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Business conditions in the Eighth District continued to improve since our last survey, as reports of plant openings and expansions in manufacturing and services continued to increase. Retail and auto sales increased in April and May over year-earlier levels. Residential real estate activity picked up, while commercial real estate markets remained soft. Overall lending activity at a sample of District banks experienced little change over the past three months.
Contacts reported that retail sales in April and May were up by about 2 percent, on average, over year-earlier levels. In our survey, 44 percent of the retailers noted that sales levels met their expectations, 37 percent reported that sales were below what they had anticipated, and 11 percent reported sales above expectations. Summer seasonal and outdoor items, women's apparel and accessories, and home items were strong sellers, while specialty items and gift items were moving more slowly. About 67 percent of the retailers surveyed noted that inventories were at desired levels. Retailers appear generally optimistic about the summer months, with more than half of the contacts expecting sales to increase over 2003 levels.
Car dealers in the District reported that, compared with last year, sales in April and May were up by about 4 percent, on average. Nearly 60 percent of the car dealers surveyed noted that sales of used and low-end cars had increased, a change they attributed to an increase in consumer demand for smaller, more fuel-efficient cars in light of recently rising gasoline prices. About 32 percent of the contacts reported increased use of rebates, while 40 percent reported no change. Approximately 48 percent of contacts surveyed reported a decrease in the acceptance rates of finance applications, while 4 percent reported an increase in acceptance rates. Nearly 50 percent of the car dealers surveyed reported that their inventories were at desired levels, while 44 percent reported that their inventories were too high. A majority of the car dealers surveyed are cautiously optimistic about sales during the summer months.
Manufacturing and Other Business Activity
The Eighth District's manufacturing sector continues to show signs of strong improvements in many areas. Reports of plant openings, hiring, and relocations to the District have increased since our last report. Manufacturers in the metal products, transportation equipment, automotive parts, prefabricated buildings and home elements, food processing, packaging, recreational equipment and parts, and industrial equipment sectors reported stronger orders, plant expansions, and plant openings in part due to new product line introductions and increases in consumer demand. Despite strong growth in some areas, other District manufacturers reported layoffs and plant closings. Manufacturers in the paper materials, textile, tobacco, electrical equipment, energy, rubber, and printing sectors reported plant closings and layoffs due in part to company reorganization, the need to reduce costs, and foreign competition.
The District's services sector also shows signs of strong improvement in most areas. In particular, firms in the health care, tourism and entertainment, freight transport, financial and insurance services, farm equipment, home hardware, and clothing retail sectors reported openings and expansions. Despite the generally strong reports in the services sector, firms in the business solutions and food retail sectors reported closings and layoffs.
Real Estate and Construction
Home sales have picked up in the Eighth District. Year-to-date home sales rose in April in several cities. Memphis had a 3.8 percent increase in April year-to-date sales compared with 2003. Louisville had a similar increase of 3.7 percent compared with the previous year, and the greater St. Louis metropolitan area had an increase of 6.5 percent over the same period. Residential construction remains robust throughout the District. April year-to-date permits for single-family residences were up in most metropolitan areas. In St. Louis, for example, April year-to-date permits increased by 8.7 percent. Contacts reported a high volume of construction near Paducah, Kentucky.
Commercial real estate markets remain soft throughout the District. The first quarter's industrial vacancy rate in St. Louis fell to 6.8 percent from 7.3 percent at the end of 2003, while Memphis continues to experience a vacancy rate of about 16 percent. Office vacancy rates are also high. The vacancy rate for the greater St. Louis area remained stable at 17.1 percent in the first quarter, and in Memphis the vacancy rate increased slightly to 15.9 percent. Commercial construction appears to be strong in most of the Eighth District. Contacts in Little Rock, Arkansas, are optimistic about the near future, and construction is improving in Texarkana and Pine Bluff, Arkansas. Central and south central Kentucky continue to be bright spots, with a growing number of schools, office buildings, and churches being built. Construction is very active in Jackson, Tennessee, and has improved over the past month in rural west Tennessee.
Banking and Finance
A recent survey of senior loan officers at a sample of District banks indicated little change in overall lending activity in the past three months. During this period, credit standards and demand for commercial and industrial loans remained unchanged for both large and small firms. Meanwhile, both the credit standards and the demand for residential mortgage loans, commercial real estate loans, credit cards, and other consumer loans were generally unchanged.
Agriculture and Natural Resources
Recent heavy rains, and subsequent damage from flooding and pond formation, throughout the District have necessitated the replanting of some corn and soybean fields. The rains, however, have helped improve soil moisture levels. Despite weather damage in certain areas, the majority of the winter wheat crop is in good or excellent condition and will be ready for harvest within a few weeks in some places. Nearly all of the intended corn, cotton, and rice crops have been planted. Except in Kentucky, where planting is only slightly behind its normal pace, farmers in every District state have planted at least half of their soybean fields and more than two-thirds of the sorghum crop. A majority of the District's other crops are in good or excellent condition, as are pastures and livestock.