Beige Book Report: St Louis
August 11, 1976
Eighth District businessmen report that business activity is generally good. The pace of the recovery, however, has slowed somewhat in the last two months. Inventory demand has apparently slackened, and retailers note some slowing in sales. Also, manufacturing firms are experiencing some leveling-off in sales, and recent increases in manufacturing employment have been less than increases recorded earlier in the year. Home building, which made substantial gains earlier in the year, has tended to level off in recent weeks. Deposits at thrift institutions continue to increase but at a more modest pace than earlier in the year, and mortgage interest rates have inched up in recent weeks. Despite the slower pace of the recovery, most District businessmen remain optimistic and report a preference for this slower rate of recovery rather than for more stimulative actions which lead to further inflation.
The pace of consumer spending has apparently slowed somewhat recently. Some department store representatives noted that their sales were essentially unchanged from June to July; however, they were substantially above year-ago levels in both months. July sales of air conditioners and other consumer durables were reported to be good, but overall sales of such items for the year to date have been somewhat less than anticipated. The July gains in big-ticket items were offset by reduced sales of nondurable items. Automobile sales remain strong, though the rate of gain has stabilized.
Gains in manufacturing orders have decelerated somewhat in recent weeks from the pace of early 1976. A representative of the paints and coating industry stated that orders have generally risen since the beginning of the year, though a slowing in the growth rate is now apparent. Manufacturers of home construction items reported that sales, while above year-ago levels, have not increased recently, reflecting the less than anticipated increase in housing starts. A major aircraft manufacturer reported a mild decline in sales in the first half of the year, though the backlog of orders is higher than a year ago. Lower commercial aircraft deliveries were partially offset by accelerating work on Government contracts. A producer of conveyer products for the foundry, sawmill, and rubber industries reports that new orders are substantially behind 1975 and 1974 and that no recovery is foreseen at this point. On the other hand, a representative of a major chemical firm reported that sales have continued up at a moderate rate among most product lines. Perhaps the most optimistic prospects are in the automobile sector. A spokesman for this industry in the St. Louis area was generally optimistic about the sales prospects for the new-model year. Reflecting this optimism, two plants have announced major increases in employment and planned output. Overall, employment in the District has increased less than seasonally in recent months. Manufacturing employment has continued to make some gains in several areas of the District, but the increases were more than offset by declines in the nonmanufacturing sector. Unemployment rates, however, continue downward in most of the District and are generally below the United States unemployment rate. Some nonmetropolitan areas reported virtual full employment.
Growth of home construction has slowed recently. New home sales in the St. Louis area are reported to have been fairly steady in recent months, though not spectacular. Multifamily construction in the St. Louis area remains near a standstill. Several commercial and industrial projects are under way in various parts of the District, but one contractor reports a lack of new projects coming on stream.
The slower rate of deposit growth reported earlier at savings and loan associations has continued in recent weeks. Offerings of attractive yields on Treasury bonds probably are drawing some funds from thrift institutions. The deceleration in the growth of thrift deposits has encouraged some savings and loan associations to make their certificates of deposit (CDs) more attractive by reducing the maturity of CDs for a given yield. This policy is a reversal of actions earlier this year, which tended to reduce the attractiveness of CDs. Mortgage lenders report some upward pressures on mortgage interest rates in the past month. The dominant rate is now at 8 3/4 percent in the St. Louis area. Business loan demand at commercial banks remains sluggish, according to St. Louis bank representatives, and bank lending rates have tended to decline.
Crop yields have generally improved as a result of scattered rainfall in recent weeks. In some areas, particularly in Missouri, corn and soybean crops have been severely damaged by drought conditions. Reports from several other areas, however, indicate that crops are in excellent condition. Recent rains in some areas have enhanced yield prospects, especially of late plantings. Cotton yield prospects, however, remain poor, reflecting earlier adverse weather conditions.