St. Louis Fed economist Howard Wall discusses current economic conditions in the Eighth District, as published in the Beige Book.
Overall economic activity in the Eighth District has remained stable since our previous report. Contacts noted increases in the services sector and, except for the auto industry, in manufacturing. Retail sales reports were mixed. Auto sales were down in June and the first half of July compared with a year ago. Home sales continued to decline throughout the District. Lending at a sample of small and mid-sized District banks increased slightly from early April to mid-June.
Manufacturing activity, excluding automobile manufacturing, continued to increase slightly since our previous report. Several manufacturers reported plans to open plants and expand operations in the near future, while a smaller number of contacts reported plans to close plants and reduce operations. Firms in the food manufacturing and plastic parts manufacturing industries reported plans to open new facilities in the District. Contacts in plastics, frozen food, and nonmetallic mineral product manufacturing industries reported plans to expand existing facilities and operations. Firms in furniture manufacturing and those firms listed as planning new openings and expansions all reported plans to hire additional workers to meet growing demand. In contrast, contacts in the automotive and automotive parts industry reported various plans to lay off large numbers of workers, idle production shifts, and decrease operations because the demand for trucks and minivans made in the Eighth District is weak. Contacts in the automotive industry are not optimistic that production will increase in the short term. However, a few automotive parts manufacturers that supply parts to producers of small cars and hybrid vehicles are seeing an increase in demand and plan to hire additional workers. Three firms in the automotive parts manufacturing industry announced that they will close a plant in the District. Contacts reported concerns about the ensuing effects on employment from ongoing consolidations in the brewing industry in the St. Louis area.
The District's services sector continued to expand in most areas. Several firms in the business support services industries announced plans to expand facilities and hire additional workers. Two new call centers will support a major retail operation and a computer manufacturer. In contrast, many healthcare services firms announced plans to lay off workers and consolidate operations. One healthcare service provider announced plans to close its facilities. Retail contacts expressed some concern heading into the summer months, as consumers make fewer trips and seem more willing to postpone big purchases. Discount retailers reported an increase in sales while retailers of large durable goods reported weak sales. Auto sales were down in June and the first half of July compared with the same period last year. Auto dealers indicated that sales of domestic trucks and minivans were down sharply.
Home sales continued to decline throughout the Eighth District. Compared with the same period in 2007, May 2008 year-to-date home sales were down 19 percent in Memphis and Louisville and 16 percent in Little Rock and St. Louis. Residential construction also continued to decline. May 2008 year-to-date single-family housing permits fell in nearly all District metro areas compared with the same period in 2007. Permits declined 57 percent in Memphis, 41 percent in Louisville, 42 percent in St. Louis, and 34 percent in Little Rock.
Commercial real estate construction reports were mixed throughout the District. A contact in western Kentucky reported that commercial construction is relatively strong, while a contact in northeast Arkansas reported that commercial construction is very spotty. A top regional contracting contact in Memphis was optimistic concerning projects for the remainder of 2008, but a contact in Evansville, Indiana, reported that industrial construction has slowed.
Total loans outstanding at a sample of small and mid-sized District banks increased 0.5 percent from early April to mid-June. Real estate lending, which accounts for 73.9 percent of total loans, was essentially unchanged. Commercial and industrial loans, accounting for 16.9 percent of total loans, increased 1.3 percent. Loans to individuals, accounting for 4.9 percent of total loans, decreased 0.2 percent. All other loans, roughly 4.3 percent of total loans, rose 5.8 percent. During this period, total deposits at these banks decreased 2.0 percent.
The development of the District's major crops remains behind its 5-year averages. In early July, at least 88 percent of the total corn, soybeans, cotton, sorghum, and rice were rated in fair or better condition--comparable to last year. As a percentage of total acres planted, farmers in the District states plan to harvest 5 percentage points less corn for grain and 3 percentage points less soybeans than in 2007, partly because of recent flooding in Illinois, Indiana, and Missouri. The winter wheat harvest is at least 93 percent complete in over half of the District states, but less than 70 percent complete in Illinois, Indiana, and Missouri. Based on July estimates, total winter wheat production in the District states is expected to be about 77 percent larger than last year.