Eighth District - St. Louis
Beige Book
November 29, 2006

Economic activity in the Eighth District expanded at a moderate pace since our previous report. Manufacturing activity increased modestly, while growth in the services sector remained strong. Contacts reported that retail and auto sales increased slightly in October and early November compared with a year ago. Home sales reports were mixed and commercial real estate market conditions varied across the District. Lending activity at a sample of District banks changed little in the three-month period ending in October.

Consumer Spending

Contacts reported that retail sales in October and early November were up, on average, over year-earlier levels. About 65 percent of the retailers saw increases in sales, while 17 percent saw decreases. About 39 percent of the retailers reported that sales levels met their expectations, 33 percent reported that sales were above what they had anticipated, and 28 percent reported sales below expectations. Apparel, food, and electronics were all strong sellers, while home furnishings were moving more slowly. Two-thirds of the contacts reported that inventories were at desired levels; 29 percent reported that inventories were too high, and 5 percent reported that inventories were too low. About 70 percent of contacts expect that upcoming holiday sales will increase over 2005 levels, while 13 percent expect decreased sales.

Car dealers in the District reported that sales in October and early November were up, on average, over year-earlier levels. About 35 percent of the car dealers surveyed reported an increase in sales, while another 35 percent reported a decrease. About 30 percent of the car dealers reported that used car sales had increased relative to new car sales, while 9 percent reported the opposite. Also, 26 percent reported an increase in low-end vehicle sales relative to high-end vehicle sales. About 22 percent of contacts reported tighter financing options, but over 90 percent of the contacts reported no change in acceptance or rejection rates of finance applications. Nearly 36 percent of the car dealers surveyed reported that their inventories were too high, while 23 percent reported that their inventories were too low. About 30 percent of the car dealers expect that sales for the next two months will increase over 2005, while 26 percent expect decreased sales.

Manufacturing and Other Business Activity

Manufacturing activity expanded modestly since our previous report. While the majority of contacts reported plans to expand operations or hire additional workers in the near future, several manufacturers reported plans to close operations and lay off workers. Firms in the primary metal, biofuel, plastics, chemical, aerospace, packaging, and paper manufacturing industries announced plans to open or expand facilities in the District. Contacts in the food, chemical, and plastics industries reported plans to hire additional workers. In contrast, firms in the beverage and auto parts industries reported plans to close plants in the District. Firms in the appliance, machinery, furniture, and auto parts industries reported plans to lay off workers.

The District's services sector continued to expand in most areas. Contacts in the freight transportation, professional, and financial services industries reported plans to open or expand facilities in the District. A contact in the data processing services industry reported plans to expand operations and hire additional workers. In contrast, a contact in the business support services industry reported plans to lay off workers.

Real Estate and Construction

Home sales reports were mixed throughout the District. October 2006 year-to-date home sales increased 8 percent in Memphis but declined 1 percent in Louisville and about 3 percent in Little Rock and St. Louis. Residential construction remains low throughout the District. September year-to-date single-family housing permits declined in nearly every metro area compared with the same period in 2005. Permits declined 33 percent in Louisville, 23 percent in St. Louis, 12 percent in Little Rock, and 11 percent in Memphis. In contrast, permits increased roughly 3 percent in Jackson, Tennessee.

Commercial real estate market conditions remain mixed throughout the District. The third-quarter 2006 industrial vacancy rate declined from the second quarter in St. Louis and Memphis but increased in Louisville. During the same period, the office vacancy rate declined in St. Louis, Memphis, Louisville, and Little Rock. Contacts in Little Rock reported that September year-to-date commercial construction permits are down roughly 5 percent over 2005. In west Tennessee, contacts reported that commercial construction has increased substantially. Contacts in Louisville reported that several large distribution centers are planned for construction in 2007, and contacts in St. Louis reported that industrial construction remains active.

Banking and Finance

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. During this period, credit standards and demand for commercial and industrial loans remained unchanged for both large and small firms. During the same period, credit standards for commercial real estate loans tightened somewhat, while credit standards for residential mortgages and consumer loans remained basically unchanged. Demand for commercial real estate and consumer loans remained unchanged, while demand for residential mortgages was moderately weaker.

Agriculture and Natural Resources

Recent wet weather throughout much of the District has slowed the pace of crop harvesting. Nevertheless, about 90 percent of all corn, soybeans, sorghum, and cotton and all of the rice in the District have been harvested. The rains have delayed some planting of winter wheat, especially in Kentucky and Mississippi, but over 88 percent of the emerged winter wheat in each District state is rated in fair condition or better.

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