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Economic activity in the Eighth District expanded at a moderate pace since
our previous report. Manufacturing activity increased modestly, while growth
in the services sector remained strong. Contacts reported that retail and auto
sales increased slightly in October and early November compared with a year
ago. Home sales reports were mixed and commercial real estate market conditions
varied across the District. Lending activity at a sample of District banks changed
little in the three-month period ending in October.
Consumer Spending
Contacts reported that retail sales in October and early November were up, on
average, over year-earlier levels. About 65 percent of the retailers saw increases
in sales, while 17 percent saw decreases. About 39 percent of the retailers
reported that sales levels met their expectations, 33 percent reported that
sales were above what they had anticipated, and 28 percent reported sales below
expectations. Apparel, food, and electronics were all strong sellers, while
home furnishings were moving more slowly. Two-thirds of the contacts reported
that inventories were at desired levels; 29 percent reported that inventories
were too high, and 5 percent reported that inventories were too low. About 70
percent of contacts expect that upcoming holiday sales will increase over 2005
levels, while 13 percent expect decreased sales.
Car dealers in the District reported that sales in October and early November
were up, on average, over year-earlier levels. About 35 percent of the car dealers
surveyed reported an increase in sales, while another 35 percent reported a
decrease. About 30 percent of the car dealers reported that used car sales had
increased relative to new car sales, while 9 percent reported the opposite.
Also, 26 percent reported an increase in low-end vehicle sales relative to high-end
vehicle sales. About 22 percent of contacts reported tighter financing options,
but over 90 percent of the contacts reported no change in acceptance or rejection
rates of finance applications. Nearly 36 percent of the car dealers surveyed
reported that their inventories were too high, while 23 percent reported that
their inventories were too low. About 30 percent of the car dealers expect that
sales for the next two months will increase over 2005, while 26 percent expect
decreased sales.
Manufacturing and Other Business Activity
Manufacturing activity expanded modestly since our previous report. While the
majority of contacts reported plans to expand operations or hire additional
workers in the near future, several manufacturers reported plans to close operations
and lay off workers. Firms in the primary metal, biofuel, plastics, chemical,
aerospace, packaging, and paper manufacturing industries announced plans to
open or expand facilities in the District. Contacts in the food, chemical, and
plastics industries reported plans to hire additional workers. In contrast,
firms in the beverage and auto parts industries reported plans to close plants
in the District. Firms in the appliance, machinery, furniture, and auto parts
industries reported plans to lay off workers.
The District's services sector continued to expand in most areas. Contacts
in the freight transportation, professional, and financial services industries
reported plans to open or expand facilities in the District. A contact in the
data processing services industry reported plans to expand operations and hire
additional workers. In contrast, a contact in the business support services
industry reported plans to lay off workers.
Real Estate and Construction
Home sales reports were mixed throughout the District. October 2006 year-to-date
home sales increased 8 percent in Memphis but declined 1 percent in Louisville
and about 3 percent in Little Rock and St. Louis. Residential construction remains
low throughout the District. September year-to-date single-family housing permits
declined in nearly every metro area compared with the same period in 2005. Permits
declined 33 percent in Louisville, 23 percent in St. Louis, 12 percent in Little
Rock, and 11 percent in Memphis. In contrast, permits increased roughly 3 percent
in Jackson, Tennessee.
Commercial real estate market conditions remain mixed throughout the District.
The third-quarter 2006 industrial vacancy rate declined from the second quarter
in St. Louis and Memphis but increased in Louisville. During the same period,
the office vacancy rate declined in St. Louis, Memphis, Louisville, and Little
Rock. Contacts in Little Rock reported that September year-to-date commercial
construction permits are down roughly 5 percent over 2005. In west Tennessee,
contacts reported that commercial construction has increased substantially.
Contacts in Louisville reported that several large distribution centers are
planned for construction in 2007, and contacts in St. Louis reported that industrial
construction remains active.
Banking and Finance
A survey of senior loan officers at a sample of District banks showed little
change in overall lending activity in the three months ending in October. During
this period, credit standards and demand for commercial and industrial loans
remained unchanged for both large and small firms. During the same period, credit
standards for commercial real estate loans tightened somewhat, while credit
standards for residential mortgages and consumer loans remained basically unchanged.
Demand for commercial real estate and consumer loans remained unchanged, while
demand for residential mortgages was moderately weaker.
Agriculture and Natural Resources
Recent wet weather throughout much of the District has slowed the pace of crop
harvesting. Nevertheless, about 90 percent of all corn, soybeans, sorghum, and
cotton and all of the rice in the District have been harvested. The rains have
delayed some planting of winter wheat, especially in Kentucky and Mississippi,
but over 88 percent of the emerged winter wheat in each District state is rated
in fair condition or better.
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