October 24, 2001
Federal Reserve Districts
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Economic activity in the District has continued to slow, particularly in the manufacturing sector. Automobile sales were lower for the period immediately following the attacks of September 11th, but have lower interest rates have bolstered sales more recently. The residential real estate market has softened, and some parts of the District are also seeing softer commercial real estate markets. Total loans by District banks are down slightly, but the recent trend toward stricter loan standards has become less pronounced. Although crop conditions and yields have been mixed due to recent rains, corn and soybean yields have been better than expected.
Manufacturing and Other Business Activity
Service industry contacts report flat-to-slowing activity throughout the District. In response to diminished air travel, increasing costs, and narrowing profits, the Northwest Airlines hub in Memphis cut 1,100 jobs and reduced services. Following the September 11th attacks, the trucking industry experienced a brief increase in activity while air service was grounded, but has since seen freight volumes decline. Automobile dealers throughout the District report that traffic has picked up after the initial drop in the two weeks following September 11th, but that sales still remain lower than usual for this time of year. In St. Louis, auto manufacturers stopped production for a week to allow sales to catch up with inventories, although this did not involve any permanent worker layoffs. Manufacturer incentives, including zero-percent interest rates, have helped to bolster sales of new autos, but not by as much as some dealers had hoped. Retailers, too, note flat sales. Nonetheless, they express guarded optimism as they prepare for the holiday season, which could make or break their year.
Real Estate and Construction
Residential construction still looks strong: over three-fourths of the District's metropolitan areas experienced an increase in monthly building permits from July to August, and August's levels were higher than a year earlier. Commercial construction in western Kentucky has slowed, although contacts in the rest of the District do not report any changes. Major projects to improve Kentucky's highways, dams, and bridges will expand construction opportunities in that portion of the District.
Banking and Finance
Contacts report that there were no problems with bank liquidity following the September 11th attacks. Small banks in western Tennessee and Mississippi continue to be troubled with bankruptcies and increases in the number of loan delinquencies. Larger urban banks have reported increases in loan loss provisions.
Agriculture and Natural Resources
Early reports from Illinois, Indiana, and Missouri farmers suggest that yields are widely mixed for corn and soybeans, as scattered rainfall throughout much of the growing season resulted in an uneven harvest. Contacts report that yields on corn and soybeans are running at or slightly above what many farmers had expected.