Business conditions in the Eighth District have continued to deteriorate since our previous report. Manufacturing activity continued to decline, as did activity in the services sector. Home sales continued to decrease, while activity in commercial construction remained mixed. Total loans at a sample of small and mid-sized District banks decreased slightly during the three-month period ending in mid-September.
Manufacturing activity has continued to decline since our previous report. Contacts generally cited weak product demand and higher input costs as causes of reduced business activity. A few manufacturers reported plans to open plants and expand operations in the near future, although a larger number of contacts reported plans to close plants and reduce operations. Firms in plastic product manufacturing and a small automobile manufacturer announced plans to open new facilities in the District and hire additional employees. Contacts in the steel manufacturing and machinery manufacturing industries reported plans to expand existing facilities and operations. In contrast, firms in the animal slaughtering/processing, apparel, appliance, automotive parts, electrical equipment, fabricated metal, plastic products, and truck transportation manufacturing industries cited declining demand and reported plans to lay off workers and decrease operations.
The District's services sector continued to decline in most areas. Firms in the medical, information, financial, and truck transportation services industries cited weak demand and announced plans to reduce their workforce. A firm in business support services announced plans to close a facility in the District. In contrast, a contact in truck transportation services announced plans to expand facilities and hire additional workers. A contact in health care services announced plans to move executive employees into the District and hire additional workers. Retailers reported that sales volume remains fairly constant, but that consumers have shifted to lower-priced products. One major auto dealer will close operations in the District and another dealer filed for bankruptcy. Auto sales were slightly up from a year ago for some dealers, particularly among those offering customer incentives and rebates. Small cars continued to sell well, but there was slower demand for trucks and large sport utility vehicles.
Home sales continued to decline throughout the Eighth District. Compared with the same period in 2007, August 2008 year-to-date home sales were down 16 percent in St. Louis, 20 percent in Memphis, 22 percent in Little Rock, and 24 percent in Louisville. Residential construction also continued to decline throughout the District. August 2008 year-to-date single-family housing permits fell in nearly all District metro areas compared with the same period in 2007. Permits declined 37 percent in Little Rock, 40 percent in Louisville, 42 percent in St. Louis, and 57 percent in Memphis.
Commercial construction activity remained mixed throughout the District. One of the Memphis area's largest commercial contractors reported a record level of committed projects for 2009. A contact in central Arkansas whose firm specializes in general commercial construction reported that the firm's backlog has decreased from 12 to 6 months as projects have begun to dry up. A contact in St. Louis reported that the industrial real estate market is stable and that developers are not overbuilding. Contacts in Memphis reported that the industrial vacancy rate has remained steady largely because of the lack of new industrial construction so far this year.
Total loans outstanding at a sample of small and mid-sized District banks decreased 1.0 percent in the three-month period from mid-June to mid-September. Real estate lending decreased 1.5 percent and now accounts for 73.5 percent of total loans. Commercial and industrial loans decreased 0.8 percent, accounting for 16.9 percent of total loans. Loans to individuals, accounting for 5.1 percent of loans, increased 4.1 percent. All other loans increased 1.4 percent and accounted for 4.5 percent of total loans. Over this period, total deposits at these banks were flat.
Recent heavy rains throughout many parts of the District have delayed crop harvests. At the end of September, the overall corn, soybean, sorghum, cotton, and rice harvests were behind their normal paces. Since our previous report, overall crop conditions have deteriorated slightly. Yield estimates of corn and soybeans in both Indiana and Kentucky, corn and rice in Missouri, and corn and tobacco in Tennessee declined from August to September. Yield estimates for corn, soybeans, sorghum, rice, cotton, and tobacco in the remaining District states that grow those crops stayed the same or increased.