Beige Book Report: St Louis
May 12, 1976
Reports from Eighth District businessmen indicate that economic activity in the District is continuing on an upward course. Retailers report sales gains for most items, and manufacturing firms report gains in orders and generally improved profits. Home building continues to expand, largely in the single-family type structures. Financial institutions report rising deposits and an increasing proportion of assets allocated to short-term liquid investments. In the agricultural sector, the planting of 1976 crops is well underway and substantially ahead of normal for this time of year.
Consumer spending continues to grow at about the same rate as in the past several months. Department store representatives again report rising sales of wearing apparel items and big-ticket items, such as appliances and automobile parts. Department stores are experiencing improvement in their collection of outstanding accounts. Automobile sales also made further gains in recent weeks.
The manufacturing sector, after making strong gains in the first quarter of this year, has apparently maintained this upward momentum in recent weeks. One apparel maker which experienced only a mild setback in the recession period reports a complete recovery from the setback. Another clothing manufacturer which suffered sharp losses during the recession has experienced a 25 percent increase in fall bookings over a year earlier. A representative of the paper and boxboard industry which noted some sluggishness in sales last month, reports sales improvement in recent weeks. An appliance manufacturer reports continued improvement in sales and considers the outlook for future sales very good. Overall, the chemical industry is experiencing increases in demand for most types of products. Among chemicals showing strength are industrial chemicals, plastics for automotive use, and most textile fibers. A sluggish demand, however, was reported for chemicals used for manufacturing rubber and polyester fibers. A major aircraft manufacturer has experienced some recent pickup in demand for commercial aircraft in addition to increased demand for defense-oriented aircraft.
Home construction continues on the upswing in most of the District, although some slowdown in home sales was noted in St. Louis in the past three weeks. Housing permits issued in the first quarter of this year in St. Louis County were at their highest level for this quarter since 1966. Housing industry representatives expect the St. Louis area housing recovery to continue at least through the next twelve months. Although the upturn so far has been primarily in construction of single-family houses, prospects for increasing activity in the multi-family units appear to be improving. Home construction in Memphis, which has also experienced a strong upturn in single-family units, is currently working out of the excess of multi-family units built in the previous boom period. A number of such units previously started are now being completed. Although the outlook for the homebuilding industry remains good for the rest of 1976, some observers have expressed concern about the impact of rising home prices on future sales.
Credit demand in the District has apparently strengthened in recent weeks. Both banks and savings and loan associations report increases in loans outstanding. Business loan demand at commercial banks, however, is still sluggish, and reports continue to indicate that interest rates charged to many prime business customers are actually somewhat below the reported prime loan rate. Savings and loan associations report further increases in loan demand, reflecting the strengthening housing sector. Mortgage rates, however, have generally declined about 1/4 of 1 percentage point in the past month reflecting the highly liquid condition of these firms. Commercial banks and savings and loan associations have realized large increases in time and savings deposits in recent weeks. Banks report increases in time deposits of all types, including large certificates of deposit. Savings and loan associations in the St. Louis area report further large gains in savings deposits for April, after registering the largest quarterly increase on record in the first quarter of the year. They are concerned, however, about the current reduction in profit margins as mortgage rates continue to fall and rates paid on deposits generally remain at the maximum permitted by the ceilings. A few associations are beginning to reduce the cost of funds purchased by either not offering certain types of certificates or reducing the yields.
Farming operations are substantially ahead of schedule over most of the District. Recent rain and cold weather, however, have presented some problems. Some replantings of field crops were necessary, and the late season frost has damaged some crops, especially apples and peaches. So far it is too early to determine whether substantial damage was inflicted on field crops.