Beige Book Report: St Louis
December 9, 1970
With the exception of some anticipated gains in home building, the Eighth District business outlook continues generally unchanged from a month ago, according to a sample of businessmen. Most economic activity is viewed as being slow with little change foreseen in the near future. Retail sales are sluggish with no indication of an early upturn. This relatively pessimistic outlook made the manufacturing firms less expansion minded than heretofore. In sharp contrast to the general outlook, however, those in the home-building industry are quite optimistic. The increased availability of credit and slightly lower interest rates are beginning to provide stimulus to the industry, resulting in expectations of increased activity in the months ahead. Most manufacturing firms contacted indicate that capital spending plans are being trimmed somewhat or drawn out over a longer period than anticipated when originally developed. In many instances, investment in new plants has been matched by early closing of older units where production is less efficient. High wage settlements are apparently stimulating modernization of plants and equipment, and investment for this purpose is expected to continue at a high level.
Respondents indicate that total employment may pick up moderately after the turn of the year. However, efforts to trim wages continue, and with the expected number of new entrants into the labor market no reduction is foreseen in the unemployment rate.
Poor weather conditions for crop harvesting have contributed to a pessimistic outlook in some rural communities in the southern part of the District. Excessive rainfall has delayed harvesting of both cotton and soybeans, tending to reduce both the quantity and quality of these crops in Arkansas and Mississippi.
Retail sales continue to fall behind expectations of a few months ago. Department stores report fewer shoppers and later Christmas shopping than normal. Collections on installment sales are more difficult with the rise in unemployment. Greater caution is therefore being exercised in planning for spring inventories. In contrast to the generally pessimistic outlook for manufacturing and retail sales is the increased optimism expressed by those in the home construction and building materials industries. Both direct labor costs and prices of building materials are up, but apparently demand has risen faster than costs since building activity is on the upswing. One contributing factor is the increased liquidity of savings and loan companies and banks. Some insurance credit is likewise returning to this market with the decline in demand for funds to finance new shopping centers, etc, where the lender receives in addition to the fixed interest rate a percentage of gross sales or gross rental although rates on home mortgages remain relatively high, other credit terms have eased and loans are easier to obtain.