Beige Book Report: St Louis
June 17, 1970
Based on discussions with our Branch and Main Office Boards of Directors, officials of larger business firms, financial editors, and others, we conclude that business in the Eighth Federal Reserve District is generally good and is expected to remain so. The consensus for the second half of the year appears to be one of considerable optimism. It is generally believed that the period of slackening business will be over soon after midyear and that the economy will resume its uptrend of recent years. Price increases are expected to continue little abated and consumer spending is expected to continue strong. Any change in the rate of capital spending is likely to be on the plus side, though demand for labor appears to be slackening somewhat. Business inventories are at moderate levels. Pessimism continues to prevail with respect to business profits, as wage settlements appear to be in excess of amounts that can be passed on in higher prices for product. Demand for credit continues to grow at a high rate.
Apart from the fact that food and apparel prices are expected to hold relatively stable, most businessmen in the Eighth District expect inflation to continue at about the current rate throughout the second half of this year. Major forces contributing to these expectations include strong consumer demand, a high rate of capital spending by business firms, and the large wage increases received by workers in recent labor negotiations.
Consumer demand, although slowed somewhat in recent months, is expected to be generally strong in the second half of the year. Considerable optimism is expressed relative to overall consumer expenditures. Most of the recent slowdown is credited to strikes and factors other than a general decline in total demand. As a minority view, one department store reported that sales expectations for the remainder of the year have been reduced somewhat and that consumer purchases were becoming more selective. Customers were reported to be responding more to good values and as being somewhat less quality conscious that previously.
The rate of growth in demand for labor has apparently declined slightly. There have been a few layoffs, and in several cases workweeks have been shortened and over time eliminated. Job offers to June college graduates are down sharply, according to college placement officials. The salaries offered continue to creep up from 1969 levels, however, indicating continued growth in demand for trained personnel. Little change in overall employment was anticipated by the business community for the second half of the year.
Business investment continues up as budgeted, and no cutbacks are anticipated in the second half of the year. Manufacturing officials held uniformly to this optimistic view. If any change is apparent in recent weeks concerning business investment, it is that capital goods spending is gaining in strength. More modernization and improvement programs are being undertaken in an attempt to maintain profit margins in the face of sharply increased labor costs. Only one establishment, a discount-type retail facility, indicated a slight slowdown in investment.
Inventories of Eighth District firms are generally at satisfactory levels. No firm surveyed reported any excesses to be worked off as a result of the recent slowdown. One apparel manufacturer reported a lower inventory-to-sales ratio than heretofore because of efficiencies from improved inventory accounting methods. A major department store reported that inventories can be quickly reduced at will through planned sales.
Profits are the one item about which the respondents were uniformly pessimistic. High wage settlements are the important problem that is disturbing all the officials, and little relief is in view. Some further decline in profits is anticipated in the second quarter of this year, and little increase from these depressed profit levels is anticipated in the second half of the year.
Demand for bank credit continues brisk. Both consumer and business loan demands continue strong. Usury laws, however, tend to intensify credit problems in much of the district as market rates are higher than permissible lending rates to noncorporate borrowers in some states.