St. Louis Fed economist Howard Wall discusses current economic conditions in the Eighth District, as published in the Beige Book.
Economic activity in the Eighth District expanded more slowly in the period since our previous report. Retail and auto sales in October and early November were down, on average, compared with year-ago levels. While the services sector continued to expand, manufacturing activity softened. Home sales and residential construction continued to weaken throughout the District, but commercial real estate market conditions remained positive. Overall lending activity at a sample of District banks was mostly unchanged in the three-month period ending in October.
Contacts reported that retail sales in October and early November were down, on average, over year-earlier levels. Half of the retailers saw decreases in sales, while 38 percent saw increases. Approximately 23 percent of the retailers noted that sales levels met their expectations, 65 percent reported that sales were below what they had anticipated, and 12 percent reported sales that were above expectations. Men's apparel and office products were strong sellers, while women's apparel and furniture were moving more slowly. Two-thirds of the contacts noted that inventories were at desired levels, while 25 percent reported higher-than-desired inventories and 8 percent reported lower-than-desired inventories. About 54 percent of contacts expect that sales for the rest of 2007 will increase over 2006 levels and another 17 percent expect sales to be similar to last year, but 29 percent expect decreased sales.
Car dealers in the District reported that, compared with last year, sales in October and early November were down, on average. About 52 percent of the car dealers surveyed reported a decrease in sales, while 32 percent reported an increase. About 24 percent of the car dealers noted that used car sales had increased relative to new car sales and 28 percent reported an increase in low-end vehicle sales relative to high-end vehicle sales. About 28 percent of the respondents reported recent increases in rebates and incentives. About 20 percent of the car dealers surveyed reported that their inventories were too high (mostly on trucks and sport utility vehicles), while 16 percent reported that their inventories were too low. About 60 percent of the car dealers expect increased sales over 2006 for the remainder of the year, and another 12 percent expect unchanged sales, but 28 percent expect decreased sales.
Manufacturing activity softened since our previous survey. While some contacts reported plans to open plants and expand operations in the near future, a larger number of contacts reported plans to close plants or lay off workers. Firms in the plastics and the furniture manufacturing industries reported plans to hire workers, and firms in the sanitary paper product and the chemical manufacturing industries reported plans to open new facilities and hire workers. In contrast, a number of firms in the fabricated metal product industry reported plans to close plants and lay off workers. Firms in the motor vehicle parts and the transportation equipment manufacturing industries also reported similar plans to downsize. Firms in the wood product and the food manufacturing industries reported plans to lay off workers.
The District's service sector continued to expand steadily in most areas since our previous report. Contacts in the business support services and health care industries reported plans to expand operations and hire additional workers in the District.
Home sales continued to slow throughout the Eighth District. Compared with the same period in 2006, September 2007 year-to-date home sales declined 14 percent in Memphis, 8 percent in St. Louis, and 2 percent in Little Rock; they were virtually unchanged in Louisville. Residential construction continued to decline throughout most of the District. September 2007 year-to-date single-family housing permits fell in most District metro areas compared with the same period in 2006. Permits declined 27 percent in Memphis, 18 percent in Little Rock and St. Louis, and 6 percent in Louisville.
Commercial real estate market conditions were generally positive throughout the District. The third quarter 2007 industrial vacancy rate decreased from the second quarter rate in St. Louis, Louisville, and Little Rock, while Memphis's industrial vacancy rate increased slightly. During the same period, office vacancy rates decreased in St. Louis, Louisville, Little Rock, and Memphis. Contacts in Little Rock reported that the number of new commercial building permits for year-to-date September 2007 are more than double the number for the same period last year. Contacts in Memphis and Louisville reported a strong outlook for commercial construction projects, while a contact in Madison County, Tennessee, reported that new commercial construction permits were at their lowest level in three years.
A survey of senior loan officers at a sample of District banks showed little change in overall lending activity in the three months ending in October. Credit standards and demand for commercial and industrial loans remained unchanged for both large and small firms. Credit standards for commercial real estate loans tightened somewhat, while demand for these loans was moderately weaker. Meanwhile, credit standards for consumer loans ranged from somewhat tightened to unchanged, while the change in demand for these loans ranged from about the same to moderately weaker. Credit standards for prime residential mortgage loans remained basically unchanged, while credit standards for nontraditional mortgage loans tightened. The change in demand for both prime and nontraditional mortgage loans ranged from about the same to moderately weaker.
At least 95 percent of the corn, 89 percent of the soybean, 94 percent of the sorghum, 98 percent of the cotton, and all of the rice in the District states have been harvested. Yield estimates for most crops in most District states stayed roughly the same between October and November, but yield estimates for soybeans and cotton in Tennessee decreased by more than 10 percent. Winter wheat planting was ahead of its normal pace, and each District state has planted at least three-fourths of its intended crop. Over 60 percent of the emerged winter wheat in each District state was in good or excellent condition.