June 13, 2001 Federal Reserve Districts Eighth District - St. Louis

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The District economy, particularly the manufacturing sector, continues to show signs of sluggish growth. Growth at manufacturers continues to slow, and profit margins continue to narrow. Service providers are also feeling a pinch, but to a lesser degree. High fuel prices have forced some trucking companies to either cut back their fleets or shutdown. Housing markets are experiencing a seasonal boost, with sales and prices increasing around the District. Construction activity has also picked up. Banks have recently tightened credit standards on many of their loan products; at the same time, demand for some of these loans has weakened moderately. The spring planting is essentially complete. Crops are in good-to-excellent condition overall, although there has been some army worm damage reported. Manufacturing and Other Business Activity Contacts report that growth in the manufacturing sector has continued to slow, causing profit margins to narrow further. Many industries, such as furniture, recreational boat, aluminum, leather and auto parts manufacturers, continue to downsize and, in some cases, close plants. In northern Mississippi, for example, more than 1,800 jobs have been lost because several plants have closed or moved away. On the other hand, some manufacturing firms have made plans to expand or locate to the District. For example, firms in the high-tech, tobacco and chemicals industries plan to open new plants in Kentucky and Tennessee by next year. The service sector has also been affected by the recent economic slowdown, but to a lesser extent than manufacturing. One area of concern, for example, is distribution and logistic services. A Memphis contact notes that there has been a slowing in the number of packages and amount of freight being shipped. Consequently, one of the District's (and nation's) largest package handling companies, FedEx, has announced a hiring freeze and a suspension of employee profit sharing. The trucking industry continues to experience profit losses because of the high price of fuel. These losses have forced many small trucking companies to file for Chapter 11 protection, while larger firms cope by parking portions of their fleets and laying off workers. Contacts have noted that recent earnings reports seem to foretell a possible ongoing decline in profits for the rest of 2001. Real Estate and Construction Residential real estate sales and median prices have continued to increase across the District over the past six weeks. Contacts in Tennessee, for example, report that the arrival of the spring buying season has brought with it a sellers' market. Homes in the mid-to-high price range ($150,000 and above) have been the fastest sellers. Commercial real estate activity has been more mixed. In parts of west Tennessee, for example, commercial real estate sales have been strong. In the St. Louis region, on the other hand, downsizing at several companies has increased the availability of sublease space, which has thwarted the momentum of commercial real estate sales. Vacancy rates in this area are up for both office and industrial space. Residential construction is strong in most parts of the District. April monthly building permits in more than half of the District's metropolitan areas were up, in some cases by 15 percent or more. Year-to-date building permits through April in all but five District metro areas remained below their relatively strong levels of a year earlier. Contacts report that commercial construction is steady in the District. New or expanding jails, libraries, schools and universities are just a few of the projects that are underway in Indiana and Kentucky, for example. Banking and Finance Senior loan officers at District banks report that credit standards for commercial and industrial (C&I) loans have recently been tightened somewhat. The same is true for consumer loans and commercial real estate loans. Credit standards for mortgages, however, have remained relatively unchanged. Standards for lines of credit used to back commercial paper have also been tightened somewhat for lower prime-rated paper (A2/P2); standards on higher prime-rated paper (A1/P1) have remained unchanged. At the same time credit standards have been tightened, demand for C&I and consumer loans has become moderately weaker, according to about half of the survey's respondents. Demand for commercial real estate loans and mortgages has remained essentially unchanged. Agriculture and Natural Resources The planting of corn, rice and cotton progressed rapidly during the first two weeks of May and is now virtually complete. Soybean planting this year is ahead of last year's pace in most parts of the District, despite on-again/off-again rain and cooler-than-normal temperatures. A contact reports that, although these conditions are slowing crop development and causing a "yellowing" to occur across some corn and soybean fields, they are not expected to cause much of a problem. Overall, the corn, soybean, rice and cotton crops appear to be in good-to-excellent condition in most parts of the District. Contacts report army worm damage across the District -- particularly southern Illinois, Indiana and Missouri -- in hayfields, tall grass fields, pastures and some corn, soybean and winter wheat fields. The full extent of the damage to the wheat crop will not be known until the harvest is complete. The pace of the wheat harvest in Mississippi is modestly slower this year than last, with one contact suggesting that yields might be below average because of a wetter-than-normal winter. Return to top Chicago Minneapolis