October 15, 2003
Federal Reserve Districts
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Contacts in the Eighth District indicate that the region's economy is showing modest signs of improvement. Favorable reports in the manufacturing and services industries suggest that economic activity increased since the last survey, although announcements of plant closings, downsizing, and layoffs remain. Retail sales increased in September compared with 2002 levels, but auto sales declined over the same period. Home sales rose in most of the District in August, while commercial real estate markets remained weak. Loan demand increased over the past three months at a sample of small and mid-sized banks in the District.Manufacturing and Other Business Activity
The Eighth District's manufacturing sector appears to be expanding. Reports of plant openings, product-line expansions, increased spending on research and marketing, and new jobs created continued to appear since the last survey. Manufacturers in the automobile and automotive parts, motor, fuel processing, hand tools, sealing products, photography, food, clothing, medical devices, health, and beauty industries were among those who announced such moves. In the services sector, firms in the banking, communications, entertainment, and hotel industries announced improvement in business activity and plans for expansion. Despite the positive outlook, there have also been several announcements of plant closings, downsizing, and layoffs. Affected industries include utilities, electrical transformers, packaging, shipping and transportation, chemicals, hardware, plumbing, brass, steel, fabrics, furniture, food, and airlines. A troubled auto plant has received state aid to limit local job cuts. Firms in the food, health care, and beauty industries recently were granted tax freezes for several years in return for job creation in the District.
General retail sales in the District improved slightly in September compared with the same month last year, with several retailers reporting increased in-store traffic. Strong-selling products included clothing, appliances, discount items, furniture, and back-to-school items. Among the products that were not moving were seasonal merchandise and cookware. Auto dealers report that sales have increased slightly in recent weeks, but they are still below 2002 levels. They attribute this increase to a higher use of rebates, deep discounting, and better finance terms. Contacts report, however, that they will offer fewer incentives on 2004 models. Recent sales of imports, SUVs, trucks, and used cars have increased, while sales of domestic, passenger, and new cars have decreased. Several contacts report that their inventories are higher than desired, particularly for used cars. Both general retailers and car dealers appear optimistic that sales will improve over the rest of the year.Real Estate and Construction
Sales of single-family homes through August continued to increase in most of the District. August year-to-date sales in northern Kentucky increased by 18.0 percent compared with those in the same month last year. In the Memphis area, year-to-date sales increased by 9.7 percent, with an increase of 6.1 percent between July and August 2003. In the northeast Mississippi area, however, the stock of homes for sale was at historic highs. In August, year-to-date single-family housing permits were up in most of the District's metropolitan areas compared with August of last year. In the greater St. Louis area year-to-date permit levels increased by 1.0 percent. Housing starts were up in southern Indiana and northeast Arkansas. Residential construction was also strong in western Tennessee and northeast Arkansas.
The office and industrial real estate markets are still sluggish in most of the District. Contacts in the St. Louis area anticipate a slight decrease in office and industrial vacancy rates in the third quarter. Commercial construction activity is slowly improving in most of the District. New shopping malls and movie theaters are being built in central Kentucky, and contacts in southern Indiana and the Memphis area report that commercial construction is improving.Banking and Finance
Total loans outstanding for a sample of small and mid-sized District banks were up 3.5 percent between early July and early September. This increase stemmed mostly from real estate loans and leases, which increased by 4.9 percent. Loans to individuals increased by 1.9 percent, while loans to commercial banks decreased by 1.0 percent. Over the same period, total deposits at these banks were up by 0.7 percent. Agriculture and Natural Resources
Recent weather has had mixed effects on agriculture. While rains slowed row crop maturity in some areas, damaged some tobacco during the harvest in Kentucky, and pushed back harvesting of hay and cotton, recent drier conditions have aided corn and soybean maturity and provided favorable conditions for quickening the harvest. Current reports indicate that, except for sorghum, the majority of crops lie in the good-to-excellent range. Improved by recent rains, more than 50 percent of pastures and hay also lie in this range.
Corn yields appear good, but harvesting is still behind its average pace. Soybean maturity and harvest lag nearly 50 percent behind average in Illinois and Missouri, while they are at a better-than-average pace in Mississippi. Sorghum maturity and harvest are behind average by over 70 percent in Illinois. Cotton harvest lags by nearly 50 percent due to previous wet conditions, while hay and rice crops are roughly on schedule. Farmers are now beginning to plant winter wheat. The condition of livestock continues to be good, as are soil moisture levels.