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Economic activity in the District is continuing to pick up, although slowly. Retailers report that sales have been flat compared with their year-earlier levels, although many apparel and automobile retailers attribute this to cool, rainy weather and remain optimistic about the coming months. Cutbacks continue in some manufacturing industries, although reports of recovery are increasingly common. The residential real estate market continues to be strong throughout most of the District, although the market for high-end homes has been less strong. Commercial real estate markets continue to be weak throughout the District. Although credit standards remain largely unchanged, there are reports of increased credit standards for mortgages and commercial and industrial loans. In the agricultural sector, flooding and unfavorable weather have delayed planting and damaged crops in much of the District.
On average, contacts report that spending in April and May was flat compared with year-earlier levels. Over one-half of the retailers noted that sales met their expectations. Appliances, perishables, furnishings and other home products, and summer items were strong sellers, while apparel, jewelry, and gift items moved more slowly. Some contacts attributed the slow summer-apparel sales to cool, rainy weather. While inventories are lower than last year, contacts reported that they tended to be at their desired levels. Retailers remain optimistic about the summer, with over half of those surveyed expecting growth over last year and about one-third expecting sales to be about the same as their 2001 levels.
Car dealers in the District report that sales were up, on average, in April but tapered off in May. Reasons given for this decline include cool, rainy weather and low consumer confidence. About one-half of contacts said that strong manufacturer incentives have had the effect of "stealing" current sales by prompting customers to buy early. A majority of dealers are still offering these incentives, although less aggressively. Several contacts noted decreased interest in new and high-end vehicles and greater interest in cheaper, fuel-efficient vehicles. Overall, dealers reported desirable inventory levels for all vehicles. Just under 70 percent of dealers contacted are optimistic about summer sales, expecting to see growth over last year, while the rest expect sales to be around their 2001 levels. About one-third of the dealers noted higher rejection rates of finance applications, while the rest reported no change.
Manufacturing and Other Business Activity
The Eighth District manufacturing sector continues to recover, although slowly. While cutbacks, layoffs, and plant closings are still being reported in some industries, reports of recovery and growth are increasingly common. Industries that have seen an increase in business include apparel, furniture, medical supply, aluminum, food, home products, power, corrugated box, and tools manufacturers.
Reports from the services sector are mixed. While distribution and logistics companies are still recovering from a downturn last fall, some contacts noted that losses were not as large as expected and that some companies have seen strong employment and sales. Several medical centers in the District are expanding, although the shortage of healthcare workers continues to be a concern. Contacts also reported that advertising and gaming are strong and that the tourism industry is doing better than expected.
Real Estate and Construction
The District's residential real estate market continues to be strong. Housing sales in the Memphis and Little Rock portions of the District are ahead of their 2001 levels. Also, sales in southern Indiana were up between March and April, while sales in northern Mississippi continued to improve. In most areas, though, high-end homes are selling slowly or are selling at lower prices. Commercial real estate markets continue to be relatively weak. For example, the vacancy rate in the St. Louis industrial market was higher through the first part of the year, and reduced lease rates are being used to attract tenants. Residential construction opportunities are strong throughout the District, as April year-to-date building permit levels were generally higher than a year earlier. Commercial construction is more mixed, remaining slow in western Tennessee but picking up in central and western Kentucky.
Banking and Finance
A recent survey of senior loan officers at a sample of District banks indicates that the credit standards for commercial and industrial (C&I) loans have remained largely unchanged in the last three months. Some contacts, though, reported a slight tightening of standards for C&I loans, primarily due to deterioration in their bank's current or expected capital position. Also important were increased defaults by borrowers and decreased secondary market liquidity for loans. Most contacts reported a moderately weaker demand for C&I loans due to lower customer financing needs and cheaper nonbank sources of financing. They also reported largely unchanged credit standards for residential mortgages, consumer loans, and credit cards; although a few reported moderate tightening. Commercial paper back-up lines of credit have remained unchanged for nonfinancial firms. Contacts reported no unexpected change in their operations or activity since September 11. The only exception was a slight increase in the collateral requirement for commercial real estate borrowers.
Agriculture and Natural Resources
Unseasonably cool temperatures and substantial rainfall during May have slowed the pace of corn and soybean planting and have impeded crop emergence in Illinois, Indiana, Missouri, and parts of Kentucky. In many cases, planting took place under less-than-ideal conditions. Both corn and soybean plantings this year lag behind last year's pace throughout the District. Planting that should have been completed by mid- to late-May was reported as only one-half to two-thirds complete by the first of June, with contacts reporting widespread delays in southern Illinois and southern Indiana. In some areas, further delays may force farmers to plant soybeans instead of corn. Heavy rains have also caused substantial flooding and crop damage in some areas along the Missouri, Illinois, and Mississippi rivers. Contacts in Arkansas and Mississippi report that the rice and cotton crops are off to sluggish starts because of the cool, wet spring. In general, the rice crop is in good condition while the cotton crop is in fair condition. The winter wheat crop is generally in good condition as the summer harvest approaches.