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Eighth District - St. Louis
Beige Book
January 14, 2009

Wednesday, January 14, 2009

Economic activity in the Eighth District has continued to decline since our previous report. Manufacturing activity weakened further and the services sector contracted. Residential real estate market activity continued to decrease. Commercial real estate markets have held steady but commercial and industrial construction activity has softened. Overall lending at a sample of small and mid-sized District banks declined during the three-month period from mid-September to mid-December.

Manufacturing and Other Business Activity

Manufacturing activity has continued to decline since our previous report. Several manufacturers reported plans to close plants and reduce operations in the near future, while a smaller number of contacts reported plans to expand operations. Several firms announced job layoffs in the face of ongoing and projected weak demand. Firms in the plastics, furniture, paper, animal slaughtering/processing, automotive parts, electrical equipment, food, footwear, and railroad car manufacturing industries reported plans to close plants in the District, resulting in a significant number of job losses in these industries. Contacts in fabricated and primary metal, electrical equipment, and automotive parts manufacturing reported plans to lay off workers. Several large projects for the auto industry were put on hold and production was halted because of demand uncertainty. In contrast, firms in sugar manufacturing, machinery manufacturing, and other transportation manufacturing announced plans to open new plants in the District and hire additional workers. Firms in the plastic products and chemical products ended job strikes and signed new labor contracts, while firms in furniture manufacturing benefited from a new foreign-trade zone designation.

The District's services sector reversed the gains from our last report, with several major employers announcing large job cuts. Contacts in business support services, information services, and engineering services reported large layoffs and salary reductions. Firms in educational services, information services, leisure/hospitality services, and several firms in transportation services also reported plants to consolidate operations and lay off workers. In contrast, a few small firms in business support services reported job growth and a contact in one small private firm in education services expressed optimism about growth in 2009. General retailers reported lower sales in the fourth quarter of 2008 compared with a year ago, particularly among stores that specialize in electronic goods or home furnishings. Auto sales in the fourth quarter of 2008 were down compared with the same period last year, and several dealerships closed while others reported a negative outlook for 2009.

Real Estate and Construction

Home sales continued to decline throughout the Eighth District. Compared with the same period in 2007, November 2008 year-to-date home sales were down 15 percent in St. Louis, 19 percent in Memphis, 22 percent in Little Rock, and 23 percent in Louisville. Residential construction also continued to decline throughout the District. November 2008 year-to-date single-family housing permits fell in nearly all District metro areas compared with the same period in 2007. Permits declined 35 percent in Little Rock, 42 percent in Louisville and St. Louis, and 58 percent in Memphis.

Commercial real estate markets seem to be stable throughout the District but commercial and industrial construction is slowing. Contacts throughout the District reported that office and industrial leasing is expected to remain steady through the first half of 2009. A contact in Louisville noted, however, that any automobile plant closings could quickly change the leasing environment in that area. Commercial and industrial construction contacts throughout the District predict a challenging environment in early 2009. Construction activity in the Memphis metro area has seen a slowdown throughout most of 2008 and is expected to remain soft in 2009. In particular, Shelby County, Tenn., has had no new industrial construction since late 2007 and no new industrial construction is expected for DeSoto County, Miss., in 2009.

Banking and Finance

Total loans outstanding at a sample of small and mid-sized District banks decreased 1.4 percent from mid-September to mid-December. Real estate lending, which accounted for 73 percent of total loans, decreased 2.0 percent. Commercial and industrial loans, accounting for 17.3 percent of total loans, increased 0.6 percent. Loans to individuals, accounting for 5.2 percent of loans, increased 0.6 percent. All other loans, which accounted for 4.5 percent of total loans, decreased 1.4 percent. Over the same period, total deposits at these banks decreased 3.0 percent.

Agriculture and Natural Resources

As of mid-December, year-to-date bales of cotton ginned (separated from the seed) in the District states were down by 30 percent over the same period in 2007. Arkansas had 32 percent fewer bales ginned than the previous year, Mississippi had 48 percent fewer, and Missouri and Tennessee each had 11 percent fewer. Total commercial production of red meat in the District states decreased by 7 percent in November over year-earlier levels. In November 2008, the total weight of young chickens slaughtered was 12 percent lower than November 2007. Total coal production in the District states was 3 percent higher in December 2008 than December 2007, while total coal production in 2008 was the same as 2007.

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