April 24, 2002
Economic activity in the District has picked up considerably. In particular, many firms in the manufacturing sector have experienced increased sales and orders and, as a result, are expanding production and employment. Retail and auto sales have remained steady, while residential real estate sales have been strong throughout the District. Although commercial real estate markets continue to be weak, commercial construction has been strong. Total loans outstanding at small- and medium-sized banks have risen, as have deposits. Unfavorable weather has hampered spring planting in the southern part of the District, although the mild winter has led to a good-to-excellent winter wheat crop in most areas.
Manufacturing and Other Business
Activity
The District manufacturing sector has been gaining strength. Contacts
report an increase in sales and orders, which has led many firms
to expand employment and hire back employees who previously had
been laid off. Manufacturers reporting increased orders include
those in the furniture, boats, airplanes, steel, food and drug,
apparel, and auto parts industries. Several contacts note that
some of the increase in activity stems from contracts with the
U.S. Defense Department for items including camouflage clothing
and military aircraft parts. While the manufacturing sector is
still seeing closings and bankruptcies, there has been more good
news than bad.
Retail sales held steady in the Eighth District. A few contacts report that sales have been higher at discount stores than at department stores and malls, although mall traffic is noted to be relatively normal for this time of year. Auto sales have been mixed, with reported sales levels ranging between good and flat. Additionally, while some dealers report increased sales of used vehicles, others report that it has been new vehicles that have been selling well. Several dealers report that their inventories of new vehicles are a little lower than usual as they take a "wait and see" approach to ordering.
Real Estate and Construction
Reports from each of the District's metropolitan areas indicate
that residential real estate sales have been strong since the
beginning of the year. Sales volumes in Memphis and Little Rock
were higher in January and February than a year earlier. Realtors
in several northern Mississippi markets report improved sales
are correcting the oversupply of homes in those markets. Sales
of new homes in Louisville are higher than normal for this time
of the year. Nonetheless, slow sales in homes valued over $250,000
reflects caution among District homebuyers. The Memphis market
for industrial space recorded lower absorption for 2001 than for
2000, leading to lower lease rates in 2002. The lease rate for
commercial space in Little Rock remains steady. Net absorption
and construction of office space in St. Louis continued to decline
in the first quarter.
Residential and commercial construction has been strong in the District, despite the slump in the markets for office space. In all District metropolitan areas the number of building permits issued in February was higher than that for February 2001. Commercial construction in Arkansas has picked up, with large projects concentrated in central and northwest Arkansas. Public construction projects and work on dams have kept commercial construction steady in western Kentucky. Commercial contractors in Memphis expect a delay in new projects until they see lower vacancy rates for industrial space.
Banking and Finance
Total loans outstanding at a sample of small- and medium-sized
District banks were up slightly by 0.5 percent between late January
and late March this year. Loans to individuals and to other commercial
banks in the country have decreased significantly: 7.4 percent
and 7.2 percent, respectively. Over the same period, the decrease
in real estate loans was a milder 2 percent, while commercial
and industrial loans increased by a relatively small 1.3 percent.
Some contacts attributed the slowing of loan growth to more-stringent
underwriting. Total deposits at these banks increased by 1.6 percent
during the period. Contacts in northeast Mississippi, west Tennessee,
and Arkansas report high levels of bankruptcy filings and foreclosures.
Agriculture and Natural Resources
The weather across the District included abnormally cool temperatures
and considerable rainfall in March and early April, leading many
farmers in the southern part of the District to fall behind modestly
in field preparation and planting. After a relatively mild winter,
the District's winter wheat crop is in good-to-excellent condition
in many areas. Exceptions to this are northern Mississippi and
Arkansas, where contacts report that heavy rains have damaged
some of the crop. One contact reports that as much as 10 percent
of Arkansas's crop will not be harvested due to flooding and that
another 15 percent of the crop was severely damaged.
Farmers in the northern portion of the District expect to plant slightly more corn acreage this year, which will be offset by slightly reduced soybean plantings. Mississippi farmers, however, intend to increase soybean acreage. Contacts report that the unresolved federal farm bill has led to uncertainty about loan rates for soybeans. This may contribute to a decline in planting intentions and affect producers' ability to obtain financing. Cotton farmers in the southern portion of the District expect to plant about 11 percent fewer acres this spring, substituting corn and rice for cotton on some acreage. This follows the significant drop in cotton and cottonseed meal prices. Partly as a result of a Russian ban on U.S. poultry imports, the quantity of poultry on the market increased over the last month and poultry prices have declined modestly. Meanwhile, cattle prices have also declined modestly, while hog prices have declined substantially.