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Eighth District - St. Louis
Beige Book
April 14, 2010

Wednesday, April 14, 2010

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Economic conditions in the Eighth District softened in most sectors since our previous report. Manufacturing activity declined on balance, as did activity in the services sector. Although residential real estate markets remained weak, home sales and issuance of construction permits increased in some metropolitan areas of the District. Activity in the commercial and industrial real estate markets, construction in particular, remained weak throughout the District. Overall lending activity at a sample of small and mid-sized District banks decreased slightly in the first quarter of 2010 compared with the fourth quarter of 2009.

Manufacturing and Other Business Activity

Manufacturing activity declined since our previous report. Contacts reported more plant closures and job layoffs than plant openings and new hires. Several manufacturers reported plans to consolidate operations and lay off employees, including firms in the appliance; heating, ventilation, and air conditioning; steel; and machinery manufacturing industries. Furthermore, firms in the construction materials, auto parts, and food and beverage manufacturing industries announced plans to close a plant in the District. In contrast, a major firm in defense goods manufacturing announced plans to add new jobs and expand production. Several small firms in food and beverage manufacturing and metal products manufacturing announced plans to expand operations and hire new workers.

The District's services sector also continued to decline despite the increase in temporary employment from the 2010 Census. Several regional government agencies and education services providers announced job cuts in response to declining budgets. A major firm in print and publishing services announced it will close a facility in the District. A large medical services provider also announced significant job cuts to achieve operational efficiencies. In contrast, a large regional transportation authority was awarded a major contract from the Department of Transportation, and a firm in business support services announced plans to hire new workers. Contacts in the retail sector noted the opening of several new establishments, particularly in the food industry. A major trade show also signed a long-term lease with a metropolitan area in the District. An auto dealer noted stronger than expected demand, particularly for light sport utility vehicles.

Real Estate and Construction

Home sales were mixed in the Eighth District. Compared with the same period in 2009, February 2010 year-to-date home sales were down 5 percent in Little Rock and 9 percent in Memphis and St. Louis. Year-to-date home sales in Louisville, however, were up 16 percent for the same period. Residential construction, on the other hand, is improving throughout most of the District. February 2010 year-to-date single-family housing permits increased in most District metro areas compared with the same period in 2009. Permits increased 17 percent in Louisville, 30 percent in Memphis, 41 percent in Little Rock, and 60 percent in St. Louis.

Commercial real estate and construction markets continued to struggle throughout the District. A contact in St. Louis expects commercial property foreclosures to rise. A contact in Evansville, Indiana, reported that major construction is still slow. A contact in northeast Arkansas noted that the only major construction projects are related to a local university and medical center. Industrial real estate and construction contacts throughout most of the District also continued to report a sluggish environment. A contact in Louisville described the first-quarter industrial real estate market as dismal. A contact in Memphis, however, indicated that industrial real estate may be showing signs of improvement. A contact in St. Louis expects little to no speculative industrial construction to take place in 2010.

Banking and Finance

Total loans outstanding at a sample of small and mid-sized District banks decreased 2.7 percent in the first quarter of 2010 relative to the fourth quarter of 2009. Lending activity in various sectors was mixed, however. Real estate lending, which accounts for 73.6 percent of total loans, decreased 2.3 percent. Commercial and industrial loans, accounting for 16.1 percent of total loans, decreased 4.9 percent. Loans to individuals, accounting for 5.6 percent of loans, increased 3.3 percent. All other loans decreased 8.3 percent. Over this period, total deposits increased 0.6 percent.

Agriculture and Natural Resources

Total winter wheat acreage in the District states in 2010 decreased by 41 percent from 2009 levels, and most of each state's crop was reported to be in fair or good condition. Farmers in the District reported that they expect to plant 5 percent more acres of corn and 10 percent more acres of both cotton and rice in 2010 than in 2009. In contrast, they anticipate planting 6 percent fewer acres of sorghum and 4 percent fewer acres of tobacco than last year. They expect to plant the same number of acres of soybeans as last year.

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