Federal Reserve Report Contains Bright Spots

By Steve Rensberry

   (RPC) - 7/28/2010 - The recent Beige Book report by the U.S. Federal Reserve was a mixed bag of economic ups and downs, weak spots and bright spots. The report tabulates data over the past two months from the 12 District banks, among them the Federal Reserve Bank in St. Louis. In general, the catch phrases were: slow growth, sluggishness, flat or weak activity in the construction and housing sectors, and uncertainty.
   "The economic outlook remains unusually uncertain," Federal Reserve Chairman Ben Bernanke said.
   But where there has been weakness in some areas, like housing and construction, there has been grown in other areas and stability in still others. And is it uncertainty or simply "continued caution" on the part of consumers in the face of a decade of rising energy and health care costs, the foreclosure crisis, and turmoil on Wall Street of the likes that hasn't been seen in decades.
   Still, the report on the Fed's Eighth District does have some bright spots, with the economy showing at least some overall improvement and growth, manufacturing and the services sector included.
   Here's the Federal Reserve Board's July 28 summary of activity within its Eighth District:

The Federal Reserve's Eighth District - St. Louis

   Economic conditions in the Eighth District have continued to improve since our previous report. Manufacturing activity increased, on balance, as did activity in the services sector. Auto sales increased over a year ago. Residential real estate market conditions continued to improve across the District's largest metropolitan areas, while commercial and industrial real estate markets remained weak, especially construction.    Overall lending activity at a sample of small and mid-sized banks in the District decreased from early April to late June.

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 and reduce operations. Firms in the furniture, plastics product, metal pipe, and plastics resin manufacturing industries announced plans to expand operations and hire new employees. Additionally, a major firm in the automobile manufacturing industry announced the opening of a new production facility. In contrast, firms in the motor and generator, furniture, and polystyrene foam product manufacturing industries announced that they will close plants in the District and lay off workers.
   Activity in the District's services sector has also increased since our previous report. A major software publishing firm has announced plans to open a new facility in the District and hire new workers. Additionally, a firm in nursing care services announced plans to relocate their headquarters to the District. In contrast, contacts in education services, air transportation support services, and the casino industry announced plans to decrease operations and lay off workers. Sales of new and used automobiles in recent weeks were reported as higher than a year ago and slightly above expectations.

Real Estate and Construction
   Home sales continued to improve throughout the Eighth District. Compared with the same period in 2009, May 2010 year-to-date home sales were up 3 percent in Memphis, 12 percent in St. Louis, 19 percent in Little Rock, and 30 percent in Louisville. Residential construction also continued to improve throughout the District. May 2010 year-to-date single-family housing permits were up in most District metro areas compared with the same period in 2009. Permits increased 27 percent in Louisville, 31 percent in Little Rock, 36 percent in St. Louis, and 52 percent in Memphis.
   Commercial and industrial real estate market activity remained slow throughout most of the District. Contacts noted that financing requirements for new construction remained stringent and lease rates remained low. A contact in St. Louis reported that commercial leasing was up in some areas, but new commercial construction projects are not expected before mid-2011. Industrial real estate and construction contacts throughout the District continued to report a flat environment. A contact in Louisville reported that demand for industrial real estate continued to be weak. A contact in the Memphis area reported that while industrial leasing has improved somewhat, no new industrial construction is likely before the end of the year.
Banking and Finance
   Total loans outstanding at a sample of small and mid-sized District banks decreased 2.0 percent from early April to late June. Real estate lending, which accounts for 73.6 percent of total loans, decreased 1.9 percent. Commercial and industrial loans, accounting for 16.0 percent of total loans, decreased 2.5 percent. Loans to individuals, accounting for 5.3 percent of total loans, decreased 6.5 percent. All other loans, roughly 5.1 percent of total loans, increased 4.1 percent. During this period, total deposits at these banks decreased 1.2 percent.

Agriculture and Natural Resources
   Generally, development of the District's major crops remained ahead of its 5-year average pace. In mid-July, the overall condition of rice and cotton was rated as slightly better than last year, while the condition of corn, sorghum, and soybeans was rated as slightly worse. Farmers in the District states planned to harvest more acres of corn for grain and rice in 2010 than in 2009 but fewer acres of soybeans and sorghum for grain. The winter wheat harvest was complete or nearly complete in all District states. Based on July estimates, total winter wheat production in the District states was expected to be down 48 percent from last year. Since our previous report, pasture conditions deteriorated in most District states

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