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Federal Reserve Districts

Eighth District--St. Louis

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Business conditions in the Eighth District have continued to weaken. Retail and auto sales in October and early November were down, on average, compared with year-ago levels. Since our last report, manufacturing experienced significant declines, but the services sector improved slightly. Residential real estate activity decreased, while commercial real estate was mixed. Banks reported tightening in credit standards and weaker demand for loans during the three-month period ending in October.

Consumer Spending
Contacts reported that retail sales in October and the first half of November were down, on average, over year-earlier levels. About 81 percent reported decreases, while the rest reported increases. About 64 percent reported that sales were below expectations, and 23 percent said that sales were above expectations. Essential items were strong sellers, while high-end furniture, apparel, and gift items sales slowed. About 46 percent noted that inventories were at desired levels, but the remainder said they were too high. The sales outlook among retailers for the rest of 2008 was generally pessimistic, with 58 percent expecting decreases over 2007 levels and 27 percent expecting increases.

Car dealers surveyed reported that, compared with last year, sales in October and the first half of November were down, on average, with all contacts reporting a decrease. One-third noted that used car sales had increased relative to new, and 38 percent reported an increase in low-end vehicle sales relative to high-end. About 46 percent reported recent increases in rebates and incentives, while 8 percent reported fewer rebates. Two-thirds reported a recent increase in rejections of finance applications. About 88 percent said that their inventories were too high (mostly on new cars, high-end cars, trucks, and sport utility vehicles), and 12 percent had inventories at desired levels. For the rest of 2008, 92 percent of the car dealers expect sales to decrease over 2007 levels, but 8 percent expect sales to increase.

Manufacturing and Other Business Activity
Overall manufacturing activity has continued to decline since our previous report. Several firms in paper products manufacturing, machinery manufacturing, wood products manufacturing, glass/glass product manufacturing, and auto parts and automobile manufacturing announced plans to idle production. Firms in the cement, primary metal, fabricated metal, building products, machinery, printing, animal slaughtering/processing and auto parts manufacturing industries reported plans to close plants. Multiple firms in the primary metal, household appliance and machinery manufacturing industries reported job losses. Firms in electrical product, plastic parts, apparel, lumber, furniture, boat manufacturing, animal slaughtering/processing, and food manufacturing industries announced plans for layoffs. Mineral and primary metal manufacturing and the plastic products manufacturing industries experienced strikes, decreasing production. On the other hand, contacts in aerospace product/parts, auto parts, food and primary metal manufacturing reported plans to expand existing facilities and operations. A firm in the auto parts manufacturing industry announced plans to rehire and start production after a three month plant idling. Firms in electrical equipment, machinery, natural gas, and auto parts manufacturing reported plans to open new facilities. These firms also reported plans to hire additional workers.

Contacts in business support services reported new contracts and hiring plans. A firm in the transportation services sector announced expansion and new hiring plans. Firms in medical, financial, business support, tourism, rental/leasing, information and dry cleaning/laundry services, however, announced plans to lay off workers.

Real Estate and Construction
Home sales continued to decline throughout the Eighth District. Compared with the same period in 2007, October 2008 year-to-date sales were down 14 percent in St. Louis, 19 percent in Memphis, 20 percent in Little Rock, and 22 percent in Louisville. Residential construction continued to decline as well. September 2008 year-to-date single family housing permits fell in nearly all District metro areas compared with the same period in 2007. Permits declined 35 percent in Little Rock, 41 percent in Louisville, 42 percent in St. Louis, and 57 percent in Memphis.

Commercial real estate was mixed. The third quarter 2008 industrial vacancy rates in St. Louis and Memphis decreased over the second quarter of 2008, while industrial vacancy rates in Louisville and Little Rock increased. During the same period, suburban office vacancy rates decreased in St. Louis, Little Rock, and Memphis, but increased in Louisville. Downtown office vacancy rates decreased in Memphis and St. Louis but increased in Louisville and Little Rock. A non-residential construction contact in St. Louis reported concerns about current credit market conditions. A commercial construction contact reported that interest in new projects has slowed sharply throughout the District. An industrial construction contact in Little Rock reported that activity has held steady and that, because of the upcoming construction of several facilities related to wind energy, the outlook is positive. A contact in Louisville reported that industrial developers are cautiously optimistic about the fourth quarter.

Banking and Finance
A survey of loan officers showed a decline in overall lending activity in the three months ending in October. Credit standards for commercial and industrial loans and for commercial real estate loans tightened, while demand for these loans ranged from unchanged to weaker. Meanwhile, credit standards for consumer loans ranged from tightened somewhat to unchanged, while demand for these loans was also weaker. Demand for all types of residential mortgage loans was moderately weaker, while credit standards for these loans tightened somewhat.

Agriculture and Natural Resources
Good weather conditions helped farmers make significant progress with harvesting, which was nearly finished as of mid-November. Between October and November, yield estimates for crops changed by less than 6 percent except for cotton in Arkansas (which decreased by 10 percent), sorghum in Illinois and cotton in Tennessee (both increasing by about 10 percent). Most District states were ahead of normal with winter wheat planting, but crop growth was slightly behind normal in most states. Similar to last year, at least 90 percent of the winter wheat in each state with available data was rated fair or better.

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Last update: December 3, 2008