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Federal Reserve Districts

Eighth District--St. Louis

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Full report

The economy of the Eighth District has continued to expand since our previous survey. A majority of manufacturing contacts reported plans to open plants and increase operations. The services sector continued to expand. Retail sales in April and May increased over year-earlier levels, but auto sales declined over the same period. Home sales continued to increase, and commercial real estate market conditions were mixed. Lending conditions at a sample of District banks have varied slightly in the past three months.

Consumer Spending
Contacts reported that retail sales in April and May increased over year-earlier levels. While 45 percent of the retailers surveyed noted that sales levels met their expectations, 35 percent reported that sales were below what they had anticipated, and 20 percent reported sales above expectations. Gardening items, shoes, clothing (especially children's), food, and jewelry were all strong sellers, while home decor, seasonal items, and hardware were moving more slowly. About half of the contacts noted that inventories were at desired levels, while 38 percent reported that inventories were too high. Retailers are generally optimistic about summer sales.

Car dealers in the District reported that sales in April and May decreased compared with last year. About 46 percent of the car dealers surveyed reported decreases in sales, while another 46 percent reported increases. About 35 percent of the car dealers noted that used car sales had increased relative to new car sales, and about 37 percent reported increases in low-end vehicle sales relative to high-end vehicle sales. About 80 percent of the contacts reported no change in the use of rebates. Over half of the respondents reported unchanged acceptance rates of finance applications, but 29 percent noted more rejections. About 57 percent of the car dealers surveyed reported that their inventories were at desired levels, and one third of contacts reported that their inventories were too high. Half of the contacts anticipate increased summer sales over 2004.

Manufacturing and Other Business Activity
Manufacturing in the Eighth District continued to show signs of moderate improvement, with a majority of firms reporting plans to open plants and expand operations. Several contacts expressed concern over higher fuel and steel input prices. Firms in the primary metal, furniture, motor vehicle, household appliance, coal product, aerospace, chemical, pharmaceutical, plastics, and medical supplies industries reported plans to open new plants or expand operations. Contacts in the steel, electrical equipment, and chemical manufacturing industries reported increased orders and higher earnings in April and May from a year ago. Despite these improvements, several District manufacturers reported plant closings and workforce reductions. Firms in the motor vehicle industry reported plans to temporarily shut down operations because of excessive inventories and decreased demand for sport utility vehicles.

The District's services sector continued to expand. Firms in the freight transportation, business support, management consulting, recreation, warehousing, and health services industries reported new facility openings and expansions. Several regional business contacts noted strong sales and employment gains in the hospitality services industry. In contrast, several firms in the financial and educational services industries reported plans to close facilities or lay off workers.

Real Estate and Construction
Home sales are still on the rise in the Eighth District. Compared with 2004, April year-to-date sales rose 5 percent in Louisville, 4.2 percent in Memphis, and almost 1 percent in St. Louis. Residential construction is lagging in most of the District's metro areas. April year-to-date single-family residential permits were down from 2004. Permits declined 8.3 percent in St. Louis, 4 percent in Memphis, and about 14 percent in Evansville, Indiana, and Jackson, Tennessee. In contrast, permits in Louisville and Little Rock increased over 9 percent.

Commercial real estate market conditions throughout the District were mixed. The first-quarter industrial vacancy rate in Memphis fell to 18.2 percent from 18.7 percent in the fourth quarter of 2004; in St. Louis, the industrial vacancy rate fell to 6.4 percent from 6.6 percent; in Louisville, however, the industrial vacancy rate rose to 8.5 percent from 7.4 percent. Office vacancy rates in the District declined slightly. The first-quarter office vacancy rate in Memphis declined to 18.6 from 18.7 percent in the fourth quarter of 2004, while the St. Louis office vacancy rate remained at roughly 16 percent. Contacts reported no new commercial construction permits issued in April for Texarkana, Arkansas. Contacts in northeast Mississippi reported that new commercial space increased in the first quarter of 2005 compared with a year ago. In west Tennessee, contacts reported numerous manufacturing plant expansions.

Banking and Finance
A recent survey of senior loan officers at a sample of District banks indicates little variation in overall lending activity in the past three months. During this period, credit standards for commercial and industrial loans were somewhat tighter, while demand remained unchanged. Credit standards for residential mortgage loans, commercial real estate loans, and consumer loans were generally unchanged. Respondents indicated that the demand for commercial real estate loans was somewhat stronger, while the demand for consumer loans was somewhat weaker.

Agriculture and Natural Resources
Because of good conditions in April and May, planting of all major District crops is ahead of their five-year average pace, with soybean and sorghum significantly ahead of normal. Recent cool and dry weather, however, has slowed growth of crops and pastures. In addition, over half of the soil moisture ratings in Arkansas, Illinois, Missouri, and Tennessee were reported to be less than adequate at the end of May.

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Last update: June 15, 2005