June 15, 2005
Federal Reserve Districts
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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.
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
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
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
Agriculture and Natural Resources