March 5, 2014
Commentary on Current Economic Conditions in the Eighth District
The economy of the Eighth District has continued to grow at a moderate pace since the previous survey. Recent reports of planned activity in manufacturing have been positive, while reports in services have been negative on net. Residential and commercial real estate market conditions have continued to improve. Lending at a sample of District banks was little changed during the fourth quarter of 2013. Wage increases have been moderate, while prices and employment levels have increased modestly.
Contacts reported that retail sales in the past three months increased slightly compared with the same period last year. Two thirds of contacts noted somewhat higher sales, while one third saw no change. Half of the retailers reported that sales levels met their expectations, while the other half reported that sales were below expectations. Three fourths of contacts noted that inventories were at desired levels, and the rest noted that inventories were too low. Three fourths of contacts noted no change in the mix of high- and low-end products, while the rest noted more sales of high-end relative to low-end products.
Reports from auto dealers about sales in the past three months were mixed. One in four car dealers surveyed saw increased sales compared with the same period last year; half saw no change, and the rest saw decreased sales. Half of contacts reported an increase in used car sales relative to new car sales; 12 percent reported the opposite, and the rest saw no change. Thirty-eight percent of contacts reported increased sales of low-end vehicles relative to high-end vehicles; 25 percent reported the opposite, and the rest saw no change. Sixty-three percent of contacts noted that inventories were at desired levels, while 37 percent noted that inventories were too high.
Manufacturing and Other Business Activity
Reports of plans for manufacturing activity have been positive since our previous report. Several manufacturing firms reported plans to add workers or expand operations in the Eighth District, while a smaller number of manufacturers reported plans to reduce employment. Firms in automobile, plastic products, auto parts, appliance, food, alcoholic beverage, and machinery manufacturing plan to hire new employees and expand operations in the Eighth District. In contrast, firms that manufacture television sets, semiconductor devices, metal products, and carbonated beverages reported plans to lay off workers. According to a recent survey, manufacturers saw increased sales over the past three months, compared with a year ago. Several industrial contacts noted disruptions in operations because of cold weather; disruptions included gas or electricity outages, difficulty commuting to work, and delays in logistics.
Reports of planned activity in the District’s service sector have been negative on net since the previous report. Firms in mortgage, telephone answering, disinfecting and pest control, pharmaceutical benefit management, and social security benefit management services reported plans to lay off workers or reduce employee hours. In contrast, firms in health care, telecommunication, computer-system consulting, legal, fitness and recreation, online shopping, and food distribution services reported new hiring and expansion plans in the District.
Real Estate and Construction
Home sales have continued to increase throughout most of the Eighth District on a year-over-year basis. Compared with the same period in 2012, December 2013 year-to-date home sales were up 16 percent in Louisville, 17 percent in Little Rock, 7 percent in Memphis, and 4 percent in St. Louis. December 2013 year-to-date single-family housing permits increased in the largest metro areas of the District, compared with the same period in 2012. Permits increased 8 percent in Louisville, 12 percent in Memphis, and 11 percent in St. Louis. In contrast, permits decreased 9 percent in Little Rock.
Commercial and industrial real estate market conditions in the District have continued to improve. A contact in northwest Kentucky reported that office leasing continued to struggle while the demand for industrial space continued to improve. A contact in northeast Arkansas noted modest improvement in commercial real estate. A contact in northwest St. Louis County reported that office leasing in 2013 increased for the fourth consecutive year and expected a strong start in 2014. Commercial and industrial construction improved throughout most of the District. A contact in Louisville noted several on-going commercial construction projects in Hardin County, Kentucky, and in downtown Louisville. Contacts in Memphis continued to report new commercial construction in Jonesboro and Paragould. A contact noted a new office building project in northwest St. Louis County and a new industrial manufacturing plant in Wentzville, Missouri. A contact in Little Rock reported a plan for a mixed-use project that includes commercial space and a plan for an outlet mall in Little Rock.
Banking and Finance
A survey of District banks found little change in overall lending activity during the fourth quarter of 2013. During this period, credit standards and creditworthiness of applicants for commercial and industrial loans increased slightly, while demand improved moderately and delinquencies decreased moderately. Credit standards and creditworthiness of applicants for prime residential mortgage loans increased moderately. Demand was much weaker overall, with some respondents reporting substantial weakness, and delinquencies decreased moderately. Credit standards and creditworthiness for auto loans and credit cards remained mostly unchanged, while demand decreased moderately and delinquencies edged down slightly. Credit standards, creditworthiness of applicants, demand, and delinquencies for other consumer loans decreased.
Agriculture and Natural Resources
Red meat production in the District for 2013 was 1.2 percent higher than in 2012. The production increase was driven by the District’s largest producers in Illinois, Indiana, and Missouri. Coal production in the District for January 2014 was 6.2 percent lower compared with January 2013.
Prices, Wages, and Employment
A survey of Eighth District businesses indicated that wages grew at a moderate pace, while prices and employment increased modestly over the past three months. Sixty-seven percent of contacts reported that prices during the past three months remained about the same relative to the same period last year, while 21 percent of contacts indicated that prices were somewhat higher. Fifty-seven percent of respondents indicated that wages during the past three months have stayed about the same relative to a year ago, while 33 percent noted somewhat higher wages. Finally, 72 percent of contacts reported that employment levels have remained the same over the past three months, compared with a year ago, while 20 percent reported an increase and 11 percent reported a decrease.