Beige Book Report: St Louis
August 29, 2012
The economy of the Eighth District has continued to expand at a modest pace since our previous survey. Retail and auto sales in July and early August increased over year-earlier levels. Residential real estate market conditions have continued to improve moderately. However, commercial and industrial real estate conditions have been mixed. Recent reports of planned activity from services firms have been positive. In contrast, reports from manufacturing contacts have been mixed. Reports of lending activity at a sample of large District banks during the second quarter of 2012 were somewhat mixed.
Consumer Spending
Contacts reported that retail sales in July and early August were up slightly, on average, over year-earlier levels. About 42 percent of the retailers reported increases in sales, while 33 percent saw decreases and 25 percent saw no changes. Half of the retailers noted that sales levels met their expectations and half noted that sales were below expectations. About 13 percent of the retailers noted that their inventories were too high, while 8 percent reported that their inventories were too low. The sales outlook through the fall was generally optimistic: 70 percent of the retailers expect sales to increase over 2011 levels, 17 percent expect sales to decrease, and 13 percent expect sales to be similar to last year's sales.
Car dealers in the District reported that sales in July and early August were up, on average, compared with last year's sales. About 67 percent of the car dealers surveyed saw increases in sales, while 8 percent saw decreases and 25 percent saw no changes. A third of the car dealers surveyed noted that new car sales had increased relative to used car sales, while 13 percent reported the opposite. Roughly 29 percent of contacts reported an increase in sales of low-end vehicles relative to high-end vehicles, while about 13 percent reported the opposite. Twenty-five percent of the car dealers surveyed reported that their inventories were too low, while 17 percent reported that their inventories were too high. The sales outlook for September and October was generally optimistic: 67 percent of the car dealers expect sales to increase over 2011 levels, 16 percent expect sales to decrease, and 17 percent expect sales to be similar to last year's sales.
Manufacturing and Other Business Activity
Reports of plans for manufacturing activity have been mixed since our previous report. Several manufacturers reported plans to expand operations and hire new workers, while fewer manufacturers reported plans to lay off workers. However, the reported plans for layoffs usually involved a greater number of workers relative to the reported hiring plans. Firms in automobile, medical technology products, carbon and graphite products, air purification equipment, electrical equipment, automobile parts, metal can, nanotechnology, lifting equipment, and industrial machinery manufacturing reported plans to expand operations and hire new workers. In contrast, firms in air transportation, chemical, appliance, wind turbine, and aluminum manufacturing reported plans to lay off workers and close plants.
Reports of planned activity in the District's service sector have been positive since our previous report. Firms in financial, medical, information technology, business support, transportation, home healthcare, and environmental consulting services reported plans to open new facilities, expand operations, and hire new employees. In contrast, firms in information and education services reported plans to reduce operations and decrease employment.
Real Estate and Construction
Home sales increased throughout most of the Eighth District on a year-over-year basis. Compared with the same period in 2011, June 2012 year-to-date home sales were up 13 percent in Louisville, 7 percent in Little Rock, 10 percent in Memphis, and 16 percent in St. Louis. Residential construction increased in the majority of the District. June 2012 year-to-date single-family housing permits increased in the majority of the District metro areas compared with the same period in 2011. Permits increased 42 percent in Louisville, 14 percent in Little Rock, 46 percent in Memphis, and 23 percent in St. Louis.
Commercial and industrial real estate conditions were mixed throughout most of the District. A contact in northeast Arkansas reported that except for Jonesboro and Paragould, overall commercial real estate activity remains weak in the region. A contact in Louisville noted that compared with the first five months of 2012, the growth of office leasing activity has slowed. A contact in St. Louis reported moderate improvement in office real estate activity and strong demand in the industrial real estate market. Commercial and industrial construction activity improved throughout most of the District. Contacts reported several commercial construction projects in Jonesboro, Arkansas, and in Bowling Green, Kentucky, while contacts in Louisville noted new speculative construction plans in nearby Jeffersonville, Indiana.
Banking and Finance
A survey of senior loan officers at a sample of large District banks indicated moderate changes in overall lending activity in the second quarter of 2012 compared with the first quarter of 2012. During this period, credit standards for commercial and industrial loans remained largely unchanged, while demand for such loans increased moderately. Credit standards for commercial real estate loans remained generally unchanged, while demand ranged from moderately weaker to moderately stronger. Credit standards for prime residential mortgage loans also remained generally unchanged, while demand ranged from unchanged to moderately stronger. Credit standards for consumer loans ranged from basically unchanged to somewhat eased, while demand was moderately stronger, especially for auto loans.
Agriculture and Natural Resources
Severe drought conditions have caused downgrades to forecasted crop production. Annual 2012 production of cotton, soybean, and corn in the District states is expected to fall from 2011 levels by 12 percent, 18 percent, and 24 percent, respectively. In contrast, annual production of rice and sorghum in the District states is expected to increase by at least 12 percent. The fraction of all crops rated in fair or better condition has fallen in all District states since the previous report. Similarly, the fraction of pasture rated in fair or better condition declined in all District states. The District states' year-to-date coal production for the end of July was 3.4 percent higher compared with the same period last year. Meanwhile, the District states' coal production for July 2012 was approximately on par with July 2011.