The economy of the Eighth District has continued to expand at a moderate pace since our previous survey. Retail and auto sales in October and early November increased over year-earlier levels. Recent reports of planned activity from manufacturing firms have been positive. In contrast, reports from services contacts have been negative on net. Residential real estate market conditions have continued to improve, while commercial and industrial real estate conditions have remained mixed. Reports of lending activity at a sample of large District banks indicated little change during the third quarter of 2012. Prices wages, and employment levels have remained generally stable.
Contacts reported that retail sales in October and early November were up, on average, over year-earlier levels. Fifty-four percent of the retailers reported increases in sales, while 27 percent saw decreases and 19 percent saw no changes. Forty-eight percent of the retailers noted that sales levels met their expectations, 48 percent reported that sales were below expectations, and 4 percent reported that sales were above expectations. The sales outlook through the end of the year was mostly optimistic: 66 percent of the retailers expect sales to increase over 2011 levels, while 17 percent expect sales to decrease and 17 percent expect sales to be similar to last year’s levels.
Car dealers in the District reported that sales in October and early November were up, on average, compared with last year. Fifty percent of the car dealers surveyed saw increases in sales, while 21 percent saw decreases and 29 percent saw no changes. Twenty-four percent of the car dealers noted that new car sales had increased relative to used car sales, while 6 percent reported the opposite. The sales outlook through the end of the year was mostly optimistic: 64 percent of the car dealers expect sales to increase over 2011 levels, while 14 percent expect sales to decrease and 22 percent expect sales to be similar to last year’s levels.
Manufacturing and Other Business Activity
Reports of plans for manufacturing activity have been positive since our previous report. Several manufacturing firms reported plans to hire new workers or expand operations, while fewer manufacturers reported plans to lay off workers or reduce operations. Firms in the plastic, poultry processing, shoe and apparel, aerospace, paper product, and beverage manufacturing industries announced plans to hire new employees or expand operations. In contrast, firms in the compressor, coal, semiconductors and related devices, auto parts, and food manufacturing industries announced plans to lay off workers or reduce operations.
Reports of planned activity in the District’s service sector have been negative on net since our previous report. Firms in business support, telecommunications, casinos, legal, and crisis management services announced plans to increase employment or expand operations. In contrast, a greater number of service firms, including firms in air transportation, sports, information, health insurance, health care, and financial services, announced plans to lay off workers or reduce operations.
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, September 2012 year-to-date home sales were up 15 percent in Louisville, 4 percent in Little Rock, 11 percent in Memphis, and 14 percent in St. Louis. Residential construction also increased. Compared with the same period in 2011, September 2012 year-to-date single-family housing permits increased 40 percent in Louisville, 25 percent in Little Rock, 36 percent in Memphis, and 19 percent in St. Louis.
Commercial and industrial real estate conditions were mixed throughout most of the District. A contact in Louisville reported that office and industrial space leasing in the third quarter of 2012 was less robust than in the previous quarter. A contact in northeast Arkansas reported strong commercial real estate activity in the Jonesboro-Paragould area but soft activity in other areas in the region. Commercial and industrial construction activity continued to improve throughout most of the District. Contacts in Little Rock noted a couple of commercial construction projects in the downtown area. A contact in south central Kentucky noted that commercial construction remains strong. A contact in Memphis noted new speculative construction in the suburban market. Contacts in Memphis also reported several commercial construction projects in Jonesboro and large industrial construction projects in Shelby County.
Banking and Finance
A survey of senior loan officers at a sample of large District banks found little change in overall lending activity during the third quarter of 2012. During this period, credit standards for commercial and industrial loans remained largely unchanged, while the demand for these loans and the number of inquiries ranged from moderately decreased to moderately increased. Credit standards for commercial real estate loans were unchanged, while demand remained largely unchanged. Credit standards for prime residential mortgage loans remained generally unchanged, while demand ranged from about the same to substantially stronger. Meanwhile, credit standards and demand for consumer loans remained largely unchanged, although a third of the banks reported that demand for auto loans was moderately stronger.
Agriculture and Natural Resources
As of early November, the rice crop in the District states was fully harvested; similarly, over 90 percent of the corn, cotton, sorghum, and soybean crops have also been harvested. Harvest completion rates were 3 to 12 percentage points higher than their 5-year averages. Planting of winter wheat across the District states was 8 percent ahead of its 5-year average, while over 90 percent of all winter wheat was rated in fair or better condition. Excluding eastern Kentucky, the District’s year-to-date coal production for the end of October was 6.4 percent higher compared with the same period last year. Meanwhile, the District’s coal production for October 2012 was 6.2 percent higher than in October 2011.
Prices, Wages, and Employment
Contacts indicated that price levels over the past three months have stayed the same relative to the same period last year. Similarly, non-labor costs have generally stayed the same, although the majority of manufacturing contacts noted increases in costs. The majority of contacts reported that wages per employee and benefits per employee over the past three months have stayed the same relative to last year. Employment levels over the past three months showed signs of improvement; 38 percent of contacts reported increases in employment compared with the same period last year, while about half of contacts reported that their total employment has remained the same relative to last year.