Business activity in the Eighth Federal Reserve District generally remains strong. Substantial weakness, however, was reported in a number of activities, including the automobile and construction industries. In general manufacturing activity continues at a high level, with shortages and inflation remaining as difficult problems. Higher farm incomes and expected increased acreages have bolstered the business situation in rural areas.

Retail sales have slowed in recent weeks, although unusually bad winter weather in the region makes the sales data difficult to assess. Some items such as electric heaters and warm winter clothing have been selling strongly, but automobile sales have dropped off sharply. Dealers report very few sales and precipitous price declines of the larger car models. On the other hand, small cars were reported as difficult to find and were selling at premium prices.

Most manufacturing firms still report operations at full capacity; however, some temporary plant closings and layoffs have occurred in the automobile industry. No change was reported in capital investment plans for plant expansion, which generally call for greater investment this year than last.

Inflation, shortages of raw materials, and the energy situation in particular, remain major problems on the minds of businessmen. In view of the many shortages of materials, some "double" ordering by businessmen was reported, thus adding to the confusion relative to the shortage problem.

Construction activity is generally down in the District. In 1973, construction of single-family dwelling units in the St. Louis area was about the same as in 1971 and 1972. However, construction of multifamily dwellings dipped to about one-half the 1971-72 levels. Expectations are that construction of single-family dwellings in the St. Louis area will decline by as much as 30 percent in 1974.

Banks report that commercial loan demand continues strong. Savings and loan associations in the St. Louis area report increases in savings in the first part of January, after small negative net inflows in December. Mortgage demand was reported as weak, but mortgage rates remain steady, despite the somewhat greater inflows of funds.

The farm outlook is optimistic based on both last year's high farm income and the relatively high current prices of farm commodities. Many farmers are reported to be selling contracts on the futures market to avoid the risk of a price decline prior to harvesting. With higher farm incomes, business activity continues strong in rural areas and banks have experienced increased deposits. This strength is associated with a high demand for agricultural supplies in anticipation of a larger crop acreage than last year.