Economic activity in the Eighth District expanded moderately since our previous survey. Reports from manufacturing contacts were generally positive and contacts indicated that the services sector continued to expand. Home sales and residential construction remained weak throughout most of the District, but conditions in commercial real estate markets continued to be positive. Lending at a sample of small and mid-sized District banks increased from mid-June to mid-September.
Manufacturing activity increased slightly since our previous survey. Several manufacturers reported plans to open plants and expand operations in the near future, while a smaller number of contacts reported plans to close plants and reduce operations. Major hiring occurred in the motor vehicle parts manufacturing industry with the opening of new facilities. Firms in pharmaceutical and medicine manufacturing, transportation equipment manufacturing, food manufacturing, and fabricated metal manufacturing also reported plans to open new facilities in the District and hire workers. Contacts in the transportation equipment manufacturing industry reported plans to hire additional workers. In contrast, contacts in the household appliance manufacturing, wood product manufacturing, and furniture manufacturing industries reported plans to lay off workers and decrease operations. A firm in the chemical manufacturing industry eliminated jobs in order to close a plant in the District.
The District's services sector continued to expand in most areas. Contacts in the business support services and air transportation services industries announced plans to expand facilities and hire additional workers. Retail sales were strong, fueled by back-to-school shopping, despite escalating credit problems and a weak housing market. Auto sales were fairly steady in September compared with the same period last year.
Home sales continued to weaken throughout the District. Compared with the same period in 2006, August 2007 year-to-date home sales increased 1.4 percent in Louisville but declined 3 percent in Little Rock, 7.4 percent in greater St. Louis, and 13 percent in Memphis. Residential construction continued to decline throughout the District. August 2007 year-to-date single-family housing permits fell in all major metro areas compared with the same period in 2006. Permits declined 5 percent in Louisville, 20 percent in Little Rock, 24 percent in St. Louis, and 34 percent in Memphis.
Commercial real estate market conditions were mostly positive throughout the District. Contacts in Evansville, IN, reported that commercial construction appears to be holding steady but that investors are more cautious. Contacts in Little Rock reported that the number of new commercial construction permits for year-to-date August 2007 was up from the same period in 2006. Contacts in Louisville reported that strong industrial construction will increase vacancy rates in the near term. Contacts in Memphis reported that a large steel mill expansion project is underway there.
Total loans outstanding at a sample of small and mid-sized District banks increased 2.1 percent in the three-month period from mid-June to mid-September. Real estate lending, which accounted for 75.1 percent of total loans, increased 2.6 percent. Commercial and industrial loans, accounting for 16.6 percent of total loans, increased 1.0 percent. Loans to individuals, accounting for 4.2 percent of loans, fell 6.9 percent. All other loans, which accounted for 4.1 percent of total loans, increased 7.0 percent. Over the same period, total deposits at these banks decreased 4.0 percent.
Recent dry weather throughout most of the District provided good conditions for harvesting crops. The overall harvest of corn is ahead of its normal pace by more than 50 percent; soybeans are ahead by about one-third; sorghum is ahead by almost 10 percent; cotton is ahead by about 75 percent; and rice is ahead by nearly 5 percent. Since our previous survey, crop conditions improved in most states, although more than half of Tennessee's corn and soybean crops and Kentucky's soybean crops were in poor condition. Yield estimates of corn, sorghum, and rice in all District states stayed the same or increased from August to September. However, estimates of soybean yields in Illinois, Indiana, Kentucky, and Tennessee, estimates of cotton yields in each of the District's cotton-growing states and estimates of tobacco yields in Kentucky and Tennessee declined.