St. Louis Fed economist Tom Garrett discusses current economic conditions in the Eighth District, as published in the Beige Book.
Economic activity in the Eighth District remained weak, but the pace of decline has moderated since our previous report. Both manufacturing and services activity contracted at a slower pace. Retail and auto sales in July and the first part of August were down from a year ago. Residential and commercial real estate markets conditions continue to be weak. Overall lending activity at a sample of large District banks decreased moderately in the three-month period ending in July.
Contacts reported that retail sales in July and the first part of August were down, on average, over year-earlier levels. About 58 percent of the retailers surveyed saw decreases in sales, 33 percent saw increases, and 8 percent saw no change. About 37 percent of respondents reported that sales levels met their expectations, 42 percent reported that sales were below expectations, and 21 percent reported that sales were above expectations. Lawn and garden products and less-expensive items were strong sellers, while apparel and big-ticket items moved more slowly. About 46 percent of the contacts noted that inventories were at desired levels, 42 percent reported too-high inventories, and 12 percent reported too-low inventories. About 46 percent of the retailers expect sales for September and October to increase over 2008 levels, 46 percent expect sales to decrease, and 8 percent expect sales to be unchanged.
Car dealers in the District reported that, compared with last year, sales in July and the first part of August were down slightly, on average. One-third of the car dealers surveyed reported large decreases in sales, one-third reported increases in sales (mostly attributed to the cash-for-clunkers program), and the remaining one-third reported no change in sales. About 37 percent of the car dealers noted that new car sales had increased relative to used car sales, while 25 percent reported the opposite. Also, 33 percent reported an increase in low-end vehicle sales relative to high-end vehicle sales, while 8 percent reported the opposite. About 46 percent reported more rejections of finance applications, but 12 percent reported more acceptances. Two-thirds of the car dealers surveyed reported that their inventories were too low, while 12 percent reported that their inventories were too high. About 46 percent of the car dealers expect sales for September and October to increase over 2008 levels, 37 percent expect sales to decrease, and the remaining 17 percent expect sales to be unchanged.
Manufacturing activity continued to decline since our previous survey, but at a slower pace. Some contacts in petroleum refineries/coal manufacturing reported an increase in production and opened new facilities. One firm in chemical product manufacturing announced plans to upgrade existing facilities and hire new workers. Some firms in furniture manufacturing and rubber tire manufacturing reported plans to hire additional workers. In contrast, contacts in the animal slaughtering/processing, tobacco, household appliance, rubber products, transportation, and machinery manufacturing industries reported plans to lay off workers and decrease operations. A firm in auto parts manufacturing announced that it will close a plant in the District, while another auto parts manufacturing firm announced plans to lay off employees.
The District's service sector continued to decline in most areas, but at a slower pace. Contacts in business support services and social services reported plans to close facilities and lay off workers. In contrast, government service jobs continued to be added because of the fiscal stimulus plan.
Home sales continued to decline throughout the Eighth District. Compared with the same period in 2008, July 2009 year-to-date home sales were down 8 percent in St. Louis, 12 percent in Little Rock, 13 percent in Louisville, and 15 percent in Memphis. Residential construction also continued to decline throughout most of the District; 2009 year-to-date single-family housing permits fell in most District metro areas compared with the same period in 2008. Permits declined 19 percent in Little Rock, 28 percent in St. Louis, 30 percent in Louisville, and 49 percent in Memphis.
Conditions in the commercial and industrial real estate markets were mixed throughout the District. Compared with the first quarter of 2009, second-quarter 2009 industrial vacancy rates increased in Little Rock, Louisville, and Memphis and decreased in St. Louis. During the same period, suburban office vacancy rates increased in Little Rock and Louisville and decreased in Memphis and St. Louis. Downtown office vacancy rates remained fairly constant in St. Louis, increased in Louisville and Memphis, and decreased in Little Rock. Commercial and industrial construction markets continued to decline. One contact in Memphis reported that new commercial construction is minimal. A contact in Louisville does not expect nonresidential construction to improve until 2011.
A survey of senior loan officers at a sample of large District banks showed a moderate decrease in overall lending activity for the three-month period ending in July. Credit standards for commercial and industrial loans were somewhat tighter for both large and small firms, while demand for these loans was moderately weaker. Credit standards for commercial real estate loans were also somewhat tighter, while demand for these loans was moderately weaker. Meanwhile, credit standards for consumer loans were basically unchanged, while demand for these loans was mixed, ranging from moderately weaker to moderately stronger. Credit standards for prime residential mortgage loans remained basically unchanged, while credit standards for nontraditional residential loans tightened. Demand for all types of residential loans ranged from about the same to stronger.
The overall condition of the corn, soybeans, rice, cotton, and sorghum crops in the District has improved slightly: No more than 10 percent of each crop obtained a rating of poor. As of August 1, yields for most of the major crops in each District state were expected to be at least 94 percent of last year's yields, although sorghum yields and winter wheat yields were expected to be 84 percent and 80 percent of last year's yields, respectively. Since our previous report, soil moisture ratings and pasture conditions have improved in most District states.