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Eighth District - St. Louis
Beige Book
January 18, 2006

Wednesday, January 18, 2006

Economic activity in the Eighth District expanded modestly since our previous survey. The services sector continued to grow. Reports in manufacturing continued to be mixed. Home sales continued to increase throughout the District, while commercial and industrial development continued to expand. Lending activity at a sample of small and mid-sized District banks increased slightly from mid-September to the end of November.

Manufacturing and Other Business Activity

Reports from manufacturing contacts continued to be mixed. Several manufacturers reported plant openings and expansions and a similar number of contacts reported plant closings and workforce reductions. Firms in the chemical, transportation equipment, and paper industries announced plans to open new facilities in the District. Firms in the chemical, machinery, electrical equipment, and commercial printing industries reported plans to expand facilities and hire additional workers. Despite this growth, contacts in the wood product, apparel, engine, and packaging industries reported plans to close plants and lay off workers. Several firms in the motor vehicle industry reported plans to discontinue production lines or temporarily idle workers. Some firms in the electronics and fabricated metal products industries reduced employment as production shifted to Mexico.

The District's services sector continued to expand in most areas since our previous report. Contacts in the wireless telecommunications industry experienced solid customer growth and high sales volume. Despite overall positive growth, some contacts in the utility and publishing industries announced plans to reduce workforces. Most District retailers characterized holiday season sales as "a little bit better than last year." Some retailers reported double-digit sales increases in November compared with the same month in 2004. December sales decreased slightly relative to November, although they increased relative to year-ago levels. Strong-selling items included discount items, electronics, hardware, and clothing. District auto dealers reported sluggish sales during November and December compared with the same months one year ago, despite a slight pick-up in December sales relative to November. Used vehicle sales remained steady and sales of sport utility vehicles continued to lag.

Real Estate and Construction

November 2005 year-to-date home sales increased throughout the Eighth District compared with the same period in 2004. Sales increased by 1 percent in St. Louis, by 9.4 percent in Memphis, by 9.7 percent in Louisville, and by 3 percent in Little Rock. November 2005 year-to-date single-family housing permits were on the rise in most areas. Compared with the same period last year, permits rose over 1 percent in St. Louis, over 9 percent in Memphis, and over 10 percent in Little Rock. However, year-to-date permits fell over 4 percent in Louisville.

Commercial and industrial development continues to expand throughout the District. In Memphis, contacts report that construction is underway on a new biotech research park. In St. Louis, contacts report that construction is slated to begin in early spring on a 600-acre commercial park. Although contacts in northern Mississippi note that November year-to-date commercial development remains below last year's levels, they report that a 325-acre industrial park is planned for 2006. Contacts in Louisville report that nearly 4 million square feet of new industrial space is currently being constructed in Jefferson and Bullitt counties. In southern Indiana contacts report that government construction remains steady.

Banking and Finance

Total loans outstanding at a sample of small and mid-sized District banks showed a modest 0.5 percent increase from mid-September to the end of November. Real estate lending, which accounts for 71.7 percent of total loans, increased 0.4 percent. Commercial and industrial loans, accounting for 17.4 percent of total loans, increased 2.3 percent. Loans to individuals, which account for about 5.3 percent of total loans, fell 0.5 percent. All other loans, roughly 5.6 percent of total loans, decreased 3.2 percent. Over this period, total deposits at these banks increased 1.4 percent.

Agriculture and Natural Resources

December precipitation levels were below normal in most of the District, causing drought conditions to persist in some areas. As of early January, drought conditions continued to be severe and even extreme in western Arkansas. Recent warmer weather helped the winter wheat crop, which is generally in fair or good condition. Year-to-date bales of cotton ginned (separated from the seed) as of mid-December were up 4 percent compared with the same period in 2004; Mississippi had 6 percent fewer bales ginned, while Arkansas, Missouri, and Tennessee all had more bales ginned than last year. Total commercial red meat production increased by 3 percent in November over year-earlier levels, and the total weight of young chickens slaughtered was 2 percent higher for the same period.