Businessmen in the Eighth Federal Reserve District remain optimistic, foreseeing a vigorous business expansion in the year ahead. Representative firms report sales increased in recent weeks for all lines of output. Manufacturing continues to expand. Construction activity is currently at a high level and is expected to rise still further next year. Employment continues to rise moderately, and a tighter labor situation is reported over an increasing portion of the District. Profits have increased, but some businessmen complain that profit margins are insufficient to stimulate new investment despite near capacity utilization levels. Loan demand continues up, and further increases in interest rates are anticipated. Excessive rain in late October and November has led to a deterioration of agricultural conditions.

Rising retail sales are reported throughout the District with the exception of the inner-city stores in St. Louis. Major department stores report sizable sales gains in November on a seasonally adjusted basis and expect the higher levels to be maintained through the Christmas shopping season. Communities not represented by the major firms report that retail sales are booming. Inner-city stores in St. Louis, however, report little change in sales volume, and chains with downtown stores report that their sales growth is in suburban stores.

Manufacturing activity continues to expand on a broad front. Major chemical companies expanded output and deliveries in the fourth quarter. Orders for plastics, fibers, carpets, chemicals, and appliances are up. Sales of electrical equipment for new plants are rising. An increasing number of manufacturing firms report overtime work, and delivery dates are lagging further for products in short supply. Brick plants in northeast Mississippi are not promising delivery on current orders of brick until May.

Employment continues to rise, further tightening the labor markets in most District communities. Most manufacturing firms report an increase in production workers despite major efforts to hold employment in check. Labor shortages are reported in many of the smaller and some larger communities in the District, and the unemployment rate is generally low. St. Louis, Evansville, and Fort Smith are exceptions and have shown little improvement in recent months.

Business profits have generally increased with the sharp sales gains, but complaints are made that profits are still too low to provide incentive for major investment expansion in some industries. Specific examples include the box board industry and the lumber and wood industries.

Construction remains at a high level, and businessmen in the industry are quite optimistic about the outlook for construction in 1973. Reports from Arkansas and Tennessee show a continued high level of housing starts during the autumn months with prospects for no slowdown next year. The St. Louis Home Builders Association estimates a 10-percent increase in construction of single-family units next year. One exception to this optimistic outlook is the Louisville area where an excessive number of apartments have apparently been built, and the apartment rental market is reported to be soft. Also, commercial construction in the St. Louis area remains at a relatively low level.

Demand for credit continues to expand, and interest rates continue to creep up for most types of loans. Home mortgage rates, however, remain relatively stable, and one of the larger savings and loan associations in St. Louis reported a slight decline in its rates in November.

Agricultural prospects in the Eighth District deteriorated sharply in November. Excessive rainfall delayed the harvesting of all crops including corn, soybeans, and cotton. In some areas half of the crops remain in the field, and the damage to soybeans and cotton is quite severe. Crop prices are relatively high, but weather damage may cause severe losses to farmers in some communities.