St. Louis Fed economist Rubén Hernández-Murillo discusses current economic conditions in the Eighth District, as published in the Beige Book.
Economic conditions in some areas of the Eighth District have shown further signs of improvement since our previous report. In general, manufacturing activity continued to decline while service sector activity increased. Early reports from retailers in the District indicate a slight increase in holiday sales compared with a year ago. Residential real estate markets showed signs of improvement in parts of the District, while commercial real estate market conditions remained weak. Overall lending at a sample of small and mid-sized District banks declined in the three-month period from mid-September to mid-December.
Manufacturing activity has continued to decline since our previous report, with persistent weakness in employment. Although several manufacturers reported plans to open plants and expand operations in the near future, a larger number of contacts reported plans to close plants and lay off employees. Firms in the shoe/apparel, furniture, and appliance manufacturing industries announced plans to relocate production to the District. A firm in wood product manufacturing also announced plans to hire additional workers to launch a new product. In contrast, contacts in the electrical components; chemical product; construction materials; machinery; heating, ventilation, and air conditioning; and auto manufacturing industries announced plans to lay off workers, often citing weak product demand.
The District's service sector continued to expand in most areas. Contacts in business support services, leisure/hospitality services, and medical services announced plans to hire new workers. A firm in business support services also announced plans to lift a wage freeze and to reinstate benefits. Early reports from contacts in the retail sector generally expressed optimism about increased holiday sales. One contact also noted that small to mid-sized retailers are adding stores to gain long-term market share.
Residential real estate markets are showing signs of improvement in parts of the Eighth District. Compared with the same period in 2008, November 2009 year-to-date home sales were up 1 percent in St. Louis and held steady in Louisville. Over the same period, year-to-date home sales were down 3 percent in Little Rock and 10 percent in Memphis. Residential construction continued to be weak throughout most of the District. November 2009 year-to-date single-family housing permits fell in most District metro areas compared with the same period in 2008. Permits declined 6 percent in Little Rock, 16 percent in St. Louis, 18 percent in Louisville, and 36 percent in Memphis.
Commercial and industrial real estate market conditions remained weak throughout most of the District. A contact in St. Louis noted that commercial real estate has stalled. A contact in Memphis noted that the focus now is on retaining tenants rather than recruiting new ones. A contact in south-central Kentucky reported that while commercial construction is relatively strong, it consists mainly of education-related projects. Industrial real estate and construction contacts throughout the District also reported a sluggish environment. A contact in Memphis does not expect the industrial real estate market to improve until signs of a more sustainable recovery are evident.
Total loans outstanding at a sample of small and mid-sized District banks decreased 2.1 percent in the three-month period from mid-September to mid-December. Real estate lending, which accounts for 73.5 percent of total loans, decreased 1.6 percent. Commercial and industrial loans, accounting for 16.5 percent of total loans, decreased 3.5 percent. Loans to individuals, accounting for 5.3 percent of loans, decreased 2.2 percent. All other loans decreased 4.0 percent and accounted for 4.7 percent of total loans. Over this period, total deposits increased 2.0 percent.
As of mid-December, year-to-date bales of cotton ginned (separated from the seed) in the District states were down by 31 percent over the same period in 2008. Arkansas had 36 percent fewer bales ginned than the previous year, Mississippi had 40 percent fewer, Missouri had 29 percent fewer, and Tennessee had 10 percent fewer. In November, total commercial red meat production in District states was 2 percent higher compared with year-earlier levels, but year-to-date production was 1 percent lower compared with year-earlier levels. Also, the total weight of young chickens slaughtered was 3 percent higher than the previous November, but year-to-date totals were 7 percent lower. Total coal production in District states in December was 4 percent lower than the previous December, while total coal production in 2009 was 4 percent higher than in 2008.