Beige Book Report: St Louis
August 12, 1970
Expectations of an early upturn in business activity in the Eighth Federal Reserve District have dampened in recent weeks. An increasing amount of skepticism with regard to business recovery forecasts for later this year stands in sharp contrast with an earlier more optimistic attitude. More comments of "belt-tightening" are noted as an increasing number of firms plan a reduction in their work force, mostly through attrition, although a few are laying off some employees. The financial agencies report some easing in credit demands relative to supply, but no major declines have been noted in rates charged to borrowers.
A few months ago most of the officials interviewed were looking "across the valley" to the time when a resumption of the uptrend of recent years was anticipated. Since there is little indication that the uptrend will soon be resumed, businessmen appear to have become resigned to a substantially slower rate of expansion. One major exception to the downtrend is commercial banking, where deposits and earnings are reported up, with promising future prospects.
Sales at all levels have been disappointing in recent weeks. Department store sales have been well below expectations since late July. A number of manufacturers, including shoe and box companies, likewise report a low sales level compared to other recent years. Of those interviewed, only the beer company officials reported sales conforming to trend patterns. Great concern for inflationary tendencies continues. Especially worrisome in the face of a business slowdown and declining profits are the rising wage costs. With the decline of expectations of an early upturn and no relief in sight from the current profit squeeze, business has now begun a number of belt-tightening operations. Retail stores report a closer scrutiny of inventories than heretofore. Most firms are either holding constant or are gradually reducing their work forces. The reduction is primarily by attrition, although a few firms reported some layoffs in recent weeks. The major manufacturing industries still indicate no reduction in long-run expansion plans; however, some postponement in security sales for financing expansion plans has been noted.
The real estate financing agencies report that funds for financing home building and purchases are somewhat more plentiful. They add, however, that this is not the result of larger inflows of savings, but instead reflects the slowdown in demand for such credit. Builders report little demand for large homes.
Although the prospects for business expansion and new plant construction have declined in St. Louis and other large Eighth District centers, expansion continues at a healthy pace in the outlying areas, especially in the southern portion of the District where earnings of smaller companies continue at satisfactory levels.
The outlook for agriculture is mixed. Cattle feeders in the Eighth District are making little or no profit. Hogs have been profitable during the past year, but the prospects for the rest of this year and early next year are less promising. Although broilers are unprofitable at the moment, the situation can change rather rapidly for broiler producers. Egg and milk producers are doing quite well. Crops are very late and much land was not planted, but with a late frost a high level of crop production is still possible.
Prices of meat and other livestock products are likely to average somewhat lower in the year ahead than in the past twelve months, pointing to somewhat less upward pressure on food prices.