Beige Book Report: St Louis
October 13, 1976
Business conditions in the Eighth District continue to improve somewhat, although the rate of expansion has been at a slower pace in recent weeks than in the first half of the year. Businessmen generally remain optimistic as to economic activity through next year. Their views on future price movements, however, were mixed ranging from moderation to some acceleration in the inflation rate next year. Retailers reported that sales volume has been unchanged, on balance, in recent weeks from midyear levels. Most manufacturing firms noted a slower growth rate of orders through the summer which has continued in recent weeks. While housing construction has made substantial gains this year, this industry has tended to level off recently. Harvesting of crops is well underway in the District. Yields are generally below average due to the damage inflicted by drought, but in some areas are good.
Businessmen were asked in this month's interviews about their expectation of future price increases for the rest of this year and for 1977. Responses indicated that for the rest of 1976 price increases will be more moderate than that of recent months. Most firms noted that their own prices had been increased earlier in the year. No clear consensus emerged from the responses concerning inflation next year. Those who were pessimistic pointed to the recent wage settlements which they considered too high to be offset by productivity gains and to the tendency for excessive government spending. Those viewing inflation as likely to slow next year pointed to continued excess capacity, the slower rate of economic gains in recent months and the moderate rate of monetary growth. Businessmen generally report a more cautious expansion than in the 1972-73 recovery which is viewed as an important factor in achieving an orderly transition to stable prices.
Retail sales have registered little or no gain in recent months. Retailers noted that sales during the back-to-school period were good, but sales subsequently fell back to the previous level. Despite this lull in sales, retailers generally expect sales gains later this year. Automobile sales apparently suffered recently in some areas from a lack of car inventories.
Manufacturing activity apparently leveled off during the past month. A chemical industry representative reported that business was steady in the third quarter after substantial gains in the first two quarters of the year. A major appliance manufacturer reported that sales of appliances are approximately 3 percent ahead of a year ago, but that sales gains in recent weeks have been slower than expected. Nevertheless, a 10 percent increase in sales and production is expected in 1977. Paper and steel manufacturers reported slower increases in business in recent months than earlier in the year. A paint and coating firm noted some pickup in demand in August and September, but not as much as had been expected earlier. On the other hand, a manufacturer of diesel engines reported operations at full capacity and order backlogs well into next year. This firm is now planning further capital expansion.
Housing activity in single-family construction, after making sizable gains throughout the District in 1975 and 1976, has apparently leveled off. Apartment construction is picking up slightly in various parts of the District, but remains relatively low compared with 1972 and 1973. Commercial and industrial construction continues rather sluggish. One contractor noted that major retail chains are planning expansion for 1978 through 1980 but are contemplating little expansion next year.
Demand for commercial and industrial loans has remained unchanged in the past two months and interest rates have declined somewhat according to local bankers. One reason given for the low loan demand by business is that corporate treasurers are underpaying corporate taxes and thus have more funds for financing inventories. One banker expects loan demand to rise in the near future, and the increase to be observed first in small communities. Savings and loan associations report sizable gains in deposits during recent months. Liquid investments are substantially above last year and borrowings from the Federal Home Loan Banks are down considerably. Interest rates on home mortgages in the St. Louis area, however, remain unchanged in the past month.
Crop harvesting appears to be ahead of schedule in most of the District reflecting favorable harvesting weather. Yields are generally below average in the western portion of the District, while generally good in the eastern portion. Cotton yields are likewise mixed depending on the location. Rice yields are good to excellent in Arkansas but prices are relatively low. Reports indicate that land prices are continuing to rise rapidly in parts of the District. Recent farm land sales in parts of Illinois have been reported at prices up to $3,500 per acre and cash rents at $125 per acre.