March 15, 2006
Federal Reserve Districts
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The Eighth District economy expanded modestly since our previous survey. Contacts reported improved conditions in manufacturing and continuing growth in the services sector. Retail sales increased in January and February compared with a year ago; car sales declined over the same period, however. Residential real estate market activity slowed in January compared with a year ago. Commercial real estate market conditions continued to be positive. Overall lending activity at a sample of District banks experienced little change in the fourth quarter of 2005.Consumer Spending
Contacts reported that retail sales in January and February were up, on average, over year-earlier levels. Approximately 59 percent of the retailers surveyed saw increases in sales, while 32 percent saw decreases. About 71 percent of the contacts reported that sales levels met their expectations, 19 percent reported that sales were below expectations, and 10 percent reported that sales were above expectations. Winter seasonal items, home décor, jewelry, and staple foods were all strong sellers, while women's clothing and winter clothing were moving more slowly. Approximately 73 percent of the contacts noted that inventories were at desired levels. About half of contacts expect that sales in March and April will increase over the same months of 2005, and about 23 percent of contacts are cautiously optimistic.
Car dealers in the District reported that, compared with last year, sales for January and February were down, on average. About 48 percent of the car dealers surveyed reported a decrease in sales, and 26 percent reported an increase. Nearly half of the car dealers noted that used car sales had increased relative to new car sales, while 9 percent reported the opposite. About 30 percent reported an increase in low-end vehicle sales relative to high-end vehicle sales, while 17 percent reported the opposite. About 87 percent of the contacts reported no change in the rejection or acceptance rates of finance applications. Nearly 57 percent of the car dealers surveyed reported that their inventories were too high, mostly with new or high-end vehicles, while 35 percent reported that their inventories were at desired levels. About 60 percent of the car dealers surveyed expect that sales will increase in March and April over year-ago levels.
Manufacturing and Other Business Activity
The District's services sector continued to expand in most areas since our previous survey. Contacts in the wireless telecommunications, air transportation, and traveler accommodation industries reported increased business activity. One contact in the business support services industry reported plans to increase hiring of service representatives.
Real Estate and Construction
Commercial real estate market conditions were mostly positive throughout the Eighth District. Industrial vacancy rates declined during the fourth quarter of 2005 in Memphis, St. Louis, and Little Rock. In contrast, Louisville's industrial vacancy rate increased over the same period. Memphis, St. Louis, Little Rock, and Louisville all saw a year-end decline in office vacancy rates compared with the third quarter of 2005. Contacts indicated that commercial construction is active in St. Louis, remains strong in south central Arkansas, but is down in Little Rock. Contacts in northeast Mississippi reported that commercial construction activity has returned to average levels after last year's sharp increase. Contacts in Memphis reported that industrial construction activity is slowing, while contacts in southwest Arkansas and southwest Indiana reported new industrial projects.
Banking and Finance
Agriculture and Natural Resources