February 12, 1975
Eighth District businessmen generally report a slackening in economic activity in recent weeks. Growth of retail sales has apparently slowed further, although some improvement in auto sales has been reported. Manufacturing output and total employment have declined and construction activity remains at a very low level. Some acceleration in the growth of deposits at savings and loan institutions was reported. Farmers are currently planning acreage increases for most crops this spring.
Large retailers reported poor sales in January, and excessive inventories have triggered considerable price cutting and promotional activity. Although automobile dealers report some recent improvement in car sales as a result of the rebate programs, such sales are still well below levels of a year ago. With the large inventory of cars, increased sales will have to continue for some time to have a major impact on manufacturing.
Manufacturing activity is in a slump throughout most of the District. More layoffs have been announced since last month in the automobile, textile, appliance, boxboard and paper products industries. Many firms have curtailed operations by shortening the work week and eliminating overtime. However, in a few cases, including the television and automobile industries, some previously laid off workers have been recalled.
A number of manufacturing firms continue to report fairly high levels of business activity. These include capital goods, steel, and chemicals. A manufacturer of towboat, barge, and dredging equipment reports backlogs of 2 years at the present time. One steel manufacturer reported backlogs have dwindled in recent months but unfilled orders are still higher than a year ago. Some chemicals, including fertilizers, remain in short supply. Nonmanufacturing employment, which declined in the District in the first half of last year, has picked up slightly since July. Construction employment has generally remained at a relatively low level, but increases have occurred in other activities including health care and government.
The increase in deposits at savings and loan institutions reported last month apparently continued in January. Savings flows into commercial banks have leveled off, however, and demand deposits have declined sharply in recent weeks. Loan demand at banks continues weak as both interest rates and loan volume have declined.
While construction activity continues in a slump, the increase in mortgage money has been filtering into the used home market at somewhat lower interest rates. One building representative in the St. Louis area predicts a worse year in 1975 than in 1974 for construction of single family dwellings; however, other reporters expect some slow improvement in home building throughout 1975, leading to an upturn in demand for appliances and other items.
Although most crop prices have declined recently, they are still believed to be sufficiently high to provide incentive for increased production plans next year. Some cotton producers, after a dismal season in 1974, are planning to substitute soybean for cotton acreage. Part of the 1974 cotton crop may remain in the fields due to a combination of poor quality, low prices, and wet field conditions. Although some farmers who experienced poor crops and financial losses last year may find financing more difficult this year, banks currently anticipate being able to meet their customers' demands for credit at competitive rates.