St. Louis Fed economist Tom Garrett discusses current economic conditions in the Eighth District, as published in the Beige Book.
The economy of the Eighth District has weakened further since our previous report. Overall manufacturing activity declined and contacts' reports indicate slowing activity in the services sector. Reports on retail sales across the District were mixed. Auto dealers reported a decline in sales and a few dealerships have closed their doors. Home sales and residential construction continue to be weak throughout the District. Reports from commercial and industrial real estate contacts indicated a continued slowdown in economic activity. Overall lending at a sample of small and mid-sized banks increased slightly during the first quarter of 2009.
Manufacturing activity has continued to decline in most areas since our previous survey. Several manufacturers reported plans to reduce operations and lay off workers, while a smaller number of contacts reported plans to open plants and expand operations. Firms in the rubber products, steel, electrical equipment, industrial materials handling, aluminum products, and appliance manufacturing industries announced job losses. Firms in the automotive and transportation product manufacturing industries also announced job cuts. A major firm in animal processing and slaughtering closed its plant. Several firms in the wood product, aluminum product, and electrical machinery manufacturing industries also closed plants. In contrast, a firm in food manufacturing reported plans to open a new production plant, and several firms in the plastic and wood product manufacturing industries plan to increase operations and hire additional workers.
The District's service sector also has continued to decline in most industries since our previous report. Firms in information and medical services reduced their payrolls. A firm in warehousing and transportation services and a large national retailer closed their operations. In contrast, a contact in the financial services industry and a few firms in the business support services industry reported plans to expand their operations and hire additional workers. Reports on retail sales across the District remain mixed, with an equal number of contacts expressing optimism for the future as other contacts expressed concerns over low traffic volume. Auto dealers generally reported a decline in sales, with a few dealerships closing their doors. One contact expressed concern that showroom traffic is up, but that it is difficult for buyers to qualify for financing.
Home sales continued to decline throughout the Eighth District. Compared with the same period in 2008, February 2009 residential sales were down by 14 percent in St. Louis, 22 percent in Little Rock, 30 percent in Louisville, and 32 percent in Memphis. Residential construction has also continued to decline throughout the District. February 2009 single-family housing permits fell in nearly all District metro areas compared with the same period in 2008. Permits declined by 43 percent in Little Rock, 48 percent in Louisville, 49 percent in St. Louis, and 56 percent in Memphis.
Commercial real estate and construction markets are declining throughout the District. One contact in Memphis described commercial real estate conditions as very poor. A large construction company in southern Indiana reported that business has slowed considerably. Industrial real estate and construction contacts reported a challenging economic environment. One contact in St. Louis noted that demand for industrial real estate is waning and that the market is currently overbuilt. A contact in Memphis noted a decline in demand for industrial distribution space and did not expect to see any new construction in the industrial market until mid-2010. In contrast, a contact in south-central Kentucky reported that commercial building permits are stable as a result of several projects in downtown Bowling Green and at Western Kentucky University.
Overall lending activity for the first quarter of 2009 increased slightly relative to the fourth quarter of 2008. Total loans outstanding at a sample of small and mid-sized District banks increased by 0.1 percent during the first quarter of 2009. Lending activity in various sectors was mixed, however. Real estate lending, which makes up roughly 73 percent of total loans, was essentially unchanged. Commercial and industrial loans, accounting for over 17 percent of total loans, decreased by nearly 2 percent. Loans to individuals, accounting for 5.5 percent of total loans, increased by over 5 percent. All other loans increased by nearly 3 percent. Total deposits increased by nearly 2 percent for the first quarter of 2009.
Total winter wheat acreage in 2009 decreased by 35 percent from 2008 levels, and most of each District state's crop was reported to be in fair or better condition. Farmers in the District reported that they expect to plant 1 percent more acres of corn and 12 percent more acres of rice in 2009 than in 2008. In contrast, they anticipate planting 43 percent fewer acres of sorghum, 9 percent fewer acres of cotton, and 5 percent fewer acres of tobacco than last year. They expect to plant the same number of acres of soybeans as last year.