April 23, 2003 Federal Reserve Districts Eighth District--St. Louis

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Contacts indicate that economic activity in the Eighth District has remained soft in recent weeks. In manufacturing, there are continued reports of plant closings, layoffs, and cutbacks. Retailers report that sales were relatively flat compared with last year and attribute sluggish consumer spending to colder weather and a late Easter, but some are optimistic about spring sales. Home sales are still up in most of the District, while commercial real estate markets continue to be sluggish. Total loan demand at small and mid-sized District banks has weakened throughout the first quarter of 2003. Manufacturing and Other Business Activity A broad-based recovery of the Eighth District manufacturing sector continues to be problematic as new reports of plant closings, cutbacks, and layoffs remain commonplace. Manufacturers in the electrical, furniture, wire and cable, paper, health-care, trucking, food, and tool industries are among those who have recently announced plant closings and layoffs. Contacts note that problems faced by the manufacturing sector continue to include low orders and profits, increased international competition, high operating costs, and a weak economy. Despite the reports of cutbacks, however, a few firms plan to move to or expand within the District, including some in the auto parts industry. General retail sales in the District were mostly flat in March compared with 2002 levels. Some contacts note that colder weather and a late Easter are to blame. Several are optimistic about spring sales. Auto dealers report that, while March sales were an improvement from February, they were still down from March 2002 levels, despite the continuation of aggressive incentives. Contacts in the trucking industry note that profits shrank because of March's increase in fuel prices. To reduce costs, the airline industry has announced more cutbacks, which will affect employment in the District. Real Estate and Construction Home sales are still doing well in most of the District. The Memphis area saw an increase in total home sales of about 13 percent in February 2003 compared with February 2002. Similarly, northern Kentucky saw an increase of 26 percent. Contacts in St. Louis and northwest Arkansas reported that home sales were still strong in January. February year-to-date permit levels were lower in most of the District's metropolitan areas. Contacts in Memphis expect this to be a great year for residential construction. Residential construction has remained steady in Louisville, and housing starts are still doing well for first-time homebuyers in the $100,000-$150,000 range. In the St. Louis area, year-to-date single-family housing permits were down 6 percent compared with the same period last year. Commercial real estate markets are still sluggish in most of the District. Contacts reported an increase in vacancy rates in the office and industrial markets in downtown St. Louis for the fourth quarter of 2002. Office vacancy rates also continued to increase in Louisville. A recovery in the Memphis area office market is not expected until mid-year 2003. Commercial construction is still slow in most areas. Contacts in Pine Bluff reported that several projects are in process at area colleges but that the prognosis for future funding is bleak. Commercial construction is lagging in Memphis, while there has been an increase in small construction projects in central Kentucky. Banking and Finance Total loans outstanding at a sample of small and mid-sized District banks were down 0.59 percent between early January and early April. This decline stemmed mostly from loans to individuals, which were down 2.3 percent over the same period. Commercial and industrial loans increased 2.6 percent, but real estate loans decreased 0.2 percent. At the same time, total deposits at these banks were up by 2.1 percent. Agriculture and Natural Resources Most farmers have begun preparing land for planting, while some have planted already. The most progress has been with corn in Arkansas, Mississippi, and southeastern Missouri, where farmers have planted between 57 percent and 70 percent of their corn. Planting intentions for soybeans and wheat declined on average, while prospective corn, cotton, and sorghum plantings increased. In Mississippi, Kentucky, and Arkansas, farmers planted between 13 percent and 40 percent less winter wheat in 2002 to 2003 than in 2001 to 2002. Contacts say that this decline is due to wet fall weather that inhibited planting. In Illinois and Indiana, wheat plantings increased 18 percent and 29 percent, respectively, possibly marking the beginning of a turnaround from declining plantings since 1996. Farmers who were unable to plant wheat in the fall may well plant other crops this spring; corn planting intentions increased by 8 percent on average, while prospective cotton and sorghum plantings increased 7 percent and 9 percent respectively. Return to top Chicago Minneapolis