September 19, 2001 Federal Reserve Districts Eighth District - St. Louis

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Economic activity in the District has continued to slow, particularly in the manufacturing sector and in those industries that serve the manufacturing sector. Retail sales were down in July and August, with sales in both months falling short of retailers' expectations. Sales of automobiles are down from a year ago, and there has been a shift toward used vehicles. Overall, retailers and auto dealers have mixed expectations for the immediate future, as the optimistic ones are roughly as numerous as the pessimistic ones. The residential real estate sector remains the brightest spot of the District economy, as sales volume and prices continue to rise in most of the District. In contrast, commercial real estate markets have softened. Total loans by small and mid-sized banks are down slightly, and there is a trend toward stricter loan standards. Crops appear to be in good-to-excellent condition, with near record-high yields expected in some areas for cotton, corn, and rice. Consumer Spending Contacts report that consumer spending in July and August was down slightly, and that sales in August were weaker than in July. Less than one fifth of contacts reported that sales for the period were above projections. Back-to-school items, including junior's and children's apparel, were strong sellers in August. Basic items such as paper and commodities, as well as "budget stretchers" such as rice and pasta, also have been moving well. "Non-essentials" such as home and apparel accessories, furniture, and jewelry have been moving more slowly. Most retailers report that inventories are near desired levels. Expectations for the fall are mixed: one third of the contacts are optimistic, the remainder expect a downward or flat trend. Auto dealers in the District report that sales were below average for July and August, and that August's sales were noticeably worse than July's. Most note a shift from new cars to slightly used cars with smaller engines. A few contacts, however, report strong growth in sales of high-end vehicles. Almost all note that higher rebates have helped sales, but not as much as some had hoped. Most contacts are seeing low inventories, especially of used, low-end vehicles. Expectations are divided: Approximately half of the contacts expect growth while the other half are pessimistic. Manufacturing and Other Business Activity The level of activity in the District manufacturing sector, on balance, has been stagnant. Producers of clothing and apparel, automobiles, and technological products are facing layoffs and cutbacks in some parts of the District. Some bright spots, however, have been noted: Food processing and metal parts plants will be expanding or moving to the District in the next year, and at least one District furniture plant is planning to hire back some employees and expand production. Service industries are posting slower growth than last year. As manufacturing has slowed, the trucking industry has seen less freight, and package handling companies and airlines have seen decreases in volume from a year ago. As a consequence, these industries have been reducing their workforce and employee hours. Performance in the technology and finance sectors has been mixed, with some companies cutting back and others expanding. Despite the general slowdown, employers in much of the District are still having difficulty filling positions with qualified workers. Some loosening, however, has been noted in the construction industry. Real Estate and Construction The real estate industry continues to be strong to very strong in much of the District, particularly in St. Louis, Memphis, and Little Rock, where year-to-date unit sales, volume sales, and average prices all are higher than a year ago. Exceptions to this are northern Mississippi, where sales of new and existing homes are at their weakest levels in several years, and Louisville, which contacts describe as a buyer's market, although demand for homes in the range of $100,000 to $250,000 is still strong. An oversupply of commercial and industrial space still exists in Louisville and St. Louis, where vacancies and sub-leasing have become more commonplace. Residential construction across most of the District has slowed a bit, with monthly building permits down in July. However, over half of the District's metropolitan areas show year-to-date levels greater than they were a year ago. Despite a lower number of building permits in July, reports from Memphis show an increase in the total valuation of these new permits. Private construction is down from a year ago in western Kentucky, but government-sponsored construction remains strong. Banking and Finance Total loans outstanding at a sample of small and mid-sized District banks were down by 1.4 percent between early June and early August. This stemmed from weak real estate loans, which were down by 1.8 percent over the period. At the same time, consumer loans fell by a modest 0.9 percent, while commercial and industrial (C&I) loans remained essentially unchanged. Total deposits at these banks were down by less than 1 percent. Reports from the Memphis area indicate an increase in the numbers of loan delinquencies and bankruptcies. In a survey of District senior loan officers, about 20 percent of respondents indicate that their banks have tightened credit standards on C&I loans to large and mid-sized firms; nearly 40 percent of respondents indicate tighter standards on C&I loans to small firms. All respondents indicate tighter standards for technology companies. Standards for real estate loans, consumer loans and credit cards are essentially unchanged. Agriculture and Natural Resources Increased rainfall and moderating temperatures in late August enhanced the development of the soybean crop, although more moisture is needed for full yield potential. Much-needed rainfall arrived too late in most areas, but contacts in Illinois report that the corn crop matured rapidly from the dry conditions of early August. Overall, crops appear to be generally in good-to-excellent condition across much of the District, although pasture conditions are generally in worse shape. According to initial USDA estimates, corn and soybean yields are expected to decline slightly in the northern parts of the District while increasing in the southern parts of the District, which are rebounding from last year's drought. Tennessee farmers expect near record-high yields for corn, and Mississippi farmers expect the same for both corn and rice. In addition, Mississippi farmers expect this fall's cotton crop to be the second-largest ever, with District production increasing by about 30 percent. Recent persistent wet weather, however, could affect yields for rice and cotton in Mississippi. Return to top Chicago Minneapolis