Eighth District - St. Louis
Beige Book
July 26, 2006

Reports from business contacts in the Eighth District were mixed in June and July. While the services sector continued to expand, reports in manufacturing did not present as clear a picture. Many contacts in retail trade reported gains relative to last year, although reports from auto dealers indicated decreases in sales relative to this time in 2005. Commercial real estate market conditions improved throughout the District, while home sales reports varied across the District. Lending activity at a sample of small and mid-sized District banks increased from late March to mid-June.

Manufacturing and Other Business Activity

In the period since our previous survey, several manufacturers announced plans to expand operations, open new facilities, or hire additional workers, and a similar number of contacts reported plans to close plants and lay off workers. Firms in the machinery and beverage manufacturing industries reported plans to open new facilities in the District. Contacts in the water transportation equipment, chemical, medical equipment, and plastics industries reported plans to expand existing facilities and hire additional workers. In contrast, contacts in the furniture and food industries announced plans to close plants and lay off workers in the District. Contacts in the fabricated metal product, motor vehicle, and household appliance industries announced plans to lay off or temporarily idle workers.

The District's services sector continued to expand in most areas. Contacts in the freight transportation and business support services industries announced plans to expand facilities and hire additional workers. General and big box retailers reported sales increases in June compared with the same month in 2005. Convenience and grocery retailers reported that year-to-date sales were up in mid-July. 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 cars were particularly slow.

Real Estate and Construction

Home sales reports were mixed throughout the Eighth District. Compared with the same period in 2005, May year-to-date home sales were up 14 percent in Memphis and 2 percent in Louisville; in contrast, May year-to-date home sales were down over 3 percent in Little Rock and remained unchanged in greater St. Louis. Residential construction remains weak throughout most of the District. May year-to-date single-family residential permits declined in most areas. Compared with the same period last year, permits declined 44 percent in Louisville, 14 percent in St. Louis, over 6 percent in Little Rock, and over 2 percent in Memphis. Permits, however, increased by 30 percent in Fayetteville, Arkansas and Jackson, Tennessee.

Commercial real estate market conditions improved throughout much of the District. Contacts in St. Louis reported that office vacancy rates are at their lowest level in several years, and contacts in Memphis reported increasing demand for office space. In Louisville, contacts reported that the central business district office market is doing well and that industrial space is in high demand. In Memphis, contacts reported that commercial and industrial construction markets are strong. Contacts in Fort Smith, Arkansas reported that commercial development is expanding, and contacts in St. Louis reported that a large industrial park is pending final approval.

Banking and Finance

Total loans outstanding at a sample of small and mid-sized District banks increased 2.7 percent from late March to mid-June. Real estate lending, which accounts for 72.0 percent of total loans, increased 2.0 percent. Commercial and industrial loans, accounting for 17.9 percent of total loans, increased 6.6 percent. Loans to individuals, accounting for 4.4 percent of total loans, fell 4.9 percent. All other loans, roughly 5.8 percent of total loans, rose 4.8 percent. During this period, total deposits at these banks increased 0.6 percent.

Agriculture and Natural Resources

Dry conditions throughout most of the District have helped corn, soybean, sorghum, and cotton development. As of mid-July, at least 88 percent of all major District crops were rated in fair or better condition. The winter wheat harvest is at least 95 percent complete in all District states, except Indiana, where about 70 percent of the harvest is complete. Total winter wheat production in the District states is expected to be nearly 50 percent larger this year than last year. Because of the dry weather, pasture conditions have deteriorated throughout the District, and 60 percent of the pastures in Mississippi and Missouri are rated in poor or very poor condition.

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