June 11, 2003
Federal Reserve Districts
|Skip to content
With little change since the last report, economic activity in the Eighth District remains soft. Manufacturing sales declined in recent weeks compared with last year, and reports of cutbacks and plant closings continue. Retail sales were flat in April and May compared with the same months last year, but contacts are optimistic about summer sales; auto sales declined over the same period. Home sales are still up in most District areas, and commercial real estate markets remain sluggish. Over the past three months, there was essentially no change in lending activity. District farmers are concerned about crops damaged by recent storms and tornadoes.
Car dealers in the District report that sales in April and May were down, on average, compared with a year ago. Most contacts attribute this decline to an uncertain economy and buyers' apprehension about taking on a large amount of debt. Several car dealers report that fluctuating gas prices and low consumer confidence are causing used and low-end cars to sell better than new and high-end cars. Over half of the car dealers surveyed indicate that overall, inventories are too high. Approximately 20 percent were satisfied with their inventory levels, while the remaining 20 percent note that inventories, mostly of used cars, are too low. About 20 percent of the contacts surveyed note higher acceptance rates of finance applications, while roughly 14 percent report lower acceptance rates; the rest have seen no change. Despite sluggish sales, however, car dealers in the District remain cautiously optimistic about summer sales, expecting a moderate increase over last year.
Manufacturing and Other Business Activity
A few contacts in the distribution and logistics industry report that business has picked up recently for midsize to large trucking firms because several smaller firms have gone out of business. The airline industry continues cost-cutting efforts, announcing additional layoffs that will affect District workers. Recent tornadoes and inclement weather in the District damaged many businesses and factories, and repairs are under way.
Real Estate and Construction
Commercial real estate continues to lag behind residential markets in most of the District. During the first quarter of 2003 the industrial vacancy rate in the St. Louis area was around 8 percent, while the office vacancy rate was about 16 percent. Office vacancy rates in the Memphis area are trending up and are expected to reach 17 percent by mid-2003. Office leasing was also sluggish in Little Rock. Commercial construction has started to improve in some areas. Several new construction projects are under way in Danville, Kentucky, while March commercial permits increased considerably in Jackson, Tennessee. Construction was still stagnant in Evansville, Indiana, and continued to be slow in northeast Arkansas.
Banking and FinanceA recent survey of senior loan officers at a sample of District Banks indicates little change in the overall lending activity over the past three months. Banks' credit standards for commercial and industrial loans remained generally unchanged for large firms, but a few contacts reported slightly tightened standards for small firms. The banks that reported tightened credit standards for small firms cited reduced risk tolerance and worsening industry-specific problems as the main reasons for the change.
This survey introduced questions about the delinquency and charge-off rates over the past two quarters. Contacts cited the tightening of lending standards as the most important reason for the stabilization of delinquency rates and the low recovery rates on delinquent loans as the most important reason for the increase in charge-off rates. Credit standards for commercial real estate loans remained mostly unchanged over the past three months. Both the terms of credit and the demand for residential mortgage loans remained generally unchanged, but the demand for consumer loans decreased slightly.
Agriculture and Natural Resources