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The economy of the Eighth District has expanded modestly since our previous report. Manufacturing activity decreased, while activity in the services sector continued to increase. Retail and auto sales in January and early February increased over year-earlier levels. Home sales continued to decline across the District, and commercial real estate conditions remained slow. Overall lending at a sample of large District banks saw little change during the fourth quarter of 2010.
Contacts reported that retail sales in January and early February were up, on average, over year-earlier levels. Half of the retailers saw increases in sales, while 25 percent saw decreases and 25 percent saw no changes. About half of the respondents noted that sales levels met their expectations, 33 percent reported that sales were below expectations, and 17 percent reported that sales were above expectations. About 38 percent of the contacts noted that their inventories were too high, while 21 percent reported that their inventories were too low. The sales outlook among the retailers for March and April was mostly optimistic. About 58 percent of the retailers expect sales to increase over 2010 levels, while 12 percent expect sales to decrease and 30 percent expect sales to remain unchanged.
Car dealers in the District reported that sales in January and early February were up, on average, compared with last year's sales. About 71 percent of the car dealers surveyed saw increases in sales, while 12 percent saw decreases and 17 percent saw no changes. One-third of the car dealers noted that used car sales had increased relative to new car sales, while 5 percent reported the opposite. Also, about 30 percent of contacts reported an increase in sales of low-end vehicles relative to high-end vehicles, while less than 5 percent reported the opposite. About 46 percent of the car dealers surveyed reported that their inventories were at desired levels, while 25 percent reported that their inventories were too high. The sales outlook among the car dealers for March and April was generally optimistic. Almost 92 percent of the car dealers expect sales to increase over 2010 levels.
Manufacturing and Other Business Activity
Manufacturing activity has decreased since our previous report. Several manufacturers reported plans to close plants and reduce operations in the near future, while a smaller number of contacts reported plans to open plants or expand operations. Firms in the wood products, automobile parts, aircraft, and primary metal manufacturing industries reported plans to decrease operations and lay off workers. Additionally, a major firm in tire manufacturing announced plans to close a plant in the District and lay off workers. In contrast, firms in the medical equipment, automobile parts, and primary metal manufacturing industries announced plans to expand existing operations and hire new employees.
The District's services sector continued to improve since our previous report. Contacts in the legal services, commercial printing, entertainment, support activities for air transportation, and business support services industries reported plans to expand existing operations in the District and hire new employees. In contrast, contacts in government services and religious organizations announced plans to decrease operations and lay off workers.
Real Estate and Construction
Home sales continued to decline throughout most of the Eighth District. Compared with the same period in 2010, January 2011 home sales were down 6 percent in Louisville and Little Rock, 1 percent in St. Louis, and 8 percent Memphis. However, 2010 single-family housing permits increased in the majority of the District metro areas compared with 2009. Permits increased 3 percent in Little Rock, 4 percent in St. Louis, and 2 percent in Memphis but decreased 9 percent in Louisville. Commercial and industrial real estate market conditions throughout the District remained soft. Compared with the third quarter of 2010, fourth-quarter 2010 industrial vacancy rates decreased in Little Rock and St. Louis, increased in Memphis, and remained unchanged in Louisville. During the same period, suburban office vacancy rates increased in Louisville, Memphis, and Little Rock, while they remained constant in St. Louis. The downtown office vacancy rates increased in Louisville, Little Rock, and Memphis but decreased in St. Louis. Commercial and industrial construction activity continues to be slow throughout most of the District. Contacts in Louisville reported that demand for commercial properties remains low. Contacts in northwest Arkansas reported that banks are very cautious in considering new development projects. Contacts in Louisville noted no new suburban construction completions, while contacts in St. Louis reported limited commercial construction. Contacts in Memphis, St. Louis, and Louisville expect speculative construction activity to remain weak. Nevertheless, contacts in south-central Kentucky reported that a few plant expansions are in progress, and a contact in western Kentucky noted some commercial regional projects are under way.
Banking and Finance
A survey of senior loan officers at a sample of large District banks showed little change in overall lending activity during the fourth quarter of 2010. During this period, credit standards for commercial and industrial loans remained unchanged, while demand for these loans ranged from unchanged to moderately weaker. Credit standards for commercial real estate loans tightened somewhat, while demand for these loans was moderately weaker. Meanwhile, credit standards for consumer loans remained unchanged, while demand for these loans ranged from about the same to moderately stronger. Credit standards for residential mortgage loans ranged from unchanged to tightened somewhat, while demand for these loans was moderately weaker.
Agriculture and Natural Resources
Annual figures for 2010 in the District's agricultural sector showed a shortfall of 2 percent or more in corn, soybean, rice, hay, and tobacco yields, compared with 2009. Cotton and winter wheat yields, however, rose by 2 percent or more from 2009 to 2010. Meanwhile, total production of corn, soybeans, sorghum, winter wheat, hay, and tobacco for 2010 was at least 4 percent lower than in 2009. In contrast, total production of rice increased by 18 percent and total production of cotton increased by 50 percent. Coal production for the District states at the end of January 2011 was 7 percent higher than a year ago.