March 3, 2004
Federal Reserve Districts
|Skip to content
Economic activity in the Eighth District continues to expand slowly. Reports of stronger orders, plant openings, and expansions in the manufacturing and services sectors have all increased since our previous report. Retail sales declined slightly in December and January over year-earlier levels. Car sales also decreased slightly over the same period. Residential real estate markets are still doing well, but commercial real estate markets remain weak in most of the District. Overall lending activity at a sample of District banks experienced little change over the past three months.Consumer Spending
Contacts reported that retail sales in December and January were slightly down, on average, over year-earlier levels. More than 50 percent of the retailers surveyed noted that sales levels met their expectations. About 33 percent of the contacts reported that sales were below what they had anticipated. Jewelry, personal and home electronics, laptop computers, decorative items, seasonal items, toys, and furniture were strong sellers, while computer hardware and software, small home furnishings, lawn and garden items, home audio equipment, and apparel were moving more slowly. About two thirds of the retailers surveyed noted that inventories were at desired levels. Most of the remaining contacts reported that inventories were lower than desired. Retailers appear optimistic about the next two months, with most of the contacts expecting sales to increase over 2003 levels.
Car dealers in the District reported that, compared with last year, sales in December and January were slightly down, on average. About half of the car dealers surveyed reported increases in sales, while the other half reported decreases. More than 40 percent of the car dealers surveyed noted that sales of used and low-end cars had increased. About 25 percent of the contacts reported increased use of rebates, while 68 percent reported no change. About 25 percent of contacts surveyed reported a decrease in the acceptance rates of finance applications, while 17 percent reported an increase in acceptance rates. More than 35 percent of the car dealers surveyed reported that their inventories were at desired levels, while 50 percent noted that their inventories were too high. A slight majority of the car dealers surveyed are optimistic about the next two months and expect sales to increase over 2003 levels.Manufacturing and Other Business Activity
The Eighth District's manufacturing sector continues to show signs of improvement. Reports of stronger orders, plant openings, and expansions have all increased since our previous report. Manufacturers in the aerospace, automotive parts, metal parts, furniture, and electronics sectors reported recent plant openings, expansions, and relocations to the District, with plans for increased employment. Although manufacturers in the food processing sector generally reported plant closings and layoffs, a meat processing firm has announced plans to open a new plant early this year. Despite the generally positive outlook, some District manufacturers reported decreased orders, layoffs, and plant closings. Plant closings have affected manufacturers in the food processing, appliance, mineral enrichment, and iron fabrication sectors. While automotive-related sectors generally reported expansions throughout the District, one large auto assembly plant announced plans to layoff employees in the second quarter of 2004. Contacts have reported a rapid increase in steel prices since the steel tariffs were rescinded last December. Steel-using manufacturers attribute this rise to increasing costs of raw materials for domestic steel production; they also note that a weak U.S. dollar and rising ocean freight costs are preventing them from buying foreign steel to compensate. Some contacts even report that steel suppliers are placing them on allocations and are canceling existing contracts.
The District's services sector also continues to show signs of improvement. Firms reporting facility openings, expansions, and new hires include those in the banking, insurance, health care, technology, tourism, and airline services sectors. While firms in the services sector seemed generally optimistic, some firms reported facility closings, employee transfers, and layoffs. Firms reporting facility closings and layoffs include those in the financial and transportation services sectors. Reports from the telemarketing sector were mixed.Real Estate and Construction
The Eighth District's residential real estate market had a strong year in 2003. Memphis home sales set a record in 2003, with a gain of 9.2 percent over 2002. December year-to-date home sales increased by 11.6 percent in the greater Louisville area and by 1.3 percent in Little Rock. Residential construction continues to do well in the Eighth District. December 2003 permits for single-family homes were up in all of the District's metropolitan areas compared with December 2002. In the greater St. Louis metropolitan area, permits increased by 2.0 percent. Residential construction remains strong in central Kentucky, and homebuilders in Louisville are very optimistic about 2004. Contacts report that construction has also been brisk in Fayetteville, Arkansas. Commercial real estate continues to lag behind the residential market in most of the District. The office vacancy rate in downtown St. Louis was up by 14.0 percent in December compared with December 2002. The office vacancy rate in the greater Louisville area fell to 17.7 percent from 20.2 percent in midyear 2003, while the industrial vacancy rate decreased by 1.2 percentage points in the fourth quarter. Construction has slowed down somewhat in west Tennessee, but continues to do well in Danville, Kentucky. Contacts in northeast Arkansas expect market conditions to improve in 2004. Banking and Finance
A recent survey of senior loan officers at a sample of District banks indicated little change in the overall lending activity in the past three months. During this period, credit standards and demand for commercial and industrial loans remained unchanged for both large and small firms. Credit standards and loan terms for commercial real estate loans remained basically unchanged in the past three months, while demand for commercial real estate loans was moderately stronger. Meanwhile, both the credit standards and the demand for residential mortgage loans, credit cards, and other consumer loans were generally unchanged. Agriculture and Natural Resources
Crop yields improved in 2003 over 2002 for most District states. During 2003, total production of corn in the District states increased by about 20 percent, while total production of sorghum and winter wheat increased by about 10 percent and 25 percent, respectively. In contrast, total production of soybeans declined by at least 15 percent in each of the three largest producing states in the District--Illinois, Indiana, and Missouri--leading to an overall decline of about 9 percent. Caused in part by December's case of mad cow disease, prices-received for beef cattle decreased from December to mid-January by at least 5 percent in all District states, except Tennessee, which had a smaller decline.