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Beige Book Report: St Louis

January 15, 1975

According to a selected group of Eighth District businessmen, the recession has deepened in the past few weeks. Those firms reporting slowdowns and layoffs far outnumber those reporting expanding operations and rehiring of workers. Consequently, substantial declines in output and employment in the District were indicated. However, some activities continue to operate at relatively high levels. Christmas retail sales were better than expected, but sales of big-ticket items continue to drop off sharply. Crop farming, on average, was profitable last year, while livestock farming is currently undergoing a sharp contraction.

Opinions expressed by businessmen about current economic conditions ranged from concern for a worsening recession to perhaps increasing concern about the impact of current and future public policies on inflation. Some felt that monetary actions should be immediately and drastically eased. Most of those interviewed, however, expressed concern that remedies for the recession may bring on even worse evils than the recession itself, such as higher and higher rates of inflation. In general, considerable pessimism was expressed about the long-run possibilities of reducing the inflation, although there was general agreement that price increases would moderate some in 1975 from the very rapid increases last year.

Retail department store sales in December were reported to be up somewhat from a year ago, while some discount-type stores reported substantial sales increases. Both department and discount stores reported better Christmas sales than had been expected. Sales were slow during the pre-Christmas season but picked up considerably in the final days of shopping, boosting the dollar totals to above year-ago levels. Strong selling items included sportswear, accessories, decorative home items, silver, jewelry, and fine gifts. Sales of appliances, television, automobiles, and big-ticket home furnishings items, however, continue to be severely depressed.

Cutbacks in production and employment at manufacturing establishments continued to spread throughout the District in recent weeks. Durable goods manufacturers, which have been hardest hit, include producers of automobiles, lumber, furniture, and appliances. Among the nondurable manufacturing categories, textiles and apparel, shoes, rubber and paper, and other products have undergone the sharpest contractions. In nonmanufacturing activities, construction has undergone by far the sharpest contraction. Housing has been hit, but road and commercial construction has also slowed. Construction of both single and multifamily dwellings in St. Louis was off about 35 percent in 1974 from a year earlier. On the other hand, nonresidential construction in the city of St. Louis was up during 1974, due to a number of large downtown projects. Most other parts of the District reported commercial construction off from the year-earlier pace.

Several product sectors continue to report fairly strong activity. Energy-producing activities, including petroleum and coal mining, continue strong. Farm supplies including fertilizer, pesticides, and machinery continue to experience strong demand as do suppliers of medical and health products. Service industries and government employment have generally continued to increase.

Many capital goods firms still report a high level of activity, but weakness in new sales is now beginning to be felt. Some firms are currently working off past order backlogs, which are quickly dwindling as new orders subside. Railroad car manufacturers, steel mills and foundries, environment equipment manufacturers, and suppliers of oil and gas drilling equipment are among those operating at relatively high levels.

Loan demand has subsided, and interest rates have fallen in recent weeks. Total bank loans rose less than seasonally during December, reflecting weakened consumer and business loan demand. Savings inflows at banks have remained level in recent weeks, but some pickup was reported in the volume of savings and loan institutions in November and December. Usury ceilings in Missouri were recently raised from 8 to 10 percent, a change which is expected to aid the state housing market.

Crop farmers in 1974 fared well though crop yields were often down. The relatively high incomes reflected substantially higher crop prices. In general, rice, wheat, soybean, and tobacco producers experienced a good year, and with relatively high crop prices farmers are expected to plant large acreages in 1975. Cotton producers, on the other hand, suffered from both lower yields and lower prices. A sharp drop in demand for textiles participated the decline in cotton prices. A considerable portion of the wheat, cotton, and soybean crops is reported to be stored on farms, and in some cases harvesting has not been completed.