July 30, 2003 Federal Reserve Districts Eighth District--St. Louis

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Economic conditions in the Eighth District showed little improvement since our last report. Manufacturing activity remains weak, and plant closings, cutbacks, and layoffs remain commonplace. Retail and auto sales were flat to down in June from last year. In the services sector, airlines continue cost-cutting efforts. Residential real estate markets are still doing well, while commercial real estate markets remain soft. Total loan demand at a sample of small and mid-sized District banks increased 2.5 percent between mid-March and early July. Crops in the District are generally in good condition. Manufacturing and Other Business Activity The Eighth District's manufacturing sector remains soft as plant closings, layoffs, and cutbacks continue to be announced. Manufacturers in the commercial furniture, textile, food, tool, small motor, wire and cable, apparel, packaging, and electronics industries are among those who have announced plant closings and layoffs in the District. Contacts note that problems facing the manufacturing sector include low and reduced orders, increased international competition, and an uncertain economy. Despite these concerns, a few manufacturers have announced plans to move to or expand within the District, including firms in the steel, uranium, plastic, and auto industries. Contacts report that June retail sales were down from a year earlier, below most retailers' expectations. They note that sales of big-ticket items and durable goods in particular have been moving slowly. However, contacts note that while sales are weak, floor traffic appears to be steady. June auto sales were flat to down compared with year-ago levels, as well. Most contacts report that inventories are somewhat high, and a few have noticed an increase in the rate of rejection of finance applications. The airline industry is facing the need to cut costs. One major carrier, in particular, recently announced plans to streamline operations and lay off approximately 2,000 employees in St. Louis. There are, however, a few bright spots in the services sector, as several companies are locating distribution centers in the District. Real Estate and Construction Home sales continue to do well in most of the District. The year-to-date increase in home sales in May was 12.5 percent in Memphis, 3.2 percent in Little Rock, and 11.0 percent in the northern Kentucky area. Residential sales are also very active in Evansville, but contacts in northwest Mississippi report that few houses are selling. May year-to-date single-family housing permits were up in most of the District's metropolitan areas compared with the same period last year. Permit levels increased 3.1 percent in Evansville, 7.3 percent in Memphis, and 3.5 percent in St. Louis. Commercial real estate markets are still sluggish in most of the District. The second-quarter industrial vacancy rate in Louisville was 21 percent. In the Memphis area, the office vacancy rate was 15 percent and the industrial vacancy rate was 20 percent for the first quarter of 2003, both higher than the same period in 2002. Contacts do not expect any significant improvement until 2004. Commercial construction has started to pick up in most of the District, but activity has slowed down in some areas because of severe storms. Danville, Kentucky, continues to be a bright spot, where construction in colleges, hospitals, and churches is doing very well. Contacts expect a small increase in activity in Evansville, Memphis, and northeast Arkansas. Banking and Finance Total loans outstanding at a sample of mid-sized District banks were up by 2.5 percent between mid-March and early July this year. Loans to individuals and other commercial banks in the United States decreased by 3.0 and 29.1 percent, respectively. Real estate loans drove the overall increase, rising by 7.0 percent, while commercial and industrial loans declined 6.3 percent. Total deposits at these banks rose 3.4 percent over the same period. Agriculture and Natural Resources Since the heavy rains and flooding of May and early June subsided, soil moisture has returned to normal levels; across the District, soil moisture levels are rated 77 percent adequate to surplus, down from 94 percent in the middle of May. Crops across the District are generally in good condition; corn, soybeans, sorghum, winter wheat, and cotton are all rated, on average, at 50 percent or more in good to excellent condition. Arkansas, Illinois, and Missouri have harvested most of their winter wheat, though Indiana has harvested only 55 percent. Harvesting is behind, on average, 5 percent from last year. Most of the District's soybeans have emerged, though the percentage of the crops that are blooming is down, on average, 21 percent from a year ago. As of July 8th, the share of cotton that was squaring (i.e., in its early maturing stage) was down on average 10 percent; the share of cotton that was setting bolls (i.e., in its early flowering stage) was down on average 45 percent. Return to top Chicago Minneapolis