St. Louis Fed economist Tom Garrett discusses current economic conditions in the Eighth District, as published in the Beige Book.
Overall, business conditions in the Eighth District have declined since our last report, and the rate of decline is mostly comparable to that of recent periods. Manufacturing has continued to decline, the services sector has experienced a net contraction of jobs, and the retail sector reported mixed results. Both residential and commercial real estate declined. Banks reported declines in lending activity. Reports from the agricultural sector were mixed.
Manufacturing continued its net decline since our previous report, with more contacts reporting job layoffs and fewer new orders than contacts reporting new hires and expansions. However, several firms and industries did report new hiring activity and expansion of facilities. Firms in heating, ventilation and air conditioning manufacturing, petroleum/coal manufacturing, rubber tire manufacturing, and chemical manufacturing reported plans to open plants and expand operations in the near future and hire additional employees. In addition, a firm in paper products manufacturing also announced plans to hire additional workers and increase production in its existing facilities. In contrast, a larger number of contacts reported job losses. A firm in the appliance manufacturing business closed a plant, with significant job losses. Other firms in silicon product manufacturing, furniture manufacturing, and a surface coal mine all closed their facilities, with resulting job losses. Firms in timber products and auto parts also cut jobs due to declines in new orders.
The District's services sector continued to experience contraction in net jobs. Small firms in business support services and education services announced a few new hires, but in contrast, several larger firms in business support services announced reductions in staff due to declining revenues. One firm closed its facility, and a few others announced pay freezes for their remaining workers. Contacts in the retail sector reported a mixed outlook. General and big box retailers began to expand in a few regions, filling in previously vacant spaces. However, the bankruptcy of a regional grocery retailer led to a significant number of job losses. Smaller retailers reported a mixed picture, with a slight increase in sales but dimmed optimism for the remaining months of this year. Auto dealerships dropped by GM expressed cautious optimism and plan to sell off their inventory while pursuing additional service opportunities.
Home sales continued to decline throughout the Eighth District. Compared with the same period in 2008, August 2009 year-to-date home sales were down 8 percent in St. Louis, 10 percent in Louisville, 12 percent in Little Rock, and 15 percent in Memphis. Residential construction also continued to decline throughout the District. August 2009 year-to-date single-family housing permits fell in most District metro areas compared with the same period in 2008. Permits declined 15 percent in Little Rock, 23 percent in St. Louis, 25 percent in Louisville, and 45 percent in Memphis.
Commercial real estate and construction markets struggled throughout the District. A contact in St. Louis noted that the pace of commercial foreclosures is increasing. Contacts in St. Louis and Memphis noted that a number of high-profile properties have recently been foreclosed. A contact in central Arkansas reported that while commercial construction has been positive thus far this year, 2010 is projected to be meager at best. Industrial real estate and construction contacts throughout the District also continued to report a difficult environment. A contact in Memphis does not expect the industrial real estate market to improve until late 2010. Contacts throughout the District noted that no speculative industrial construction is taking place.
Total loans outstanding at a sample of small and mid-sized District banks decreased 2.5 percent in the three-month period from mid-June to mid-September. Real estate lending, which accounts for 73.2 percent of total loans, decreased 2.4 percent. Commercial and industrial loans, accounting for 16.7 percent of total loans, decreased 2.5 percent. Loans to individuals, accounting for 5.3 percent of loans, decreased 3.4 percent. All other loans decreased 4.2 percent and accounted for 4.8 percent of total loans. Over this period, total deposits increased 0.4 percent.
Recent heavy rains throughout much of the District have slowed crop maturity and delayed harvests. At the beginning of October, the overall corn, soybean, sorghum, cotton, and rice harvests were behind their normal paces by 36 percent to 95 percent. Since our previous report, overall crop conditions remained similar for corn but deteriorated slightly for the other major crops. Less than 10 percent of the overall corn but more than 10 percent of the other crops were rated poor. Yield estimates of corn in Arkansas, soybeans in Indiana, and rice in Mississippi declined slightly from August to September. Yield estimates for corn, soybeans, sorghum, rice, cotton, and tobacco in the remaining District states that grow these crops stayed the same or increased. Cases of Asian soybean rust--a disease that reduces yield--have been reported in every District state; in many cases, the crop was mature enough that the disease caused minimal damage.