May 5, 1971
The upward trend of business in the Eighth District accelerated somewhat during the past month, according to reports from a group of leading businessmen. Retail sales picked up considerably in the week before Easter and have continued at the higher level. The construction industry shows more activity than a month ago on a seasonally adjusted basis and is well above levels of a year ago. Although cautious about additional hiring, employers are lengthening the workweek in many cases and are attaining increased .efficiencies with the current number of employees. No further reductions in capital spending are mentioned, and some signs of recovery in such spending are beginning to appear. Despite some dry weather in portions of the District, the overall agricultural outlook is good.
Retail sales rose sharply just prior to Easter in a manner similar to the pre-Christmas gain. Clothing, appliances, and other lines appear to be moving well. Automobile demand is strong. Retail inventories have not been increased, but some respondents indicate that larger inventories will be required if demand continues at current high levels.
The construction outlook has likewise improved during the past month. Gains are now observable in all sectors of the industry, including public buildings, industrial construction, and all types of housing, especially lower cost homes which are financed in part through public assistance. The residential housing market is soft in St. Louis, where major wage gains were negotiated by the building trades. In most other areas of the District, however, home construction labor is nonunion, and home building has picked up substantially. One major industrial construction firm reports that actual work is still lagging behind expectations, but contract closing, which involve future construction, are well ahead of year-ago levels. This firm is in the process of enlarging its staff to meet this increased demand. Orders for building supplies continue to improve along with the construction gains.
The process of investment retrenchment which began last year has been completed, and firms are beginning to seek new investment opportunities. One large, diversified firm reports renewed investment plans in all divisions except one of its minor franchised lines. Another respondent is putting additional machinery into use to meet increased demand. Some others are adopting a "wait-and-see" attitude until evidence of an upswing is more conclusive.
Excluding some gains in construction employment, most of the increase in activity to date has apparently been made with little change in the number of workers. A slightly longer workweek and greater productivity per worker are indicated. Even those firms reporting increased investment do not foresee additional hiring in the near future. The outlook for summer employment of students and other part-time workers is especially dim.
Labor costs are still a major complaint, especially in the construction industries. Suppliers of building materials in St. Louis indicate that competition from nonunion firms in other parts of the county is causing them to hold prices down, resulting in a profit squeeze.
The rise in business activity in the District is beginning to have an impact on credit demand. Loans at most District member banks have increased somewhat faster in recent weeks than heretofore. A few banks have increased their prime rates, although they generally remain highly liquid. Savings and loan associations report that liquidity is greater than desirable but that demand for mortgage money has risen substantially during the past month.
There are fewer complaints than usual about the current rate of inflation, but a number of respondents express concern that overly expansive public policies may again lead to excessive demand and an increased rate of inflation.