St. Louis Fed economist Tom Garrett discusses current economic conditions in the Eighth District, as published in the Beige Book.
The pace of decline of economic activity in the Eighth District has moderated since our previous report. Activity in the manufacturing and services sectors contracted at a slower pace. Reports from retailers and auto dealers were mixed. Residential and commercial real estate markets conditions continued to be weak. Total loans at a sample of small and midsized District banks declined slightly from early April to mid-June.
Manufacturing activity declined since our previous report but at a slower pace, as reported job losses slightly outpaced new job announcements. Several manufacturers reported plans to close plants or reduce operations, but a similar number of contacts reported plans to open plants and expand operations in the near future. Contacts in aerospace product manufacturing, electrical equipment manufacturing, and frozen food manufacturing reported plans to lay off workers and decrease operations. A firm in the paint/adhesive manufacturing industry announced that it will close a plant in the District, and several auto parts and auto manufacturing firms furloughed a large number of workers and reduced production as a result of the industry's restructuring plans. In contrast, firms in the furniture manufacturing, fabricated metal product manufacturing, plastic product manufacturing, paper manufacturing, and rail technology manufacturing industries reported plans to expand facilities in the District and hire additional workers. A major firm in steel manufacturing resumed production and recalled several shifts of idled workers.
The District's services sector continued to decline in most areas but a slower pace. A large number of contacts in education services, information services, business support services, and medical services announced job cuts. In contrast, contacts in the government services and health/social services industries announced plans to hire additional workers. Also, several cities in the District continued to report that they will be hiring temporary and part-time summer workers in a range of service industries using funds allocated through the American Recovery and Reinvestment Act of 2009. Contacts in the retail sector reported a mixed outlook. Smaller retailers responded to a slowdown in store traffic with a mixture of promotions and discounted merchandise. In contrast, a major big-box retailer in the District continued to experience growth, particularly by targeting higher-income consumers. Auto dealers' reports were mixed; several franchise owners are going out of business, converting to used-car dealerships, or transitioning into service/repair centers. Contacts reported that smaller cars continue to sell well with a limited market for large trucks and sport utility vehicles.
Home sales continued to decline throughout the Eighth District. Compared with the same period in 2008, May 2009 year-to-date home sales were down 13 percent in St. Louis, 22 percent in Memphis, 32 percent in Little Rock, and 35 percent in Louisville. Residential construction also continued to decline. May 2009 year-to-date single-family housing permits fell in nearly all District metro areas compared with the same period in 2008. Permits declined 30 percent in Little Rock, 37 percent in St. Louis, 44 percent in Louisville, and 56 percent in Memphis.
Commercial real estate and construction markets continued to struggle throughout the District. A contact in Memphis noted that commercial real estate foreclosures are likely to increase as a result of current credit conditions. A contact in St. Louis noted that, with the exception of institutional and health care-related projects, little construction is taking place. Industrial real estate and construction contacts throughout the District also continued to report a difficult environment. Contacts in the Louisville area expressed disappointment regarding the slow impact of the stimulus bill and the size of projects it has funded to date.
Total loans outstanding at a sample of small and midsized District banks decreased 1.3 percent from early April to mid-June. Real estate lending, which accounts for 73.0 percent of total loans, decreased 0.9 percent. Commercial and industrial loans, accounting for 16.7 percent of total loans, decreased 3.4 percent. Loans to individuals, accounting for 5.3 percent of total loans, decreased 3.0 percent. All other loans, roughly 5.0 percent of total loans, rose 0.7 percent. During this period, total deposits at these banks decreased 0.6 percent.
For the most part, development of the District's major crops remained behind its 5-year average pace. In mid-July, the overall condition of soybeans was slightly better than last year, while the condition of sorghum, rice, and cotton was slightly worse than last year, and corn was similar to last year. Farmers in the District states planned to harvest more acres of corn for grain, soybeans, and rice than in 2008 but fewer acres of sorghum for grain. The winter wheat harvest was nearly complete in all District states except Illinois and Indiana, where it was slightly behind its normal pace. Based on July estimates, total winter wheat production in the District states was expected to be down 41 percent from last year's bumper crop, but only 5 percent below the 2007 level.