November 27, 2002 Federal Reserve Districts Eighth District - St. Louis

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Contacts in the Eight District report that economic conditions have been mixed. Manufacturing is showing increased closings, layoffs, and consolidations. There are, however, reports of expansion in the services sector. Contacts indicate that activity may be slow during the holiday season in the distribution and logistics industry. Total retail sales have declined slightly. Auto sales were down in September and October. Home sales were still up throughout the District, while the market for commercial real estate was still weak. Reports of demand for residential real estate loans were mixed, while demand for other loans declined moderately in the last three months. In agriculture, early reports suggest that yields and total output of corn, soybean, and cotton will fall from last year's levels. Consumer Spending Retail contacts reported that total retail spending declined slightly in October. About half of the contacts noted a decrease in sales compared with 2001 levels. The remaining half reported flat-to-modest growth in October. Over 40 percent of the retailers surveyed noted that sales were below predictions, while another 40 percent expressed that sales met expectations. Food, winter apparel, and home items have been selling well, while electronics, gift, and luxury items have been moving more slowly. About 70 percent of contacts report that inventories are at desired levels. Over 70 percent of retailers surveyed are hopeful of moderate sales growth during the holiday season. Car dealers in the District report that sales were down in September and October, compared with the same months in 2001. Contacts attribute the fall in sales to poor consumer confidence, a sluggish economy, and the boost from past aggressive incentives cutting into current sales. Half of the dealers surveyed noted no change in the rate of acceptance or rejection rates of finance applications, one-fourth indicated tighter standards, and the remaining fourth noted softer standards. About half of the contacts reported inventories to be at desired levels, but over one-third noted that inventories are at slightly higher-than-desired levels. Most contacts continue to use financial incentives, and most dealers are cautiously optimistic about the remainder of 2002, expecting flat-to-moderate growth. Manufacturing and Other Business Activity Contacts continue to note instances of capital spending and expansion in the District, but reports of closings, layoffs, and consolidation have crept back up since the last report. Manufacturers in the auto parts, die press, aluminum processing, energy, appliance, rail car, and chemical industries have made plans to move to or expand operations in the District. Several of these manufacturers, as well as some in commercial furniture, boat trailers, metal, food, and custom windows industries note steady-to-increasing orders and plans to begin hiring over the next few months. On the flip side, contacts from the tire, apparel, heavy engine, bakery, and plastics industries report plant closings, layoffs, and consolidations. Most cite weak demand as a reason for the cutbacks. A few contacts indicate that reduced customer inventories are causing the sizes of orders to decline. Reports from the trucking industry indicate a large backlog of freight as a result of the West Coast dock strike in October. A few services companies are opening offices in the District for research and development, and one District distribution and logistics company has announced plans to expand operations. Some contacts have indicated, however, that a weak economy and the relatively fewer number of days between Thanksgiving and Christmas this year may affect holiday deliveries. Real Estate and Construction Contacts indicate that home sales are still up in most of the District, primarily due to very low mortgage rates. Home sales are brisk in St. Louis, western Tennessee, and for first-time buyers in Kentucky. Residential construction has been up in most of the District, with the exception of northeastern Arkansas and northeastern Mississippi. In more than half of the District's metropolitan areas year-to-date, house October's building permits were higher than a year ago. The commercial real estate market has not yet seen a turnaround in the District. In the Memphis area, the market continues to be sluggish. In the St. Louis area, commercial general contractors are reporting flat-to-negative revenue growth. Commercial real estate construction is still growing in northwestern Arkansas and is picking up slightly in western Kentucky. Commercial construction has slowed down in northeastern Arkansas and has declined in the St. Louis metro area. Banking and Finance A recent survey of senior loan officers at a sample of District banks indicates a decline in the overall lending activity over the past three months. Banks' credit standards for commercial and industrial (C&I) loans remained generally unchanged for large and small firms. Most contacts reported a moderate decrease in the demand for C&I loans for large and small firms, citing as reasons a decline in customer inventory and accounts receivable funding needs and reduced plant investment. Credit standards for commercial real estate loans remained mostly unchanged. The demand for commercial real estate loans, however, was reported to be moderately weaker. Credit standards for residential mortgage loans also remained largely unchanged, but reports on growth of residential mortgage loans were mixed. Credit standards for credit card and consumer loans remained largely unchanged, as well, and the volume of consumer loans decreased moderately. Agriculture and Natural Resources The cool, wet, winter-like weather late in the fall continues to plague harvest efforts, particularly in southern parts of the District. The corn and soybean harvest is near completion in the northern part of the District. Early reports suggest that both yields and total output in the District will be down by about 15 percent and 9 percent respectively. Substantial rainfall in late October delayed the cotton harvest, resulting in substandard crops for many District farmers. Total crop output in the southern portion of the District is estimated to drop by 15 percent from last year. Seeding of the winter wheat crop is winding down in the northern portion of the District, but remains considerably behind schedule in Arkansas, Mississippi, and Tennessee. The crop is in mostly good-to-excellent condition, except in Mississippi, where it is rated as poor-to-fair. Return to top Chicago Minneapolis