St. Louis Fed economist Tom Garrett discusses current economic conditions in the Eighth District, as published in the Beige Book.
The economy of the Eighth District weakened further since our previous report. Retail and auto sales were lower in January and early February compared with a year ago. Manufacturing activity continued to decrease and activity in the services sector declined in most District areas. Residential real estate markets continue to be weak. Reports from commercial and industrial real estate market contacts were mixed. Overall lending at a sample of large District banks decreased moderately.
Contacts reported that retail sales in January and early February were down, on average, over year-earlier levels. About 63 percent of the retailers saw decreases in sales, while 33 percent saw increases. About 47 percent of the respondents noted that sales levels met their expectations, 37 percent reported that sales were below what they had anticipated, and 16 percent reported sales above expectations. Apparel items were strong sellers, while furniture moved more slowly. About 58 percent of the contacts noted that inventories were at desired levels, while 29 percent reported that inventories were too high, and 13 percent reported that inventories were too low. The sales outlook among the retailers for March and April is pessimistic. About 72 percent of the retailers expect sales to decrease over 2008 levels, while 28 percent expect sales to increase.
Car dealers reported that, compared with last year, sales in January and early February were down, on average. About 74 percent of the car dealers surveyed reported a decrease in sales, while 9 percent reported the opposite. About 35 percent of the car dealers noted that used car sales had increased relative to new car sales. About 48 percent reported more rejections of finance applications. About 42 percent of the car dealers surveyed reported that their inventories were too high (mostly for new cars), while 17 percent reported that their inventories were too low (mostly for used or low-end cars). About 62 percent of the car dealers expect decreased sales over 2008 levels for March and April, but 24 percent expect sales to increase. The remaining contacts expect sales to be similar to last year.
Manufacturing activity continued to decline since our previous survey. Several manufacturers reported plans to reduce operations and lay off workers, while a smaller number of contacts reported plans to open plants and expand operations. Firms in the auto parts, rubber products, machinery products, household appliance products, electrical equipment, and wood product manufacturing industries reported plans to lay off workers because of weak product demand. Firms in steel product, primary metal, and heavy metal manufacturing also reported job losses and temporary plant shutdowns. Several auto parts and auto manufacturers offered early retirement buyouts to reduce their labor forces. In contrast, firms in the heavy machinery and household appliance manufacturing industries reported plans to open new facilities, and contacts in the plastics/rubber products and airplane manufacturing industries reported plans to expand existing facilities and operations.
The District's services sector continued to decline in most areas since our previous report. Firms in the leisure/hospitality, business support, education, and transportation services industries cut jobs. In addition, firms in medical services, transportation services, business support services, and information services reduced payroll expenses through pay cuts, required time off without pay, or demotions. In contrast, two contacts in the financial services industry reported plans to expand operations and hire additional workers. A firm in business support services also hired new workers to handle increased demand.
Home sales remained weak throughout the Eighth District. Compared with the same period in 2008, January 2009 home sales were down 14 percent in St. Louis, 23 percent in Little Rock, 34 percent in Louisville, and 39 percent in Memphis. Residential construction also remained weak throughout the District. December 2008 year-to-date single-family housing permits fell in nearly all District metro areas compared with the same period in 2007. Permits declined 35 percent in Little Rock, 42 percent in Louisville, 43 percent in St. Louis, and 59 percent in Memphis.
Commercial real estate market conditions were mixed throughout the District while commercial construction markets were generally slow. Compared with third-quarter 2008, fourth-quarter 2008 industrial vacancy rates decreased in Little Rock and Louisville but increased in Memphis and St. Louis. During the same period, suburban office vacancy rates decreased in Louisville and Memphis but increased in Little Rock and St. Louis. Downtown office vacancy rates decreased in Memphis but increased in St. Louis, Louisville, and Little Rock. A contact in northeast Arkansas reported that overall commercial construction is at a standstill. A commercial construction contact in Louisville reported fewer requests for new project bids as business owners are holding back in the uncertain environment.
A survey of senior loan officers at a sample of large District banks showed a moderate decrease in overall lending activity during the fourth quarter of 2008. During this period, credit standards for commercial and industrial loans tightened somewhat, while demand for these loans was moderately weaker. Credit standards for commercial real estate loans were tightened somewhat, while demand for these loans was moderately weaker. Meanwhile, credit standards for consumer loans ranged from unchanged to tightened somewhat, while demand ranged from moderately weaker to moderately stronger. Credit standards for residential mortgage loans ranged from unchanged to tightened somewhat, while demand for these loans ranged from about the same to moderately weaker.
Total production of corn, sorghum, and cotton decreased from 2007 to 2008, while total production of soybeans, winter wheat, and tobacco increased, and total production of rice did not change. The prices of winter wheat, rice, and tobacco increased from 2007 to 2008 in all District states that produced them, while the prices of corn, sorghum, and cotton were mixed among states, and the price of soybeans was down in most states. The total value of field crops in District states fell by 1 percent from 2007 to 2008.