St. Louis Fed economist Howard Wall discusses current economic conditions in the Eighth District, as published in the Beige Book.
Economic activity in the Eighth District expanded modestly since our previous report. Although the services sector continued to grow, reports from manufacturing contacts were mixed. Residential real estate sales and construction continued to soften throughout the District, but commercial real estate market conditions remained positive. Retail sales increased in December 2007 compared with the same month in 2006; auto sales were flat over the same period. Total loans at a sample of small and mid-sized District banks increased slightly from mid-September to mid-December.
A larger number of manufacturers reported plans to open plants and expand operations, compared with those planning to close plants and reduce operations. However, job losses from closings were greater than the announced job gains from expansions. Firms in the food manufacturing industry reported plans to open new facilities, expand operations, and hire workers. Firms in the electrical equipment manufacturing and sanitary paper product manufacturing industries reported plans to hire additional workers. In contrast, contacts in the motor vehicle parts manufacturing and furniture manufacturing industries reported plans to lay off workers and decrease operations.
The District's services sector continued to expand in most areas; contacts in the financial services industry announced plans to lay off workers, however. General and big box retailers reported sales increases in December 2007 compared with the same month in 2006. Auto sales were flat over the same period.
Home sales continued to decline throughout the Eighth District. Compared with the same period in 2006, November 2007 year-to-date home sales were down 14 percent in Memphis, 8 percent in St. Louis, 5 percent in Little Rock, and 2 percent in Louisville. Residential construction also declined throughout the District. November 2007 year-to-date single-family housing permits fell in nearly all District metro areas compared with the same period in 2006. Permits declined 32 percent in Memphis, 18 percent in St. Louis, 23 percent in Little Rock, and 6 percent in Louisville.
Commercial real estate market conditions were mostly positive at the close of 2007. A contact in Louisville reported that the downtown Class A office vacancy rate was the lowest in 5 years. Commercial construction activity at year-end 2007 was mostly solid throughout the Eighth District, but some contacts were concerned that the financial woes in the residential market may affect commercial projects in the year ahead. Contacts in Evansville, Indiana, reported significant commercial activity in the area but noted tighter underwriting on loans and anticipate a slight slowdown after the first quarter. A contact in southwest Arkansas reported that commercial construction continued to grow. Although November 2007 year-to-date new commercial construction permits in Little Rock increased more than twofold from the same time in 2006, contacts reported that financing commercial projects in central and northwest Arkansas was becoming more difficult.
Total loans outstanding at a sample of small and mid-sized District banks increased 0.6 percent in the three-month period from mid-September to mid-December. Real estate lending, which accounted for 74.5 percent of total loans, decreased 0.3 percent. Commercial and industrial loans, accounting for 16.7 percent of total loans, increased 1.4 percent. Loans to individuals, accounting for 4.4 percent of loans, increased 4.9 percent. All other loans, which accounted for 4.4 percent of total loans, increased 8.1 percent. Over the same period, total deposits at these banks decreased 2.3 percent.
As of mid-December, year-to-date bales of cotton ginned (separated from the seed) in District states were down over the same period in 2006; bales ginned were down 24 percent in Arkansas, 37 percent in Mississippi, 13 percent in Missouri, and 50 percent in Tennessee. Total commercial red meat production increased by 8 percent in November over year-earlier levels, but decreased by 4 percent from October. In November, the total weight of young chickens slaughtered was 3 percent higher than the previous November, but 12 percent lower than October. Total coal production in District states for December was 4 percent higher than year-earlier levels, and total coal production for 2007 increased by 3 percent over 2006 levels.