September 13, 1972
Economic activity continues to advance in the Eighth Federal Reserve District, according to a selected group of business representatives. Factory output continues to show moderate gains for a wide range of products. Retail sales have risen further in recent weeks on a seasonally adjusted basis. Construction has apparently leveled off but at a relatively high rate. More firms reported moderate increases in employment in recent weeks than heretofore. Some businessmen reported plans for increased investments next year but pointed out that current profit levels are not sufficient to provide incentive for major investment programs. Farmers continue to view the current year's prospects with optimism, as higher gross and net incomes are in prospect.
Sales at most major District department stores have continued to increase moderately on a seasonally adjusted basis. Increases are being recorded throughout all departments. All the gains in the St. Louis metropolitan area, however, are at stores located outside the central city. Sales at central city stores have not increased during the current upswing in economic activity.
An increasing number of firms report moderate gains in number of employees. Specifically mentioning additions to their labor force were agricultural supply, chemical, and corrugated paper manufacturers. The unemployment rate has declined to relatively low levels throughout the District with the exceptions of St. Louis and some small areas in southern Indiana.
Construction continues at a very high level throughout the District with the exception of the St. Louis SMSA. Businessmen in St. Louis report that excessively high labor costs are inhibiting new commercial construction in the area. Home building has generally stabilized but at a relatively high level throughout the District.
While most of those interviewed believe that we have passed the trough in new investment, few major investments are reported by larger manufacturers. A representative of a corrugated paper and box board firm reported that this industry is operating at capacity, but little new plant investment is contemplated at current profit levels. Other businessmen also expressed the view that the low level of profits in relation to sales was inhibiting new investment. Most of the Eighth District investment in new plants is outside the St. Louis SMSA. The metropolitan areas and the smaller cities and towns in the southern portion of the District are attracting most of the new manufacturing plants. Commercial expansion in St. Louis is generally limited to investments in new shopping centers in the outlying areas.
Agricultural conditions remain favorable to producers, weather conditions have been satisfactory, crop prospects are generally good, and prices are sufficient to provide for profitable incomes to efficient producers. Many cotton farmers have already contracted their 1972 cotton crop at higher prices than they received in 1971. Neat animals are selling at relatively high prices, the quantity of feed available is adequate, and the potential profits from feeding are excellent. Farm supply industries are increasing their sales to farm customers as a result of the higher farm incomes.
Demand for credit is rising somewhat faster at District financial firms than the inflow of savings. As a result, there is upward pressure on interest rates. Some increases have already been reported in the prime rate. None of the larger banks have raised the rates paid on savings, but bank representatives report that the supply of available funds for lending has declined and rates on savings may be raised at any time in order to increase the savings inflow. Rates on mortgages have remained fairly stable, but longer term rates did not decline so precipitously as short-term rates during the recession.