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Business activity in the Eighth District continued to improve since our last
report. Despite growth in many areas, however, some contacts in manufacturing
and services reported plant closings and layoffs. Retail and auto sales increased
in June over year-earlier levels. Residential real estate markets continued to
do well in the District, and commercial markets appear to be stabilizing. Total
loans at a sample of small and mid-sized District banks increased between mid-March
Manufacturing and Other Business Activity
Manufacturing activity in the District increased in many industries. Firms in
the garden tools, plastics manufacturing, packaging, and automotive parts industries
reported plant expansions, openings, and employment increases. A contact in
the aerospace industry reported plans to train displaced automotive industry
workers to manufacture aerospace parts. Despite the improvement in some areas,
there have been reports of plant closings, company reorganizations, and layoffs.
Affected industries include printing, electronics, automotive tire, home appliance,
and industrial parts. A District automotive manufacturer will idle some of its
plants this summer in an effort to reduce inventories of sport-utility vehicles.
Several District coal producers reported shipment delays due to congested and
overloaded freight rail lines. Contacts in the construction industry reported
cement shortages and increasing prices. Contacts attribute the shortage of cement
to the rise in steel demand abroad, arguing that many of the ocean vessels that
would be used to import cement are tied up shipping steel.
In the services sector, firms in the tourism industry have reported facility
openings and increases in hiring, while firms in the health services, correctional,
and telecommunication industries reported workforce reductions. Business activity
in the retail services sector was strong. Contacts reporting store openings
included boutique grocery, furniture, outdoor equipment, clothing, electronics,
office supply, and building materials retailers. Discount retailers reported
sales growth in June compared with May. Retailers also noted stronger sales
growth in June compared with the same month a year ago. Most District auto dealers
reported increased sales in June compared with May. In addition, contacts reported
higher sales in June compared with year-earlier levels.
Real Estate and Construction
The housing market continues to do well in the Eighth District. May year-to-date
home sales in the Memphis area were up 13 percent compared with the same period
in 2003, and in the greater St. Louis area the growth was 5.8 percent. Residential
construction is still strong in most of the District's metropolitan areas. Year-to-date
permits increased throughout the District in May 2004 compared with May 2003.
There was a 10 percent growth in year-to-date permits in the St. Louis County
area. Construction has picked up in northeast Arkansas, where builders are optimistic
about the second half of the year, and has remained steady in rural west Tennessee.
The District's commercial real estate market may be stabilizing. Office vacancy
rates for downtown St. Louis increased only slightly to 22.8 percent in the
first quarter of 2004 from 22.5 percent in the last quarter of 2003. The downtown
Louisville vacancy rate fell to 20.4 percent from 21.0 percent, while in downtown
Memphis the rate increased slightly from 23.4 percent to 24.5 percent. The industrial
vacancy rate for the Louisville metropolitan area increased to 18.3 percent
in the first quarter of 2004 from 16.7 percent in the last quarter of 2003.
Commercial construction has shown some improvement in most of the Eighth District.
Overall commercial construction in the St. Louis area increased by more than
6 percent during the first 5 months of 2004 compared with the same period in
2003. Contacts reported that construction in north central Arkansas was up significantly
compared with the previous year and that the market continued to improve in
Memphis and rural west Tennessee.
Banking and Finance
Total loans outstanding at a sample of small and mid-sized District banks were up 4.2 percent from mid-March to late June. This increase stems from a 3.0 percent rise in commercial and industrial loans along with a 4.8 percent increase in real estate loans. Loans to individuals and loans to commercial banks showed declines of 3.1 percent and 22.9 percent, respectively. During the same period, total deposits at these banks decreased 4.6 percent.
Agriculture and Natural Resources
While the rains have subsided for some District states, others are still plagued
by wet weather and flooding damage in certain areas. Most ratings of soil moisture
levels continue to be adequate or surplus. In every District state, at least
50 percent of each crop, including over 75 percent of the corn crop, has been
rated in good or excellent condition. Livestock and pastures are mostly in good
Every District state has completed more than 90 percent of its winter wheat
harvest. The growth of corn, soybeans, and sorghum is ahead of normal in the
District, while cotton growth is keeping pace with its five-year average.