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Beige Book

April 11, 2012

Commentary on Current Economic Conditions in the Eighth District

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St. Louis Fed economist Rubén Hernández-Murillo discusses current economic conditions in the Eighth District, as published in the Beige Book.

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The economy of the Eighth District continued to grow at a modest pace since our previous survey. Residential real estate market conditions have improved moderately. Similarly, commercial real estate market conditions also have improved. However, recent reports of plans from firms in the manufacturing and services sectors were more mixed. Overall lending at a sample of small and medium-sized District banks was essentially unchanged during the three-month period from mid-December to mid-March.

Manufacturing and Other Business Activity

Reports of plans for manufacturing activity have been mixed since our previous report. Several manufacturers announced plans to increase operations and hire workers, while a similar number of contacts reported plans to close plants and lay off workers in the near future. Firms in the pipe, bathroom products, all-terrain vehicle, construction machinery, processed poultry, and power tool manufacturing industries announced plans to increase existing operations or open new plants in the District. In contrast, firms in the oil blending and packaging and fish farming industries announced plans to close plants and lay off workers. In addition, a major firm in the printing industry announced plans to close a plant in the District and lay off a large number of workers.

Reports of planned activity in the District's services sector also have been mixed since our previous survey. Firms in hotel, business support, distribution, and natural gas distribution services announced plans to expand operations and hire new workers. In contrast, contacts in health care, distribution, freight transportation, casino, and storage services announced plans to close facilities and lay off workers. General retail contacts have reported strong sales for the first two months of the year, and they expect positive sales growth to continue through 2012. District auto dealers have reported strong demand in the luxury automobile market while truck sales have been down.

Real Estate and Construction

Home sales increased throughout most of the Eighth District on a year-over-year basis. Compared with the same period in 2011, February 2012 year-to-date home sales were up 10 percent in Memphis, 24 percent in St. Louis, 19 percent in Louisville, and 14 percent in Little Rock. Residential construction increased in the majority of the District over this time period. February 2012 year-to-date single-family housing permits increased in the majority of the District metro areas compared with the same period in 2011. Permits increased 22 percent in Memphis, 63 percent in Louisville, 28 percent in Little Rock, and 25 percent in St. Louis.

Commercial and industrial real estate conditions improved moderately throughout most of the District. Contacts in northeast Arkansas continued to report strong commercial real estate activity in the Jonesboro area. A contact in Little Rock noted stronger commercial real estate activity for office and retail space than last year. Contacts in the Louisville metropolitan area reported improvement in office real estate activity and expect increases in the demand for industrial space. However, a contact in central Kentucky noted that commercial real estate activity is very soft. Commercial and industrial construction activity showed modest improvement in several parts of the District. A contact in Little Rock reported that new construction activity has improved because of the mild winter weather, but it is still at weak levels. Contacts in central Arkansas reported increased bidding in commercial construction projects, while a contact in western Kentucky noted large commercial and industrial construction projects to be completed in Owensboro.

Banking and Finance

Total loans outstanding at a sample of small and medium-sized District banks were essentially unchanged in the three-month period from mid-December to mid-March. Real estate lending, which accounts for 73.7 percent of total loans, decreased 0.4 percent. Commercial and industrial loans, accounting for 15.8 percent of total loans, grew 2.2 percent. Loans to individuals, accounting for 4.7 percent of loans, decreased 1.3 percent. All other loans decreased 8.8 percent and accounted for 5.8 percent of total loans. Over this period, total deposits increased 1.9 percent.

Agriculture and Natural Resources

Monthly output of commercial red meat in the District for February 2012 increased 9.9 percent compared with February 2011. However, monthly output of commercial red meat declined 4.4 percent between January and February 2012. The number of chickens slaughtered and the total live weight also decreased by 4 to 5 percent between January and February 2012. The District's year-to-date coal production for early March was 3.5 percent lower compared with the same period last year. Similarly, the District's coal production for February was 2.4 percent lower than in February 2011.

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