The pace of economic activity in the Eighth District has slowed since our previous report. Contacts noted, in contrast with the recent trends, increases in manufacturing activity and signs of softening in the services sector. Retail and auto sales declined in January and early February over year-ago levels. Home sales and residential construction continued to weaken throughout the District, but commercial real estate market conditions remained generally positive. Overall lending activity at a sample of District banks declined moderately during the fourth quarter of 2007.
Contacts reported that retail sales in January and early February were down, on average, over year-earlier levels. About 61 percent of the retailers saw decreases in sales, while 22 percent saw increases. One-third of the retailers reported that sales met their expectations, 62 percent reported that sales were below expectations, and 5 percent reported that sales were above expectations. Outer wear and food/essentials were strong sellers, while gift items and large-ticket items were moving more slowly. About 43 percent of the contacts noted that inventories were at desired levels, while 48 percent reported higher-than-desired inventories and 9 percent reported lower-than-desired inventories. About 44 percent of respondents expect that sales in March and April will increase over 2007 levels, and another 2 percent expect unchanged sales; but 44 percent expect decreased sales.
Car dealers in the District reported that, compared with last year, sales in January and early February were down, on average. Two-thirds of the car dealers surveyed reported a decrease in sales, while 17 percent reported an increase. About 58 percent of the car dealers noted that used car sales had increased relative to new car sales and 21 percent reported an increase in low-end vehicle sales relative to high-end vehicle sales. One-third of the respondents reported recent increases in rebates and incentives and about 46 percent reported more rejections of finance applications. About 43 percent of the car dealers surveyed reported that their inventories were too high (mostly on new cars and trucks), while the remaining contacts reported that their inventories were at desired levels. Half of the car dealers expect increased sales over 2007 levels for March and April, and another 17 percent expect unchanged sales; but 33 percent expect decreased sales.
Manufacturing activity has increased since our previous survey. However, contacts expressed concern about the effects of the housing sector slowdown on future manufacturing growth. Firms in the chemical, food, household appliance, motor vehicle parts, and oil and gas field machinery equipment manufacturing industries reported plans to open new facilities and hire workers in the District, with significant employment gains in the household appliance and motor vehicle parts industries. Contacts in the electrical equipment manufacturing industry reported plans to expand existing facilities and operations. In contrast, contacts in the nonmetallic mineral product, plastics product, and transportation equipment manufacturing industries reported plans to lay off workers and decrease operations. A firm in machinery manufacturing announced that it will close a plant and lay off workers. Contacts in fabricated metal product manufacturing reported mixed conditions.
The District's services sector has shown signs of softening since our previous report. Contacts in the heath care and educational services industries reported plans to lay off workers. A retail services firm reported plans to close a facility and lay off workers.
Home sales continued to decline throughout the Eighth District. January 2008 home sales were down 22 percent in Memphis, 12 percent in St. Louis, and 20 percent in Louisville compared with January 2007. Residential construction also continued to decline throughout the District. December 2007 year-to-date single-family housing permits fell in nearly all District metro areas compared with the same period in 2006. Permits declined 33 percent in Memphis, 19 percent in St. Louis, 23 percent in Little Rock, and 7 percent in Louisville.
Commercial real estate market conditions were generally positive throughout the District. The fourth quarter 2007 industrial vacancy rates in Memphis, Louisville, and Little Rock declined over the third quarter of 2007, while the industrial vacancy rate in St. Louis was unchanged. During the same period, both downtown and suburban office vacancy rates declined in St. Louis, Louisville, and Little Rock. In Memphis, downtown office vacancy rates increased while suburban office vacancy rates declined. Contacts in Louisville reported a cautious outlook for the industrial market in the first quarter of 2008, while contacts in west Tennessee reported that commercial real estate is holding up fairly well and should be relatively stable in 2008.
A survey of senior loan officers at a sample of District banks showed a moderate decrease in overall lending activity during the fourth quarter of 2007. During this period, credit standards for commercial and industrial loans ranged from unchanged to somewhat tightened, while demand for these loans ranged from unchanged to moderately weaker. Credit standards for commercial real estate loans were tightened, while demand for these loans was moderately weaker. Meanwhile, credit standards for consumer loans were basically unchanged, while demand ranged from about the same to moderately weaker. Credit standards for residential mortgage loans were tightened, while demand for these loans ranged from about the same to moderately weaker.
The total value of all field crops in the District states rose by 36 percent from 2006 to 2007. Arkansas, Illinois, Indiana, Mississippi, and Missouri farmers saw increases of at least 30 percent, while Kentucky farmers saw no change. In contrast, the total crop value in Tennessee declined by 14 percent over the same period. Value gains reflected mostly increased prices for all major District crops, especially corn, soybeans, winter wheat, and sorghum (for which prices rose by at least 30 percent), whereas total production increased only for corn and sorghum.