St. Louis Fed economist Rubén Hernández-Murillo discusses current economic conditions in the Eighth District, as published in the Beige Book.
The economy of the Eighth District has continued to grow at a modest pace since the previous report. Manufacturing activity has continued its increase since the previous report, and activity in the services sector also has increased. Retail sales in July and early August declined slightly over year-earlier levels, and auto sales increased over the same period. Residential real estate market activity has continued to decline. Commercial real estate market conditions were weak, while industrial real estate activity has increased in many areas of the District. Overall lending at a sample of large District banks increased modestly during the three-month period ending in July.
Contacts reported that retail sales in July and early August were down slightly, on average, over year-earlier levels. About 29 percent of the retailers saw increases in sales, while half saw decreases and 21 percent saw no changes. Roughly 48 percent of the retailers reported that sales levels were below their expectations, 43 percent reported that sales met expectations, and 9 percent reported that sales were above expectations. About 29 percent of the retailers reported that their inventories were too high, while 17 percent reported that their inventories were too low. The sales outlook for September and October was mixed: About 42 percent of the retailers expect sales to increase over 2010 levels, while 29 percent expect sales to decrease and 29 percent expect sales to be similar to those of last year.
Car dealers in the District reported that sales in July and early August were up, on average, compared with last year's sales. About 62 percent of the car dealers surveyed saw increases in sales, while 21 percent saw decreases and 17 percent saw no changes. About 29 percent of the car dealers noted that used car sales had increased relative to new car sales, while 21 percent reported the opposite. Also, about 17 percent of contacts reported an increase in sales of low-end vehicles relative to high-end vehicles, while 4 percent reported the opposite. About 83 percent of the car dealers surveyed reported that their inventories were below desired levels, while 4 percent reported that their inventories were too high. The sales outlook for September and October was mostly optimistic: About 67 percent of the car dealers expect sales to increase over 2010 levels.
Manufacturing activity has continued to increase since our previous report. 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 or reduce operations. Firms in the heating, ventilation, and air conditioning; art goods; packaging; bioscience; power hand tools; and sanitary paper products manufacturing industries reported plans to expand operations and hire new workers. In contrast, firms in the appliance and burial casket manufacturing industries announced plans to close plants and lay off employees.
Activity in the District's services sector has continued to increase since our previous report. Firms in scientific research, business support, health care, aviation, and automotive repair and maintenance services announced plans to expand operations and hire new workers. In contrast, a contact in the parking garage services industry reported plans to decrease operations in the District and lay off employees.
Home sales continued to decline throughout most of the Eighth District. Compared with the same period in 2010, July 2011 year-to-date home sales were down 8 percent in Memphis, 13 percent in St. Louis, 14 percent in Louisville, and 15 percent in Little Rock. Residential construction also continued to decrease throughout the District. July 2011 year-to-date single-family housing permits decreased in the majority of the District metro areas compared with the same period in 2010. Permits decreased 18 percent in Memphis, 21 percent in Louisville, 26 percent in Little Rock, and 28 percent in St. Louis.
Commercial real estate market conditions were generally weak, while industrial real estate activity increased in many areas of the District. Compared with the first quarter of 2011, second-quarter 2011 suburban office vacancy rates increased in St. Louis and Louisville but decreased in Little Rock and Memphis. The downtown office vacancy rates increased in Little Rock, Memphis, and St. Louis but decreased in Louisville. During the same period, industrial vacancy rates decreased in all the major metro areas except St. Louis, where rates increased. Industrial and commercial construction activity has been mixed across the District, with some areas noting growth in industrial construction. A contact in south-central Kentucky noted several new retail-related construction projects, while contacts in Louisville reported very slow speculative construction activity. A contact in southern Indiana reported that while major commercial construction remains very slow, energy as well as industrial construction is expanding. Contacts in St. Louis reported that industrial and commercial construction projects remain scarce, while contacts in western Illinois noted major education-related construction projects.
A survey of senior loan officers at a sample of large District banks indicated a modest increase in overall lending activity during the three-month period ending in July. Credit standards for commercial and industrial loans remained unchanged, while demand for these loans ranged from about the same to moderately stronger. Credit standards for commercial real estate loans were also unchanged, while demand for these loans ranged from about the same to moderately stronger. Meanwhile, credit standards for consumer loans were unchanged, while demand for these loans ranged from unchanged to moderately stronger. Credit standards for residential mortgage loans ranged from unchanged to moderately stronger, while demand for these loans was mixed, ranging from moderately weaker to moderately stronger.
The fraction of pastures in fair or better condition has declined in most District states except Mississippi since the previous report. Crop production has been mixed in the District. Corn, cotton, and sorghum production increased from 2010 to 2011, while rice and soybean production fell by at least 5.7 percent. The fraction of corn, sorghum, and soybean crops rated as fair or better has fallen, while the fraction of cotton and rice crops similarly rated has risen since the previous report. Year-to-date coal production at the end of July for the Eighth District was 4 percent higher in 2011 compared with the same period in 2010. Meanwhile, monthly production for July 2011 was 7.8 percent lower than July 2010.