St. Louis Fed economist Rubén Hernández-Murillo discusses current economic conditions in the Eighth District, as published in the Beige Book.
Reports from contacts in the Eighth District have been mixed since our previous survey. Manufacturing activity has continued to increase, while activity in the services sector has declined. Retail sales in October and early November decreased compared with a year ago, while auto sales increased over the same period. Home sales have declined across the District, while commercial and industrial real estate market conditions have been mixed. Lending at a sample of large District banks was mostly unchanged over the three-month period ending in October.
Survey respondents indicated that retail sales in October and early November were down, on average, over year-earlier levels. About 54 percent of the retailers saw decreases in sales, while 42 percent saw increases and 4 percent saw no changes. About 39 percent of the respondents noted that sales levels met their expectations, 50 percent reported that sales were below expectations, and 11 percent reported sales were above expectations. Higher-priced items continued to be weak sellers. About 58 percent of the contacts noted that inventories were at desired levels, while 29 percent reported too-high inventories and 13 percent reported too-low inventories. The sales outlook among the retailers for the rest of the year was positive. About 61 percent of the retailers expect sales for the rest of the year to increase over 2009 levels, while 26 percent expect sales to decrease and 13 percent expect sales to remain unchanged.
Car dealers reported that sales in October and early November were up, on average, compared with year-earlier levels. About 54 percent of the car dealers saw increases in sales, while 29 percent saw decreases and 17 percent saw no changes. About 29 percent of the car dealers noted that used car sales had increased relative to new car sales, while 8 percent reported the opposite. Also, 20 percent reported an increase in low-end vehicle sales relative to high-end vehicle sales. Roughly 17 percent of contacts reported that their inventories were too low. A similar number of contacts reported that inventories were too high. The sales outlook among car dealers for the rest of the year was also positive. About 58 percent of the car dealers expect sales for the rest of the year to increase over 2009 levels, but 29 percent expect sales to decrease. The remaining 13 percent expect sales to be similar to last year's.
Manufacturing activity has continued to increase since our previous report. Several manufacturers reported plans to open plants and expand operations in the near future, while a smaller number of contacts reported plans to close plants or reduce operations. Firms in the boat, sanitary paper product, primary metal, adhesive, textile, and automobile parts manufacturing industries reported plans to expand existing operations and hire new employees. Contacts in the plastic materials and resin, fabricated metal product, automobile parts, and refrigerator and freezer manufacturing industries reported plans to open new facilities in the District as well as hire new employees. In contrast, firms in the wire product, air conditioner, motor, and container manufacturing industries announced plans to decrease operations and lay off workers.
Services sector activity has declined since our previous report. Many contacts reported plans to decrease operations and lay off workers in the near future, while a smaller number of contacts reported plans to open new facilities and expand operations. Contacts in the architectural, government, education, gambling, transportation, and hotel services industries reported plans to decrease operations and lay off workers. Additionally, a firm in the entertainment industry announced plans to close its facility and lay off workers. In contrast, contacts in the health care, government, and business support services industries announced plans to expand existing operations and hire new employees.
Home sales declined throughout most of the Eighth District. Compared with the same period in 2009, September 2010 year-to-date home sales were down 7 percent in St. Louis, 1 percent in Little Rock, and 4 percent in Memphis, but increased 8 percent in Louisville. September 2010 year-to-date single-family housing permits increased in the majority of the District metro areas compared with the same period in 2009. Permits increased 14 percent in Little Rock, 10 percent in St. Louis, and 14 percent in Memphis, but decreased 2 percent in Louisville over the same period.
Commercial and industrial real estate market conditions throughout the District continued to be mixed. Compared with the second quarter of 2010, third-quarter 2010 industrial vacancy rates increased in Little Rock and Louisville but decreased in Memphis and St. Louis. During the same period, suburban office vacancy rates increased in Little Rock but decreased in Louisville and St. Louis. In Memphis, suburban office vacancy rates remained the same. The downtown office vacancy rates increased in Louisville and Memphis but decreased in Little Rock and St. Louis. Commercial and industrial construction was slow across most of the District. Contacts in St. Louis and northeast Arkansas reported that the pipeline for commercial construction projects is dry. A contact in south-central Kentucky reported that commercial construction is stable, but still not at the same level as recent years. A contact in southern Indiana noted a few industrial development projects. A contact in Louisville reported that speculative construction remains hampered by the lack of financing and economic uncertainties.
A survey of senior loan officers at a sample of large District banks showed little change in overall lending activity for the three-month period ending in October. Credit standards for commercial and industrial loans remained basically unchanged, while demand was about the same. Credit standards for commercial real estate loans were also basically unchanged, while credit standards for residential mortgage loans and consumer loans ranged from unchanged to tightened somewhat. Meanwhile, demand for commercial real estate, residential mortgage, and consumer loans all varied slightly, ranging from moderately weaker to moderately stronger.
Lower-than-average rainfalls and warmer temperatures expedited the completion of the corn, soybean, sorghum, and cotton harvests in the Eighth District. However, dry conditions resulted in a 41 percent to 89 percent reduction from last year in the level of adequate and surplus topsoil moisture levels.
By early November, states in the Eighth District had planted at least 13 percent more winter wheat in comparison with the average levels planted by this time during 2005-09, and at least 70 percent of the current winter wheat crop in the District was rated in fair or better condition.