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Economic activity in the Eighth District has expanded moderately since our previous survey. Reports from manufacturing were generally positive, and reports from the services sector indicated continued expansion. Market conditions in both residential and commercial real estate, however, were mixed. Total lending activity at a sample of small and mid-sized District banks increased from late March to mid-June.
Manufacturing and Other Business Activity
Overall, manufacturing activity appears to have increased slightly since our previous survey. Firms in both the aerospace and motor vehicle parts manufacturing industries reported plans to build facilities, expand production, and hire additional workers. A contact in oil and gas field machinery manufacturing reported plans to build new facilities in the District and a contact in paper manufacturing reported plans to hire additional workers. Firms in the bio-fuel manufacturing and motor vehicle manufacturing industries reported plans to hire additional workers. In contrast, firms in plastic product manufacturing reported decreased operations and plans to lay off workers. A contact in the household appliance manufacturing industry reported decreased production compared with last year. Firms in wood product manufacturing reported cash flow problems.
The District's services sector continued to expand. Contacts in the business support services, health services, and professional, scientific, and technical services industries announced plans to expand facilities and hire additional workers. Retail sales have increased at a moderate pace despite high gas prices. Auto sales were higher in June and the first half of July compared with the same period last year. Auto dealers indicated that demand for hybrids, small sedans, and smaller sport utility vehicles has been high, but large vehicles and sport utility vehicles have not been selling well.
Real Estate and Construction
Home sales continued to vary substantially across the Eighth District. Compared with the same period in 2006, May 2007 year-to-date home sales were up 3 percent in Louisville and unchanged in Little Rock. Year-to-date home sales declined 10 percent in Memphis and 4.5 percent in St. Louis. Residential construction continued to decline throughout most of the District. May 2007 year-to-date single-family housing permits fell in nearly all metro areas compared with the same period in 2006. Permits declined 25 percent in Memphis and 12 percent in St. Louis and Little Rock. Permits, however, increased 15 percent in Louisville.
Commercial real estate market conditions were mixed throughout the District. The first-quarter 2007 office vacancy rate decreased in St. Louis over the fourth quarter of 2006. During the same period, the industrial vacancy rate in St. Louis increased slightly. In Memphis, contacts reported that industrial leasing activity is up after a slow start in the first quarter. Contacts in Jackson, Tennessee, reported that commercial construction activity remains strong. Contacts in Little Rock reported plans to build a new industrial plant.
Banking and Finance
Total loans outstanding at a sample of small and mid-sized District banks increased 1.7 percent from late March to mid-June. Real estate lending, which accounts for 74.7 percent of total loans, increased 1.5 percent. Commercial and industrial loans, accounting for 16.7 percent of total loans, increased 0.3 percent. Loans to individuals, accounting for 4.6 percent of total loans, increased 4.4 percent. All other loans, roughly 3.9 percent of total loans, rose 8.3 percent. During this period, total deposits at these banks increased 0.1 percent.
Agriculture and Natural Resources
Development of the major District crops was reported to be at or ahead of their 5-year average pace, except for soybeans in Missouri. As of mid-July, at least 89 percent of the District states' total corn, soybeans, cotton, sorghum, and rice crops were rated in fair or better condition. The winter wheat harvest was reported to be at least 95 percent complete in all District states except Indiana and Missouri, where at least 80 percent of the harvest was complete. Because of excessively dry weather, pasture conditions have deteriorated in Indiana, Kentucky, and Tennessee since our previous report, while conditions in the rest of the District states have improved.