Overall economic conditions in the Eighth District have softened since our previous report. Contacts noted declining activity in services and manufacturing. Compared with a year ago, retail sales were flat in July and the first half of August, while auto sales declined. Home sales and construction continued to decline throughout the District, while commercial real estate reports were mixed. Overall lending activity at a sample of District banks declined during the three-month period ending in July.
On average, contacts reported that retail sales in July and the first half of August were flat over year-earlier levels. Half of the retailers saw increases in sales, while 39 percent saw decreases. About 26 percent of the contacts reported that sales levels met their expectations, 39 percent reported sales above expectations, and 35 percent reported sales below expectations. Essentials and staple food items were strong sellers, while non-essential items and luxury goods moved more slowly. About 54 percent of the contacts noted that inventories were at desired levels, 35 percent reported that inventories were too high, and 11 percent reported that inventories were too low. About 54 percent of the retailers expect sales to increase in September and October over 2007 levels, while 23 percent expect sales to decrease; the remaining contacts expect sales to be the same.
On average, car dealers in the District reported that sales in July and the first half of August were down compared with last year. About 80 percent of the car dealers surveyed reported a decrease in sales, while 8 percent reported an increase. About 64 percent of contacts reported more rejections of finance applications. About 39 percent of the car dealers surveyed reported that inventories were too high (mostly trucks, sports cars, and less-fuel-efficient cars), while 17 percent reported that inventories were too low (mostly used cars and fuel-efficient cars). About 71 percent of the car dealers expect sales to decrease over 2007 levels in September and October, 17 percent expect sales to increase, and 12 percent expect sales to be the same.
Manufacturing activity has declined since our previous survey. Several manufacturers reported plans to open plants and expand operations in the near future, but a larger number reported plans to close plants and reduce operations. Firms in the plastic goods and sporting goods industries reported plans to open new facilities in the District. Contacts in the plastic bottle, animal slaughtering and processing, furniture, and auto parts manufacturing industries reported plans to expand existing facilities and operations. Many firms in these industries also reported plans to hire additional workers. Several firms in the auto parts and auto manufacturing industries announced plans to retain workers and shifts, despite a slowdown in demand and production. In contrast, citing slow demand for product and/or rising input costs, other firms in the animal slaughtering and processing, auto parts, and electrical equipment component manufacturing industries reported plans to lay off workers and decrease operations. Firms in the appliance, structural metals, iron/steel pipe, apparel, plastic products, auto parts, animal slaughtering and processing, and building supplies manufacturing industries each announced that they will close a plant in the District and plan to cut jobs or move jobs out of the District.
Activity in the District's service sector has softened in most areas since our previous report. Contacts in the transportation and warehousing industries reported plans to expand operations, build new distribution centers, and hire additional workers in the District. Firms in the business support services also announced plans to hire additional workers. In contrast, and to a greater extent, firms in the information, health care and social assistance, warehousing and storage, education, architectural, and business support services industries announced plans to lay off workers. Firms in the information and health care services sectors announced plans to consolidate operations within the District.
Home sales continued to decline throughout the Eighth District. Compared with the same period in 2007, July 2008 year-to-date home sales were down 16 percent in St. Louis, 20 percent in Memphis, 21 percent in Little Rock, and 22 percent in Louisville. Residential construction also continued to decline throughout the District. June 2008 year-to-date single-family housing permits fell in nearly all District metro areas compared with the same period in 2007. Permits declined 34 percent in Little Rock, 42 percent in St. Louis, 43 percent in Louisville, and 57 percent in Memphis.
Commercial real estate market conditions varied across the District. The 2008 second-quarter industrial vacancy rate decreased compared with the first quarter rate in St. Louis, Louisville, Little Rock, and Memphis. During the same period, the suburban office vacancy rate decreased in St. Louis and Little Rock but increased in Louisville and Memphis. The downtown office vacancy rate decreased in Louisville and Memphis and increased in St. Louis and Little Rock. A contact in northeast Arkansas reported that commercial building was slow. Commercial contracting contacts in Louisville reported that a satisfactory number of projects are in the pipeline.
A survey of senior loan officers at a sample of District banks showed a modest decline in overall lending activity during the three months ending in July. Credit standards for commercial and industrial loans tightened somewhat for both large and small firms, while demand for these loans was moderately weaker. Credit standards for commercial real estate loans were tightened somewhat, while demand for these loans ranged from unchanged to weaker. Credit standards for consumer loans were also tightened somewhat, while demand for these loans was moderately weaker. Demand for both prime and nontraditional residential mortgage loans remained unchanged, while credit standards for both types of loans ranged from basically unchanged to slightly tighter.
Development of the District's major crops remains behind its 5-year average. The overall condition of corn, soybeans, rice, and sorghum has improved slightly or acquired roughly the same percentage of poor ratings as in our previous report; however, a higher percentage of cotton was rated in poor condition. As of August 1, yields for the major crops in each District state were expected to be at least 88 percent of last year's yields.