to other commercial banks in the country, which were up by 1.4 percent. Commercial and industrial loans and loans to individuals also increased over the same period, growing by 1.3 percent and 1.2 percent, respectively. Total deposits at these banks were up by 3.8 percent. Contacts have reported a slight rise in bankruptcy filings and past-due loans. Overall, however, asset quality is reported to be good. Agriculture and Natural Resources The winter wheat harvest is nearly complete in most District states, with contacts in Arkansas, Missouri, and Illinois reporting test weights as fair-to-good. Significant yield reductions, resulting from a wet spring and weather-related diseases, caused the recent harvest to be at its lowest level in several years. The wheat yields in District states were 6 percent to 23 percent lower than a year ago. Topsoil moisture conditions are reported to be adequate in Mississippi, with the other District states, most notably Illinois, reporting less-than-adequate moisture conditions. On average, most crops in Arkansas, Kentucky, Mississippi, and Tennessee are in good condition while those in Indiana, Illinois, and Missouri are in fair condition. Among the latter group of states, there is widespread concern among farmers about their crops, particularly corn and soybeans. The dry soil conditions, in conjunction with the current adverse weather, stressed the late-planted corn crop and may have lowered potential yields in some areas. In addition, the lack of rain in the soybean producing areas has caused the price for this crop to increase markedly between mid-June and mid-July. The unfavorable dryness that persists in the northern parts of the District has also been causing pasture conditions to deteriorate, with conditions in Tennessee generally in the worst shape. Return to top Chicago Minneapolis