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Business activity in the Eighth District continued to expand slowly since our previous
report. Still, some contacts in the manufacturing sector announced plant
closings and downsizing. Retail sales increased slightly in January and
February over year-earlier levels. Car sales were flat-to-down over the same
period. Home sales slowed in some areas of the District, but commercial real
estate markets appear to have stabilized. Total loans at a sample of small and
mid-sized District banks increased between early January and mid-March, a
slight improvement over the past few months.
Manufacturing and Other Business Activity
The Eighth
District's manufacturing sector continues to show signs of improvement.
Contacts in the aerospace, automotive, and biopharmaceutical industries report
plant openings, expansions, and new jobs. Despite expansion in some areas,
there have also been announcements of plant closings and downsizing in the
District. Affected industries include textiles, electronic equipment,
commercial building appliance, and music publishing. Contacts throughout the
District are concerned about rising steel prices. While some contacts are
attempting to re-negotiate prices with existing clients, many are reluctant to
pass price increases onto customers. In the services sector, firms in the
health, transportation, and financial industries report improvements in
business activity and plans for expansion. Contacts also report that the price
of transportation services has increased, in part due to increasing fuel prices
and in part due to recent legislation limiting the amount of time a driver can be
on the road without resting.
General retail
sales in the District improved slightly in January and February compared with
the same months last year. Many retailers cited early tax refunds as one
reason for improved sales. Strong-selling products included clothing, discount
items, hardware, seasonal gift items, and new and used farm equipment. Auto
dealers report flat or decreased sales, despite zero percent financing and
incentives. Auto dealers report that inventory levels are much higher than desired.
Contacts are hopeful that sales will improve throughout the rest of the year.
Real Estate and Construction
Home sales have slowed down in some areas of the Eighth District.
February year-to-date sales have fallen in the greater St. Louis and Louisville areas compared with February 2003. St. Louis had a decrease of 2.6 percent and
Louisville of 10.0 percent. Memphis year-to-date sales were 8.5 percent
higher in February than a year earlier, and contacts expect this trend to
continue throughout the spring. Residential construction is still doing well
in most of the District, with February year-to-date permits for single-family
homes up in all of the District's metropolitan areas. Construction has been
very active in northeastern Arkansas, and contacts are optimistic about the
first half of 2004. February year-to-date permit levels increased by 4.6
percent in the greater St. Louis area. One exception is western Tennessee, where residential construction has yet to improve.
Contacts in the
District indicate that the commercial real estate market appears to have
bottomed out. The industrial and office markets have remained soft in Louisville, where fourth-quarter vacancy rates were slightly higher than 2002 year-end
rates. The fourth-quarter industrial vacancy rate in Memphis increased to 23.9
percent, about 1 percentage point higher than the previous quarter. Commercial
construction has started to pick up in most of the District. Both private and
government construction have remained steady in southern Indiana. Construction
has increased during February in western Tennessee, particularly in the Jackson area. There are several projects underway in central and south-central Kentucky, such as the construction of new elementary and middle schools in Jamestown, Kentucky.
Banking
and Finance
Total loans outstanding at a sample of small and
mid-sized District banks were up by 2.1 percent between early January and
mid-March. This increase stems from a 2.5 percent increase in commercial and
industrial loans and a 3.0 percent increase in real estate loans. Over the
same period, loans to individuals, loans to commercial banks, and a grouping of
all other loans declined by 0.3, 16.3, and 5.5 percent, respectively. At the
same time, total deposits at these banks showed an increase of 3.2 percent.
Agriculture and Natural Resources
Corn planting is well under way in Arkansas, Mississippi, and Tennessee, but it is only in the beginning stages in the other states. A
small portion of the soybean, sorghum, and rice crops has already been planted
as well. Farmers expect to plant 1 percent fewer acres of corn and 10 percent
fewer acres of sorghum this year than in 2003. In contrast, they anticipate
planting 2 percent more acres of soybeans than last year and at least the same
number of acres of cotton, tobacco, and rice as in 2003. This year's total
winter wheat acreage increased by 7 percent and is rated at 65 percent or more
in good or excellent condition in every District state. The latest ratings for
soil moisture and pasture conditions are good throughout the District, except
in Mississippi. Livestock remains mostly in good condition, and prices
received for beef cattle in mid-March are showing signs of a rebound after
recent declines.
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