St. Louis Fed economist Rubén Hernández-Murillo discusses current economic conditions in the Eighth District, as published in the Beige Book.
Business activity in the Eighth District has expanded at a moderate pace since the previous report. Recent reports of planned activity in manufacturing and services have been positive. Reports of retail and auto sales have also been positive. Overall residential real estate market conditions in the District have continued to improve; commercial and industrial real estate markets have also improved in some areas of the District. Lending activity at sample of District banks was little changed during the third quarter of 2013. Prices, wages, and employment levels have stayed the same or increased according to most contacts in the District.
Contacts reported that retail sales in September and October were up, on average, compared with the same period last year. About two thirds of contacts noted increases in sales, while one third noted decreases. Some contacts noted fewer sales from low-income shoppers, and some contacts noted increases in lower-end product sales. Contacts also noted that new store openings and renovations outnumbered store closings over the past three months. Most contacts expect holiday sales to increase compared with last year, and many have hired more seasonal employees than last year in anticipation of increased sales.
Reports from auto dealers were generally positive. The majority of contacts reported increased sales in September and October compared with the same period last year. Sixty percent of contacts reported that inventories were at desired levels, while one third reported that inventories were too low. One third of contacts reported increases in used car sales relative to new car sales, while 25 percent reported the opposite. Forty-two percent of contacts reported increases in high-end vehicle sales, while 17 percent reported increases in low-end vehicle sales. A number of contacts cited increased sales of small sport utility vehicles, crossover utility vehicles, and medium duty trucks. Most contacts expect increased sales in November and December relative to last year.
Reports of plans for manufacturing have been positive since our previous report. Several manufacturing firms reported plans to add workers, expand operations, or open new facilities in the District, while a smaller number of manufacturers reported plans to reduce employment. Firms that manufacture food, automobiles, wind turbines, toys, steel flanges, pet food, machinery, and nitric acid plan to hire new employees and expand operations in the near future. In contrast, firms that manufacture auto parts, lead, bottle tops, paper and packaging products, and construction materials reported plans to lay off workers. Manufacturing contacts noted more inquiries and new orders in the most recent quarter, compared with the same period last year.
Reports of planned activity in the District's service sector have also been positive since the previous report. Firms in courier and express delivery services, health care benefit management, distribution, logistics, retail trade, business, telecommunication, information technology, and recreation services reported new hiring (including seasonal hiring) and expansion plans in the District. In contrast, firms in health care, transportation, and financial services announced plans to reduce employment.
Home sales have continued to increase throughout most of the District on a year-over-year basis. Compared with the same period in 2012, October 2013 year-to-date home sales were up 17 percent in Louisville, 20 percent in Little Rock, 9 percent in Memphis, and 7 percent in St. Louis. Residential construction also improved in many areas of the District. Contacts reported residential developments in downtown Little Rock and active housing starts in the Memphis-area suburbs. In contrast, a contact in Louisville reported that new residential construction is not recovering as fast as housing demand.
Commercial and industrial real estate market conditions have continued to improve in some areas of the District. A contact in Memphis reported that commercial and industrial real estate market conditions have improved, a contact in St. Louis reported that sales activity in the industrial market increased, and a contact in Louisville reported that the industrial real estate market in southern Indiana has improved. In contrast, a contact in Little Rock reported that the industrial market has been a "sleepy sector," while a contact in Louisville noted that there was no office leasing activity in the third quarter but expected it to pick up in the fourth quarter.
A survey of District banks found little change in overall lending activity during the third quarter of 2013. During this period, credit standards and creditworthiness of applicants for commercial and industrial loans remained mostly unchanged, while demand for these loans was slightly weaker and delinquencies decreased moderately. Credit standards and credit worthiness of applicants for prime residential mortgage loans remained mostly unchanged; demand was moderately weaker overall, with some respondents reporting substantial weakness; and delinquencies saw a slight decrease. Credit standards and creditworthiness of applicants for auto loans and credit cards remained mostly unchanged, while demand decreased moderately and delinquencies edged down slightly. Credit standards, creditworthiness of applicants, and demand for other consumer loans remained mostly unchanged, while delinquencies edged down slightly.
As of mid-November, over 90 percent of the District corn, sorghum, and rice crops had been harvested, while harvest progress of the District cotton and soybean crops was 81 and 89 percent complete, respectively. Winter wheat planting was 87 percent complete, on average, across the District. Year-to-date coal production in the District for October was 3.7 percent higher compared with the same period in 2012. Coal production for October 2013 was 11.1 percent greater than in October 2012.
Sixty-one percent of contacts indicated that prices charged to consumers over the past three months have stayed the same, while 25 percent indicated that prices have increased relative to the same period last year. In turn, 44 percent of contacts noted that wages over the past three months have stayed the same, while 52 percent noted that wages have increased. Meanwhile, 61 percent of contacts reported that employment levels have remained the same over the past three months compared with the same period last year, while 28 percent reported that employment levels have increased.