July 27, 2005
Business activity in the Eighth District has continued to expand since our previous survey. Manufacturing activity increased in many industries, although several District manufacturers announced plant closings and workforce reductions. Contacts in the services sector continued to report increased economic activity. District retailers and auto dealers had mixed reports for May and June compared with the same months in 2004. Home sales continued to increase in most of the District. Although commercial real estate markets remained soft, some areas showed signs of improvement. Lending activity at a sample of small and mid-sized District banks increased from mid-March to early June.
Manufacturing and Other Business Activity
Manufacturing activity in the Eighth District continued to expand moderately
since our previous survey. Several manufacturers reported plant openings and
expansions. Firms in the electrical equipment, machinery, furniture, and chemical
industries announced plans to expand production capacity or open new facilities
in the District. In spite of these reports, contacts in the fabricated metal
product, leather product, food, and electronics industries announced plans to
close plants or lay off workers. Several of these firms cited plans to move
operations abroad because of increased foreign competition.
Activity in the District's services sector has continued to increase in most areas since our previous report. Firms in the freight transportation, utilities, leisure, and insurance industries reported plans to open new facilities and hire new workers. Contacts in the air transportation, tourism, administrative support, wireless, and Internet service industries experienced solid customer growth and high sales volume. Despite overall positive reports, contacts in the business software, real estate, and water transportation industries announced plans to lay off workers. District retailers generally reported increased sales in May and mixed sales in June compared with the same months last year. Discount and large retailer sales remained steady over the same period. Reports from District auto dealers were generally mixed. In some cases, price discounts led to increased sales growth. Inventories generally remained high. Used car sales were strong in May but slowed in June relative to May.
Real Estate and Construction
Home sales in the Eighth District have continued to increase. May year-to-date
home sales were up 7.2 percent in Louisville, 5.8 percent in Memphis, 2.8 percent
in Little Rock, and 1.0 percent in St. Louis compared with the same period in
2004. Residential construction conditions were mixed throughout the District.
May year-to-date single-family residential permits were down 2.6 percent in
St. Louis; down 8 percent in Owensboro, Kentucky; and down about 16 percent
in Evansville, Indiana, and Jonesboro, Arkansas. In contrast, permits were up
7 percent in Louisville, 11 percent in Little Rock, and 1 percent in Memphis.
Pine Bluff, Arkansas, continued its residential construction climb with May
year-to-date permits increasing over 114 percent compared with the same period
in 2004.
Commercial real estate markets have remained soft throughout much the District. The first-quarter industrial vacancy rate in Little Rock held steady at nearly 14 percent. Contacts indicated that the industrial and office sectors in Memphis have recently shown signs of improvement. In contrast, the first-quarter office vacancy rate in Louisville increased to 20.4 percent from 18.7 percent at the end of 2004. Contacts in northeast Arkansas reported little new activity in commercial construction, while contacts in northeast Mississippi reported that commercial growth has remained strong. Contacts have indicated that Louisville has several large construction projects on the horizon, and industrial development in DeSoto County, Mississippi, is on the rise.
Banking and Finance
Total loans outstanding at a sample of small and mid-sized District banks increased
2.2 percent from mid-March to early June. Real estate lending and commercial
and industrial loans (with increases of 1.3 percent and 5.7 percent, respectively)
contributed roughly 1 percentage point each to the rise in total loans. Loans
to individuals fell 4.1 percent. All other loans, accounting for roughly 5.4
percent of total loans, increased 9.5 percent. Over this period, total deposits
at these banks increased 0.6 percent.
Agriculture and Natural Resources
Since early June, most parts of the District have endured unusually dry conditions.
As of mid-July, about 62 percent of the District's corn crop and about
72 percent of the soybean crop are rated in fair or better condition, while
over 90 percent of the District's rice and cotton crops have reached that
category. Nevertheless, corn and soybean crop development remain ahead of their
five-year averages, while cotton and sorghum are on par with their five-year
averages. Since June, pasture conditions have deteriorated throughout the District,
and at least half of the pastures in Arkansas, Illinois, Kentucky, and Missouri
are rated as poor or very poor. Every District state except Indiana has completed
more than 95 percent of its winter wheat harvest.