November 28, 2001
Federal Reserve Districts
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Economic activity in the District has been buoyed by stronger than expected retail sales, although the manufacturing sector has continued to weaken. Retail sales were generally higher in October compared with a year earlier, with sales at or above most retailers' expectations. Sales of new automobiles in the month were much higher than average, which dealers attribute to manufacturers' incentives. The residential real estate sector remains relatively strong, although weakness is appearing in some parts of the District. New housing permits, though, continue to be higher than a year earlier. Commercial real estate markets have continued to weaken, and vacancy rates for commercial space have risen. Total loans by small and mid-sized banks were up modestly, along with deposits. Despite heavy rains in some parts of the District, the fall harvest of many crops is nearly complete, and the winter wheat crop is rated as good-to-excellent.
Car dealers in the District report that sales were above average for October, following below-average sales in August and September. Almost all contacts attribute this to financing incentives and rebates offered by manufacturers. Because of these incentives, new car sales in October were much better than used car sales. A few contacts saw an increase in the rate of acceptance of finance applications, but most noted no change. Dealers indicate that their optimism about future sales depends on the continuation of manufacturers' incentives.
Manufacturing and Other Business Activity
Districtwide, the services sector continues to experience slow-to-no growth. To cut costs, several contacts noted that they are reducing their advertising expenditures. The communications sector is mixed: While still posting positive growth for long distance, wireless, and data services, contacts report that communications companies are decreasing capital spending and are consolidating. Contacts are not expecting much of an upturn, if any, in 2002. The travel-related service sector (airlines, travel agencies, motels, etc.) is still experiencing reduced volume following the attacks of September 11. Contacts, however, hope to see an increase in business during the upcoming holiday season. Although the trucking industry continues to see less freight, the decrease in fuel prices is helping to maintain costs.
Real Estate and Construction
Residential construction opportunities continue to expand through most of the District as year-to-date permit levels are higher than a year earlier. In contrast, the District's commercial construction opportunities are generally diminishing, although exceptions include the areas of western Arkansas and Memphis, where this activity remains strong. In response, contractors in some portions of the District are moving from industrial projects to local government projects.
Banking and Finance
Contacts in Little Rock have also reported a strong demand for mortgage refinancing, residential lending, and car loans. Actual earnings are between 5 and 15 percent below projected earnings for banks in west Tennessee. Contacted banks in northeastern Mississippi have reported good profits, but are experiencing greater loan delinquencies and recording more bankruptcies.
Agriculture and Natural Resources