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The economy of the Eighth District has grown modestly since our previous report. Economic activity in the manufacturing sector increased, on balance, as did activity in the services sector. While retail sales reports were mixed, auto sales in July and early August increased over a year ago. Residential real estate markets held steady and commercial real estate activity remained slow. Overall lending activity at a sample of large District banks was largely unchanged during the three-month period ending in July.
Retail sales reports from contacts in July and early August were mixed. Compared with a year ago, about 37 percent of the retailers saw increases in sales, while 42 percent saw decreases and 21 percent saw no changes. About 32 percent of the respondents noted that sales levels met their expectations, 47 percent reported that sales were below expectations, and 21 percent reported that sales were above expectations. Higher-priced items continued to be weak sellers. One third of the contacts noted that their inventories were too high, while 16 percent reported that their inventories were too low. The sales outlook among the retailers for September and October was mostly optimistic. About 56 percent of the retailers expect sales to increase over 2009 levels, while 20 percent expect sales to decrease and 24 percent expect sales to be similar to last year.
Car dealers in the District reported that, compared with last year, sales in July and early August were up, on average. About 44 percent of the car dealers surveyed saw increases in sales, while 32 percent saw decreases and 24 percent saw no changes. Just under half of the car dealers noted that used car sales had increased relative to new car sales, while 12 percent reported the opposite. Also, 20 percent reported more acceptances of finance applications, but 12 percent reported more rejections. A slight majority of the car dealers surveyed reported that their inventories were too low, while 12 percent reported that their inventories were too high. The sales outlook among the car dealers for September and October was generally optimistic. About 56 percent of the car dealers expect sales to increase over 2009 levels, but 16 percent expect sales to decrease. The remaining 28 percent expect sales to be similar to last year.
Manufacturing and Other Business Activity
Manufacturing activity has continued to increase since our previous report. Several manufacturers reported plans to open plants and expand operations in the near future, while a smaller number of contacts reported plans to close plants and reduce operations. Firms in the soap and cleaning compound, aerospace products and parts, glass products, motor vehicle parts, and primary metal manufacturing industries reported plans to open new facilities in the District and hire employees. Contacts in the food, engine, adhesive, and sanitary paper products manufacturing industries reported plans to expand existing facilities and operations. In contrast, firms in the furniture, hand tool, and power transmission equipment manufacturing industries announced plans to decrease operations and lay off workers.
The District's services sector also has continued to improve since our previous report. Firms in the transportation, business support, telecommunications, and government services industries expanded existing operations and hired new employees. Additionally, firms in the restaurant industry opened several new facilities. In contrast, contacts in the business support services and janitorial services industries reported plans to decrease operations and lay off workers.
Real Estate and Construction
Home sales varied across the Eighth District. Compared with the same period in 2009, July 2010 year-to-date home sales were down 1 percent in St. Louis and 1 percent in Memphis. However, over the same period, sales increased 19 percent in Louisville and 5 percent in Little Rock. Residential construction continued to improve in most of the District. July 2010 year-to-date single-family housing permits were up in the majority of the District metro areas compared with the same period in 2009. Permits increased 17 percent in Little Rock, 18 percent in St. Louis, and 23 percent in Memphis. Permits, however, remained the same in Louisville.
Demand conditions in commercial and industrial real estate markets were mixed, while activity in the sector remained weak. Compared with the first quarter of 2010, second-quarter 2010 industrial vacancy rates decreased in St. Louis but increased in Little Rock and Memphis; vacancy rates remained stable in Louisville over the same period. The downtown office vacancy rate decreased in Little Rock, Louisville, and Memphis but increased in St. Louis. During the same period, suburban office vacancy rates decreased in Little Rock and Memphis but increased in Louisville and St. Louis. A contact in south central Kentucky reported that commercial construction is steady but there are concerns that the pipeline for new projects is lean. A commercial constructing contact in northeast Arkansas reported that projects are few and for the most part small, with some activity in education-related projects. A contact in St. Louis reported that construction of office and warehouse spaces has been limited. In contrast, contacts in the northeast Mississippi region have reported significant industrial construction plans.
Banking and Finance
A survey of senior loan officers at a sample of large District banks indicates little change in overall lending activity for the three-month period ending in July. Credit standards for commercial and industrial loans remained basically unchanged, while demand for these loans was about the same. Credit standards for commercial real estate loans were also basically unchanged, while demand for these loans varied slightly, ranging from moderately weaker to moderately stronger. Meanwhile, credit standards for consumer loans were basically unchanged, while demand for these loans was mixed, ranging from weaker to moderately stronger. Credit standards for residential mortgage loans remained basically unchanged, while demand for these loans was moderately weaker.
Agriculture and Natural Resources
Generally, development of the District's major crops remained ahead of its 5-year average pace. The overall condition of corn, soybeans, rice, cotton, and sorghum has deteriorated slightly since our previous report: As of August 1, yields for most of the major crops in each District state were expected to be at least 94 percent of last year's yields, although yields for corn and soybeans in both Kentucky and Tennessee and winter wheat in Indiana were expected to be 10 to 20 percent lower than last year. Since our previous report, soil moisture ratings and pasture conditions have deteriorated in most District states.