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Economic activity in the Eighth District expanded moderately since our previous survey. The services sector continued to grow. Reports in manufacturing, however, were mixed. Home sales continue to increase throughout the District, while business conditions in commercial real estate markets continue to improve. Lending activity at a sample of small and mid-sized District banks increased from early June to mid-September.
Manufacturing and Other Business Activity
Reports from manufacturing contacts in the Eighth District were mixed. Several manufacturers reported plans to open plants and expand operations and a similar number of contacts reported plant closings and layoffs. Firms in the rubber product, machinery, chemical, pharmaceutical, software, and plastics industries announced plans to open new facilities in the District. Firms in the motor vehicle parts, machinery, paper, and insurance industries reported plans to expand facilities and hire additional workers. In contrast, contacts in the fabricated metal product, electronics, furniture, transportation equipment, food, and apparel industries reported plant closings and layoffs. Several of these firms also cited slowing demand or plans to move production abroad.
The District's services sector continued to expand in most areas since our previous report. Firms in the health care, traveler accommodation, and management and consulting services industries reported plans to open new facilities and hire additional workers. Contacts in the wireless telecommunications industry experienced solid customer growth and high sales volume. Despite overall positive growth, several contacts in the freight transportation industry expressed concern over rising fuel costs and softening in demand. District retailers generally reported increased sales in August compared with the same month last year. Most retailers, however, reported that sales failed to meet expectations during September. District auto dealers also reported increased sales in August compared with last year, but they indicated a decline in September sales, when compared with August.
Real Estate and Construction
Residential sales continued to increase throughout the District. Compared with the same period in 2004, August year-to-date home sales were up 9.8 percent in Louisville, 7.7 percent in Memphis, 2.2 percent in Little Rock, and 1.2 percent in St. Louis. Contacts indicated that housing demand in Memphis and Little Rock increased in September. August year-to-date single-family housing permits increased in most of the District's metropolitan areas compared with the same period last year. Permits were up 3 percent in St. Louis, 5 percent in Louisville, and over 8 percent in Memphis and Little Rock. September residential construction was reportedly high in Memphis and Little Rock, while contacts in northern Mississippi reported that early September residential construction fell sharply.
Business conditions in many of the Eight District's office and industrial real estate markets have improved. In Little Rock, third-quarter office and industrial vacancy rates declined compared with the second quarter. In Memphis, contacts reported that office and industrial real estate markets were strong, and contacts in St. Louis reported a strong industrial market as well. Commercial construction activity was mixed throughout the District. Contacts in northeast Arkansas reported that commercial construction was strong. In contrast, contacts in northeast Mississippi reported that new commercial development was down during July and August compared with the same months last year, but they indicated that a large industrial construction project in that area is slated to begin later in the year. Contacts in western Tennessee indicated that a large industrial construction project is on the horizon as well.
Banking and Finance
Total loans outstanding at a sample of small and mid-sized District banks increased 2.4 percent from early June to mid-September. This increase stemmed primarily from real estate lending, which rose 3 percent and accounts for 71.3 percent of total loans. Commercial and industrial loans, which represent about 17.5 percent of total loans, decreased 0.1 percent. Loans to individuals, which account for nearly 5.4 percent of total loans, rose 2.7 percent. All other loans, roughly 5.8 percent of total loans, increased 3 percent. Over this period, total deposits at these banks increased 1.2 percent.
Agriculture and Natural Resources
Heavy winds and rain from Hurricane Katrina caused some corn lodging (i.e., falling to the ground) throughout the District, but the rain improved the dry conditions of crops and pastures. The rain also caused significant rice lodging and cotton stress in Arkansas and Mississippi. Crop harvest is in full swing across the District. The corn harvest is nearly complete in Arkansas and Mississippi, but it is less than halfway finished in Illinois and Indiana. At least 20 percent of the soybean harvest is complete in all states except Missouri. The sorghum harvest is nearly complete in Arkansas and Mississippi. In contrast, the cotton and the rice harvest are behind average pace in the District.