WASHINGTON (MNI) – The following is the latest Beige Book survey of
economic conditions in the Federal Reserve’s Eighth District, published
Wednesday:

Summary

Economic activity in the Eighth District has continued to expand at
a modest pace since the previous survey. Manufacturing activity has
continued to increase, and activity in the services sector has also
increased. Residential real estate activity has continued to decline,
while commercial real estate market conditions have been mixed. Overall
lending at a sample of large District banks saw little change during the
fourth quarter of 2011.

Consumer Spending

Contacts reported that retail sales in January and early February
were up slightly, on average, over year-earlier levels. Half of the
retailers saw increases in sales, while 37 percent saw decreases and 13
percent saw no changes. Roughly 71 percent of the retailers reported
that sales levels met their expectations, 17 percent reported that sales
were below expectations, and 12 percent reported that sales were above
expectations. About 21 percent of the retailers reported that their
inventories were too high, while 12 percent reported that their
inventories were too low. The sales outlook for March and April was
mostly optimistic: 65 percent of the retailers expect sales to increase
over 2011 levels, while 13 percent expect sales to decrease and 22
percent expect sales to be similar to last year’s sales.

Car dealers in the District reported that sales in January and
early February were up slightly, on average, compared with last year’s
sales. About 48 percent of the car dealers surveyed saw increases in
sales, while 32 percent saw decreases and 20 percent saw no changes.
Twenty-eight percent of the car dealers reported that used car sales had
increased relative to new car sales, while 24 percent reported the
opposite. Thirty-two percent of contacts reported an increase in sales
of low-end vehicles relative to highend vehicles, while 8 percent
reported the opposite. Thirty-two percent of the car dealers surveyed
reported that their inventories were too low, while 24 percent reported
that their inventories were too high. The sales outlook for March and
April was mostly optimistic: 76 percent of the car dealers expect sales
to increase over 2011 levels, while just 4 percent expect sales to
decrease and 20 percent expect sales to be similar to last year’s sales.

Manufacturing and Other Business Activity

Manufacturing activity has continued to increase since our previous
report. Several manufacturers reported plans to open plants and expand
operations in the near future, while a smaller number of contacts
reported plans to close plants or decrease operations. Firms in the
furniture, automobile, food, stone product, air conditioning component,
and medical device manufacturing industries announced plans to increase
existing operations and hire new workers. Additionally, firms in the
automobile parts and primary metal manufacturing industries announced
plans to open new plants and hire workers. In contrast, firms in the
faucet, chemical, paper product, and lawn mower manufacturing industries
announced plans to close plants and lay off workers.

Activity in the District’s services sector has continued to
increase since our previous report. Firms in information technology
services, pest control services, distribution services, health services,
and leisure services announced plans to expand operations and hire new
workers. In contrast, contacts in freight transportation services,
education services, government services, and business support services
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 2010, total 2011 home sales were down 2 percent
in Memphis, 3 percent in St. Louis, 4 percent in Louisville, and 6
percent in Little Rock. Residential construction also continued to
decrease throughout the District. Total 2011 single-family housing
permits decreased in the majority of the District metro areas compared
with 2010. Permits decreased 15 percent in Louisville, 20 percent in
Little Rock, and 21 percent in St. Louis. However, permits increased 1
percent in Memphis.

Commercial and industrial real estate conditions were mixed
throughout the Eighth District. Contacts in Memphis reported weak
commercial real estate loan demand but stable industrial real estate
activity. Contacts in Louisville reported that commercial real estate
activity has increased since December 2011 while contacts in St. Louis
noted an increase in fourth-quarter 2011 office and industrial vacancy
rates compared with the third quarter of 2011. Commercial and industrial
construction also varied throughout the District. Contacts in south
central Kentucky noted that commercial construction is showing improved
activity with recent business additions and relocations in the region.
Contacts in western Kentucky, however, noted that construction projects
are very scarce, with the exception of Owensboro-Daviess County, which
has a significant number of public and private projects underway.
Contacts in northwest Arkansas noted an increase in commercial building
construction in the Bentonville area, while contacts in Little Rock
continued to report overall weak construction activity.

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 2011. During this period, credit standards and demand for
commercial and industrial loans remained unchanged. Credit standards for
commercial real estate loans also remained unchanged. Demand for these
loans ranged from unchanged to moderately stronger. Meanwhile, credit
standards for consumer loans remained unchanged, while demand ranged
from moderately weaker to about the same. Credit standards for prime
residential mortgage loans ranged from unchanged to somewhat eased,
while demand for these loans ranged from about the same to moderately
stronger.

Agriculture and Natural Resources

Yields for corn, sorghum, hay, soybeans, and cotton were lower in
2011 compared with 2010, while yields for winter wheat, rice, and
tobacco showed positive gains. Monthly output of commercial red meat for
December 2011 decreased compared with November 2011; the District’s
total live weight and number of chickens slaughtered also decreased
during the same period. The District’s coal production for January 2012
was 1 percent lower compared with January 2011. Similarly, as of early
February, year-todate coal production was 4.2 percent lower than the
same period in 2011.

** Market News International Washington Bureau: 202-371-2121 **

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