Economic activity in the Eighth District has been mixed since our previous report. Business contacts reported strengthening wage pressures, while employment and prices grew at a modest pace. Businesses across most sectors reported that the rate of economic activity was generally unchanged, with retailers describing sales as generally flat, manufacturing contacts noting little change in production or new orders, and other service sectors reporting mixed activity. Real estate activity, however, has been robust for both residential and most commercial property types. A survey of District banks showed improving conditions, with generally strong growth in loan demand.
A survey of business contacts indicated that wage growth was strong, while employment and prices grew at a modest pace. On net, fifty-six percent of contacts reported that wages during the past three months were slightly higher or higher than during the same time last year, the strongest reading in the past two years. Specifically, manufacturing contacts in Louisville reported strong demand for high-skilled workers and increasing wages to attract and retain employees. Consistent with previous reports, job growth remains modest: On net, only 20 percent of contacts reported higher employment relative to the same time last year. Inflation pressures also remain modest: On net, only 21 percent of contacts reported that prices charged to customers were slightly higher than the same time last year, which is a slightly lower share than in previous reports.
Retail growth has been flat since the previous reporting period. Most survey respondents reported no change in year-over-year sales and expect the same next quarter. However, multiple contacts noted that low gasoline prices have been beneficial to their business by either lowering costs or increasing consumer spending. A Louisville hospitality contact indicated that convention-related business missed expectations so far in 2016. Reports from auto dealers indicated a recent slowdown of sales following a strong December. The majority of auto dealers reported that current-quarter sales have been slightly low compared with a year earlier but that these sales were still in line with expectations. A few dealers noted that they are undergoing renovations to increase the size of their showrooms. Contacts noted a continued shift in demand toward trucks and SUVs away from smaller more fuel-efficient vehicles.
The general sentiment among manufacturing contacts is that activity has remained unchanged since our previous report. Several companies reported capital expenditure and facility expansion plans, including firms that manufacture chemical products and furniture. However, reports from food and beverage manufacturers were mixed, with several reports of expansions offset by a few large facility closures. Reports from the primary metals industry were similarly mixed: Construction began on a new steel production facility, while an aluminum manufacturer announced plans to cease production in response to low prices. Firms tied to the energy industry, including manufacturers of mining machinery and steel pipes, continued to report declines in activity. In a recent survey of manufacturers, a majority noted that production, capacity utilization, and new orders were either at the same level or at lower levels in the first quarter relative to a year ago, with responses split evenly between the two. Contacts expect production, capacity utilization, and new orders to be unchanged relative to one year ago.
Reports from service sector have been positive since the previous report. Firms that provide health care and social assistance services, leisure and hospitality services, and business support services reported plans to hire new employees and expand facilities. In a recent survey of service providers, a majority reported that sales in the current quarter met expectations. Contacts reported that sales were at the same level or higher relative to one year ago and expect an improvement in sales in the second quarter relative to the second quarter one year ago. Reports from the transportation sector were mixed. Some contacts in the trucking industry reported plans to hire new drivers and expand service. A contact in water transportation noted a reduced volume of barges hauling liquid petroleum.
Residential real estate activity continued to expand at a robust pace. Compared with the same period in the previous year, January home sales increased on a year-over-year basis: 17.4 percent in Little Rock, 2.8 percent in Louisville, 3.1 percent in Memphis, and 23.4 percent in St. Louis. Over half of contacts have reported higher demand and lower inventory in this current quarter. Residential construction activity continued to be positive throughout most of the District. The general sentiment from contacts was positive. Compared with the same time a year ago, activity was higher this quarter and contacts expected activity to be higher in the next quarter.
Commercial real estate market activity has strengthened since our previous report. Contacts reported demand across all sectors was slightly higher than one year ago and expect higher demand overall going forward, especially in the industrial sector. Commercial construction activity remained positive throughout all sectors. Industry contacts have reported speculative construction projects that are primarily in the multi-family sector with some in the industrial sector.
A survey of District banks reported improving conditions. Loan demand was stronger for mortgages and commercial and industrial loans. A St. Louis contact noted strong loan demand for construction loans. Memphis and Louisville contacts reported particularly strong commercial and industrial loan demand. Demand was unchanged for consumer loans. Credit standards were unchanged to somewhat tighter for all loan categories. Most respondents noting tighter standards were in the Memphis area. Loan delinquencies were unchanged to slightly lower for all loan categories, and creditworthiness of applicants improved.
As of the end of January, almost 93 percent of the District winter wheat crop was rated fair or better. Red meat production in 2015 was 6 percent higher than in the previous year, an increase that has been explained, in part, by lower feed costs, although meat prices also fell during the year. January District coal production was 32 percent lower than in January 2015, continuing a decline that industry contacts attribute to low alternative fuel prices.