Beige Book Report: St Louis
November 11, 1970
According to a sample of businessmen in the Eighth District, economic activity continues at the reduced levels of recent months. These businessmen see no clearly dominant force to move the economy in either direction. Part of the pessimism arises from the automobile strike. In addition to the wage losses by striking automobile workers, there is a sizable impact on the suppliers of automobile parts and materials. Most District firms report no change in employment, but new budgets are being tightened, and capital investment plans are being lengthened. These firms apparently see little indication of an early upturn. Residential construction has picked up somewhat, offsetting a decline in industrial construction. The size of wage settlements continues to disturb most business managers. Retail sales continue at generally satisfactory levels, while inventories are being held at a minimum.
The automobile strike is having both direct and secondary impacts on economic activity in the Eighth District. In St. Louis where General Motors has some major factories, the direct impact has been substantial. Direct wage losses are estimated at $1.5 million per week. In addition there has been a substantial reduction in demand for plastics and other supplies purchased by automobile manufacturers.
Plans for further belt-tightening are expressed by a number of large manufacturing firms. Most respondents indicate their own work force is stable, but some emphasize that there will be no net hiring of employees. Bearishness as to outlook in the next few months and hard-nosed budget planning are typical expressions of current business psychology.
Capital investment plans are being generally lengthened. Part of the change is the result of strikes or failure to obtain supplies on schedule, but part is the result of rising pessimism as to prospective demand for output. Most firms indicate, however, that capital expansion plans are continuing high relative to past years.
Although nonresidential construction is down, reports indicate some gains in residential construction. The housing demand has been strengthened by slightly lower interest rates on home mortgages and the allocation of additional funds for rural home purchasing by the Farmers Home Administration.
Wage settlements and union wage demands continue to be a major worry of most business managers. Some express doubt as to the ability of stabilization policies to have an appreciable effect in view of high wage demands. Other managers believe that unions will be willing to settle for more moderate wage claims.
Retail sales remain at generally unchanged levels, except in the specific localities where the effects of the automobile strike have had a major impact on total employment and income. Department stores report that goods can be moved readily at promotional sale prices. Inventories, however, are being held at below normal levels with a "look and see" attitude in preparation for the normal pre-Christmas buildup.
Unfavorable weather has hampered agricultural operations in the cotton producing areas and lowered the quality of the crop. Corn production is down as a result of the southern corn leaf blight, but the crop is believed to be somewhat above expectations of a month ago. Farm incomes are expected to be somewhat higher this year than a year ago, because the crop declines will likely be more than offset by higher average prices.
Farm outlook specialists in the area believe that livestock product prices are at or near a low point in view of the outlook for feed, particularly corn, and that we can expect an uptrend in these prices for the next year or two. Since livestock products account for a sizable percent of food expenditures, these increases indicate substantial upward pressure on food prices in the coming year.
Commercial banks report that both deposits and loan requests are growing. They indicate, however, that loan requests are given greater scrutiny as a result of the unfavorable profit outlook for many firms.