Eighth District - St. Louis
Beige Book
December 02, 2009


St. Louis Fed economist Tom Garrett discusses current economic conditions in the Eighth District, as published in the Beige Book.



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Economic activity in the Eighth District remained weak but showed signs of improvement in some areas. Manufacturing activity continued to decline while services activity began to expand in many areas of the District. Compared with a year ago, retail sales declined in October and early November, while auto sales increased over the same period. Residential and commercial real estate market conditions continued to be weak. Overall lending at a sample of large District banks declined in the three-month period ending in October.

Consumer Spending

Contacts reported that retail sales in October and early November were down, on average, over year-earlier levels. About 52 percent of the retailers saw decreases in sales, while 35 percent saw increases and 13 percent saw no changes. About 40 percent of the respondents noted that sales levels met their expectations, 45 percent reported that sales were below expectations, and 15 percent reported sales above expectations. Lower-priced items were strong sellers, while higher-priced items moved more slowly. 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 mixed. About 46 percent of the retailers expect sales for the rest of the year to increase over 2008 levels, while 42 percent expect sales to decrease and 12 percent expect sales to remain unchanged.

Car dealers in the District reported that, compared with last year, sales in October and early November were up, on average. About 39 percent of the car dealers surveyed saw increases in sales, while 39 percent saw decreases and 22 percent saw no changes. About 26 percent of the car dealers noted that used car sales had increased relative to new car sales, while 22 percent reported the opposite. Also, 26 percent reported an increase in low-end vehicle sales relative to high-end vehicle sales, while 13 percent reported the opposite. About 27 percent of the car dealers surveyed reported that their inventories were too low, while 9 percent reported that their inventories were too high. The sales outlook among car dealers for the rest of the year was also mixed. About 48 percent of the car dealers expect sales for the rest of the year to increase over 2008 levels, but 39 percent expect sales to decrease. The remaining 13 percent expect sales to be similar to last year

Manufacturing and Other Business Activity

Manufacturing activity has continued to decline since our previous report but at a slower pace. Some contacts expressed optimism that activity would begin to increase in the months ahead. Firms in the rubber tire, packaging product, food and beverage, auto manufacturing, furniture, and plastic product manufacturing industries increased production. Firms in the electrical equipment and component manufacturing and glass/aluminum product manufacturing industries announced plans to open new facilities in the District and hire new workers. In contrast, several firms announced job losses. Contacts in the copper tube, appliance, lumber, and heating, ventilation, and air conditioning manufacturing industries all cited weak demand as a driver of layoffs. Firms in the auto parts and transportation industries closed facilities in the District and announced job losses. A major firm in pharmaceutical products manufacturing announced job layoffs because of a recent merger.

The District's service sector has begun to expand in many areas since our previous report. Contacts in business support services announced plans for several new facilities and new hires in the District. In contrast, some workers in education services experienced pay cuts because of budget deficits.

Real Estate and Construction

Home sales continued to decline throughout the Eighth District. Compared with the same period in 2008, September 2009 year-to-date home sales were down 6 percent in St. Louis, 7 percent in Louisville, 10 percent in Little Rock, and 14 percent in Memphis. Residential construction also continued to decline throughout most of the District. September 2009 year-to-date single-family housing permits fell in most District metro areas compared with the same period in 2008. Permits declined 14 percent in Little Rock, 20 percent in St. Louis, 23 percent in Louisville, and 44 percent in Memphis.

Commercial and industrial real estate markets continued to struggle throughout most of the District. Compared with the second quarter of 2009, third-quarter 2009 industrial vacancy rates increased in Little Rock, Memphis, and St. Louis and remained the same in Louisville. During the same period, suburban and downtown office vacancy rates decreased in Little Rock, increased in Louisville and St. Louis, and remained the same in Memphis. Contacts throughout the District noted, however, that total available commercial and industrial space is considerably higher than vacancy rates suggest when factoring in sub-leases offered by companies that have reduced staff. Commercial and industrial construction markets continued their decline. A contact in northeast Arkansas reported that commercial construction was very slow, with few projects even in the planning stage. A contact in south central Kentucky noted that overall commercial construction continues to lag behind the number of projects in recent years. A contact in St. Louis reported that industrial construction had fallen sharply compared with the same time last year.

Banking and Finance

A survey of senior loan officers at a sample of large District banks showed a decline in overall lending activity in the three months ending in October. Credit standards for commercial and industrial loans ranged from basically unchanged to tightened somewhat, while demand for these loans ranged from unchanged to moderately weaker. Credit standards for commercial real estate loans tightened, while demand for these loans was moderately weaker. Meanwhile, credit standards for consumer loans remained basically unchanged, while demand for these loans weakened. Demand for residential mortgage loans ranged from moderately stronger to moderately weaker, while credit standards for these loans remained basically unchanged.

Agriculture and Natural Resources

Wet weather throughout the District has caused significant delays in harvesting. The rice harvest was nearly finished in mid-November, but most states were behind normal pace with other crops. In mid-November, each District state was behind normal pace with winter wheat planting and crop growth was even farther behind normal. At least 88 percent of the winter wheat in each state with available data was rated fair or better except in Arkansas, where only three-quarters of the crop achieved that rating.

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