Beige Book Report: St Louis
March 12, 1975
Eighth District businessmen reported that economic activity was at substantially reduced levels in recent weeks in comparison with most of last year. However, the rate of decline in employment and output has apparently moderated. Department store sales continue at a slow rate, but no further decline was reported. Automobile sales have increased somewhat. The rate of savings inflows at thrift institutions has increased in the past couple of months. Although new home construction has not responded to the greater availability of mortgage credit, builders anticipate an early increase in home construction activity.
Department store sales continue sluggish, according to area retailers. Sales are reported to be down most for durables products, such as refrigerators, washing machines, and television sets. Price promotions are being used to clear current inventories of both automobiles and other durable goods.
Manufacturing activity continues at a reduced level throughout the District, compared with last fall. However, the rate of deterioration appears to have moderated in recent weeks. Representatives of the hardest hit industries, such as automobile, housing, appliance, lumber and forestry, and clothing and textiles, did not report much further deterioration from January levels. In fact, a few firms reported plans for recalling workers and for achieving a higher level of output.
Activity in the chemical, steel, petroleum, and food industries has continued at relatively high levels. A major chemical firm reported good sales for drugs, but poor sales for some types of synthetic fibers and industrial products.
Unemployment increased dramatically near the close of the year in most parts of the District. Data for January indicate employment declines in almost all industrial categories, and unemployment rates jumped substantially from the December level. Scattered reports for February indicate the unemployment rate has tended to level off.
Mortgage funds are reported to be more available and interest rates somewhat lower in recent weeks. Savings and loan institutions reported an upturn in net savings through March 1. These institutions report that they are using additional funds to make new loans on both old and new housing and to build their liquidity through increased holdings of cash and short-term instruments. Also, they are paying off debt to the Federal Home Loan Banks.
Mortgage rates on an 80 percent loan in St. Louis have declined from 9 1/2 percent late last year to 8 1/2 percent in recent weeks. Savings and loan officers point out that the extent of further reductions must be related to rates offered to savers. Some institutions have already discontinued the 7 3/4 percent six-year certificates and are increasing the minimum size of the 7 1/2 percent certificates from $1,000 to $10,000.
The upturn in availability of loans had no noticeable effect on new housing starts so far; however, representatives of the building industry are becoming more optimistic. A considerable inventory of unsold homes currently exists, but these inventories are beginning to move. In addition, the apartment vacancy rates are quite low in some parts of the District. Hence, with funds available, building representatives expect a sizable pickup in housing construction this year. A number of businessmen, however, expressed serious reservations concerning the continued availability of funds once major government borrowings to finance the deficit begin. Commercial construction in the downtown area of St. Louis is quite active, but elsewhere in the District, including St. Louis county, such construction is at a relatively low level.
The volume of business and consumer loans in the District has declined in recent weeks, reflecting reduced loan demand. As a consequence, the rates charged have declined and a number of banks are actively soliciting loan accounts. Total demand deposits at District commercial banks have fallen off in recent weeks, but savings and time deposits have increased.
Farmers have become more pessimistic about current agricultural conditions with the decline in crop prices and little increase in livestock prices. Livestock producers, especially cow-calf operators, are under a considerable profit squeeze; however, the profitability of the cattle feeding business has improved as a result of the lower priced feeders. Cotton producers in some areas of the District are planning sizable cutbacks in acreage. Soybean prices have also become less favorable, yet some farmers, particularly cotton farmers, plan to substitute soybeans for cotton.