Despite mixed reports in some sectors, the economy of the Eighth District expanded modestly since our previous report. While reports from the services sector indicated continued expansion, reports from manufacturing did not present as clear a picture. Retail and auto sales increased in April and the first three weeks of May compared with a year ago. Home sales were mixed, while commercial real estate market conditions remained favorable. Overall lending activity at a sample of District banks was mostly unchanged during the first quarter of 2007.
Contacts reported that retail sales in April and the first three weeks of May were up, on average, over year-earlier levels. Half of the retailers surveyed saw increases in sales, while 42 percent saw decreases. Approximately 58 percent of the retailers noted that sales levels met their expectations, 37 percent reported that sales were below expectations, and 5 percent reported sales above expectations. Lawn and garden items and men's apparel were strong sellers, while home décor and big ticket furniture were moving more slowly. While 63 percent of our retail contacts noted that inventories were at desired levels, 33 percent reported that inventories were too high. About two-thirds of contacts expect increased sales over 2006 levels during the summer months, 8 percent expect sales to be the same, and 25 percent expect decreased sales.
Car dealers in the District reported that, compared with last year, sales for April and the first three weeks of May were up, on average. About 46 percent of the car dealers surveyed reported increases in sales, and a similar percentage of contacts reported declines, although of a smaller magnitude. About 33 percent of the car dealers noted that used car sales had increased relative to new car sales, while 8 percent reported the opposite. Also, 38 percent reported an increase in low-end vehicle sales relative to high-end vehicle sales, while 8 percent reported the opposite. About 25 percent of contacts reported higher rejection rates of finance applications and 8 percent reported higher acceptance rates. One-third of the car dealers surveyed reported that their inventories were too low (mostly on used vehicles), while 21 percent reported that their inventories were too high (mostly on high-end and new vehicles). About two-thirds of the car dealers expect increased sales over 2006 during the summer months, 4 percent expect sales to be the same, and 29 percent expect decreased sales.
Manufacturing activity has been mixed since our previous survey. While several manufacturers reported plans to open plants and expand operations in the near future, a larger number of contacts reported plans to close plants and reduce operations. Activity was mixed in the furniture, machinery, and motor vehicle parts industries, with both plant closings and openings and virtually no changes in the number of workers. Firms in the oil field machinery industry reported plans to open new facilities in the District. Contacts in the food, packaging, and chemical manufacturing industries reported plans to expand existing facilities and hire additional workers. In contrast, contacts in the electrical equipment, toy and games, and textile manufacturing industries reported plans to lay off workers and close plants.
The District's services sector continued to expand steadily in most areas. Contacts in the health services and air transportation industries reported plans to expand operations. Firms in the support services industries reported plans to hire additional workers. In contrast, a contact in the trucking industry reported a substantial decline in both inbound and outbound tonnage.
Home sales continued to be mixed throughout the Eighth District. Compared with the same period in 2006, April 2007 year-to-date home sales were up 4.2 percent in Louisville and 2.5 percent in Little Rock. Year-to-date home sales declined 4 percent in St. Louis and 8.8 percent in Memphis. Residential construction declined throughout most of the District. April 2007 year-to-date single-family housing permits fell in most metro areas compared with the same period in 2006. Permits declined 24 percent in Memphis, 19 percent in Little Rock, and 8 percent in St. Louis. Permits, however, were up 34 percent in Louisville.
Commercial real estate market conditions remained favorable throughout the District. The 2007 first-quarter industrial vacancy rate increased in Memphis and Little Rock over the fourth quarter of 2006, while it decreased slightly in Louisville. During the same period, the office vacancy rate was unchanged in Memphis and decreased in Louisville and Little Rock. Contacts in Louisville report that commercial and industrial construction appears brisk. Contacts in central Mississippi report that a commercial and industrial expansion project is forthcoming. Contacts in west St. Louis County report plans for a light industrial park. And contacts in west Memphis report plans for a new industrial park.
A survey of senior loan officers at a sample of District banks showed little change in overall lending activity during the first quarter of 2007. Over the period, credit standards and demand for commercial and industrial loans remained basically unchanged for both large and small firms. Credit standards for commercial real estate ranged from unchanged to somewhat tightened, while demand for these loans was basically unchanged. Meanwhile, credit standards for consumer loans remained unchanged, while demand for these loans was moderately weaker. Both credit standards and demand for prime and nontraditional mortgage loans were unchanged.
Because of extensive frost damage in early April, many farmers throughout the District have harvested winter wheat for hay or destroyed their crop in order to plant different crops. Over half of the winter wheat in Kentucky, Missouri, and Tennessee is in poor condition, but at least three-fourths of the crop in the other District states is rated in fair or better condition. Planting of the major District crops (corn, soybeans, sorghum, cotton, and rice) is ahead of its 5-year average pace except in Missouri, where corn, soybeans, and sorghum planting is behind.