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Economic conditions in the Eighth District have been mixed since our previous survey. While the services sector continued to grow, reports in manufacturing did not present as clear a picture. Retail and auto sales declined in October and mid-November relative to a year ago. Residential and commercial real estate market conditions were mostly favorable. Lending activity at a sample of District banks was largely unchanged in the three-month period ending in October.
Contacts reported that, on average, retail sales for October through mid-November were down over year-earlier levels. About 48 percent of the retailers surveyed noted that sales levels met their expectations, 38 percent reported that sales were below what they had anticipated, and 14 percent reported that sales were above expectations. Winter seasonal items, electronics, and staple foods were all strong sellers, while heavy clothing, shoes, and home furnishings were moving more slowly. About 75 percent of the contacts noted that inventories were at desired levels, 21 percent reported that inventories were too high, and 4 percent reported that inventories were too low. Retailers appear generally optimistic about sales during the holiday season, as approximately 63 percent of contacts expect that sales will increase over their 2004 levels.
Car dealers reported that, on average, sales for October through mid-November were down over year-earlier levels. About 88 percent of the car dealers surveyed reported a decrease in sales. Many contacts attributed decreased sales to high fuel costs; a few contacts also cited the end of pricing discounts as a reason. About two thirds of the car dealers surveyed noted no change in used car sales relative to new car sales. About half of contacts reported an increase in low-end vehicle sales relative to high-end vehicle sales, while another half reported no change. About 38 percent of the car dealers surveyed reported that inventories were too high, 33 percent reported that their inventories were at desired levels, and 29 percent reported that inventories were too low. About 38 percent of the car dealers surveyed expect decreased sales over 2004 for the next two months, 25 percent expect increased sales, while another 29 percent are cautiously optimistic.
Manufacturing and Other Business Activity
Reports from contacts in the manufacturing sector in the period since our previous survey continued to be mixed. Several firms reported plans to open plants and expand operations, while slightly fewer contacts reported plans to close plants and lay off workers. Firms in the food, pharmaceutical, and fabricated metal product industries announced plans to open new facilities in the District. Firms in the auto, machinery, manufactured home, and plastics industries announced plans to expand facilities or increase production. In contrast, contacts in the motor vehicle parts, apparel, chemical, and household appliance industries reported plant closings and layoffs. Several of these firms cited slowing demand or plans to move production abroad. Many contacts expressed concern over the rising costs of raw materials.
The District's services sector continued to expand in most areas since our previous report. Firms in the water transportation, warehousing, telecommunications, finance, and business support services industries announced plans to open new facilities in the District. Firms in the freight transportation industry reported plans to expand facilities and hire additional workers. Despite overall positive growth, contacts in the waste management and health care industries reported plans to lay off workers.
Real Estate and Construction
Residential real estate markets continued to do well in most of the Eighth District. Compared with the same period in 2004, September year-to-date home sales were up in Louisville, Memphis, Little Rock, and in metropolitan St. Louis. Contacts in northeast Arkansas, however, reported that homes sales have slowed recently. Residential construction was mixed throughout the District. Compared with the same period last year, September year-to-date single-family permits were up in Little Rock, Memphis, St. Louis, and Pine Bluff, Arkansas; permit growth was flat in Louisville and down in Owensboro, Kentucky, Jackson, Tennessee, and Evansville, Indiana.
Commercial real estate market conditions throughout the Eighth District were mostly positive. The third-quarter industrial vacancy rate fell in St. Louis and Louisville, and it rose in Memphis. The third-quarter office vacancy rate fell in St. Louis and Memphis, and it rose in Louisville. Commercial construction is strong throughout the District. Contacts in northeast Mississippi reported that new commercial development is stepping up, and contacts in southwestern Illinois reported that both commercial and industrial development are strong. Contacts reported that construction of a major industrial project is underway in northern Mississippi, and contacts in northwest Tennessee reported that construction of a large industrial complex is slated to begin in mid-2006.
Banking and Finance
A survey of senior loan officers at a sample of District banks showed little change in overall lending activity in the three months ending in October. During this period, credit standards and demand for commercial and industrial loans remained basically unchanged for both large and small firms; credit standards for commercial real estate, residential mortgage, and consumer loans were also unchanged. In this period, demand for commercial real estate and consumer loans remained basically unchanged, while demand for residential mortgages was moderately weaker.
Agriculture and Natural Resources
Thanks to the dry weather observed since October, the District's fall harvest has progressed ahead of its normal pace. The corn, soybean, sorghum, and cotton harvests are at least 96 percent complete, and the rice harvest is finished. Despite its positive impact on harvesting, the dry weather has delayed some winter wheat planting in Mississippi, but farmers in all other District states have planted at least 90 percent of their intended crop.