Business activity generally continues up in the Eighth Federal Reserve District. Retail sales at major outlets continue to increase on a seasonally adjusted basis. Most manufacturing firms report that operations remain at or near capacity levels. Raw materials are still scarce in many lines of production with no major increases of supply in sight. Construction activity is mixed; residential building is down but commercial construction is increasing. The agricultural situation generally points to large crops and high farm incomes. Credit demand remains high, and no major decline in interest rates is foreseen by officials of those financial institutions interviewed.

Apparel and clothing items led the upward movement of sales at large District retail stores in recent weeks. There was a slackening in the sales of some appliance items which are installed by home builders, but the slowdown was more than offset by increased sales of clothing, household equipment and fixtures, and other items.

Manufacturing establishments in the District continue to report capacity operations, backlogs of orders, shortages of raw materials and skilled labor, and pricing problems. The backlogs of orders are holding stable for most industries. A representative of the paper and paperboard industry reported that capacity construction underway is only sufficient to take care of projected population increases, and that the profits of the firms, at current product prices, are not sufficient to provide incentive for the amount of construction necessary to relieve the shortage. He also reported that there is an insufficient number of pulpwood harvesting workers to meet the demand for pulpwood at current prices. A natural gas company representative reported that gas consumption in the Nation had exceeded the amount discovered in each of the past six year. As a result, the supply of gas is diminishing and only about nine to twelve years of reserves remain at current consumption levels.

Residential construction has slowed considerably over most of the District in the past three months. In some areas home building is reported to be at a standstill. Commercial construction, however, continues at a relatively high level and is reported to be gaining momentum in the St. Louis metropolitan area.

Large crops, relatively high farm prices and record farm incomes are in prospect for farmers in the Eighth District. Although most crops were planted later than average, the weather has been generally favorable. Rainfall has been timely and crop conditions are good to excellent. Prices of farm products remain relatively high despite recent declines in some feed grain and livestock prices, and with the large marketings in prospect net farm income should be well above the previous record level.

Credit conditions in the District remain very "tight." Loan demand continues to rise faster than the supply of loanable funds, and upward pressure on interest rates continues. Total deposits at the large District banks have declined in recent weeks. Time and savings accounts have increased somewhat, but not enough to offset the decline in demand deposits. Savings inflows into savings and loan associations have been at a slower rate in recent weeks than heretofore, and there has been some complaint among the savings and loan associations that the current margin of one-fourth of a percentage point between bank and savings and loan rates is too small. A few savings and loan associations, however, continue to search for loans, and most prospective home purchasers can obtain mortgage credit. The rate on conventional mortgages in the St. Louis area is 8 percent plus one to three points. The maximum legal rate in several of the Eighth District states is 8 percent; hence a higher point charge will be used to reflect further increases in market rates on home purchase loans.