Economic activity in the Eighth Federal Reserve District continues at a high level, except for a slowdown in the automobile and related industries. The majority of manufacturers continue to report material "shortages", order backlogs, and low inventories. In general, retail sales have been strong so far this year. Loan demand is down somewhat and most interest rates have declined.

Manufacturing activity continues generally strong in the Eighth District, although it is still plagued with materials shortages. Chemicals, capital goods, and paper industries are among those reporting strong demand. Many firms report "frantic" searches to locate raw materials. Items reported in short supply include aluminum, copper, castings, wire, zinc, forgings, electric motors, lumber, bearings, paper, textiles, chemicals, valves, and pipes. Apparently, "black" markets are developing in a number of these items, with transactions taking place at prices considerably higher than the controlled levels.

Members of the Purchasing Management Association of St. Louis, meeting in late February, reported virtually no declines in business since the first of this year despite the slowdown in automobile production. Furthermore, more than half of the members reported their firms were operating at full capacity and were unable to fill orders on time. The widespread reports that factory inventories are getting too high, given the sales outlook, was amusing to many of the buyers because of local "shortages". On the whole, retail sales in the District generally have been strong this year, although the dollar volume of sales has been boosted by higher prices. Some St. Louis retailers reported sales were off in the first part of March; however, this was not expected to be the start of a new trend. Automobile sales continued down, although some dealers felt that the declines have bottomed out. Farm equipment sales are reported down in some parts of the District, largely reflecting lack of supply.

Loan demand has slackened somewhat in recent weeks. Loans at commercial banks in the District have declined, and interest rates are somewhat lower than a month ago. Mortgage rates at savings and loan associations have been steady to somewhat lower. Savings institutions have experienced moderate increases in savings inflows. Generally, those institutions offering 7 1/2 percent on longer maturity CDs report sizable inflows while those offering less than maximum rates have been less successful in attracting deposits. In some parts of the District, usury laws constrain residential mortgage rates. Those savings and loan associations committed to servicing markets, where these laws exist, find 7 1/2 percent money unprofitable.

Loan demand appears to be stronger in rural areas than urban areas, probably reflecting a sharp upsurge in demand for farm credit. Prices for most farm inputs have increased substantially this year. Nitrogen fertilizer and fuel prices have about doubled since last year. Planting intentions are also up, reflecting the high demand for farm products. These higher costs have in turn contributed to rising credit demand.