Beige Book Report: St Louis
December 15, 1976
Reports from Eighth District businessmen suggest that the economy has expanded at a somewhat faster pace in recent weeks than during late summer. Strengthening in the economy was evidenced by reports from both retailers and manufacturers. Department store representatives indicate a pickup in sales in November, and manufacturing representatives report rising orders for paper and boxboard, processed foods, refrigeration equipment, apparel, paints, coatings and chemicals. As a result of this increase in manufacturers' orders and retail sales, inventories, which had been somewhat higher than desired in certain industries, are now approaching desired levels. Several firms report planned increases in capital spending next year, and in some cases, the increases are substantial. Savings flows into thrift institutions continue relatively strong. Mortgage rates are again moving downward.
Department store sales have increased in recent weeks. Leading department stores in St. Louis report a sizable gain in November sales on a seasonally adjusted basis, and the higher sales volume is generally expected to continue through the Christmas season. Department store sales are up 10 percent from a year ago in several areas of the district, a somewhat greater increase than for retail sales in general. In Louisville, however, retailers avoided the usual Christmas inventory buildup, and are having some apprehension about Christmas sales.
Manufacturing activity in the district has increased in recent weeks. A representative of the paper and boxboard industry reports orders are coming in more rapidly now, after a lull last summer. Operations were reported at near capacity and backlogs are beginning to build up. A representative of a food processing firm noted that some softening in food sales occurred in September and October, but that sales have expanded more rapidly again in the last four weeks. The uniform apparel industry, which also experienced some softness in sales in earlier months, was reported to have picked up starting in September. Sales of certain industrial coating and chemical products have gained strength in recent months after a period of sluggishness during the summer. A representative of a paints and coating firm reported a 15 percent increase in sales in 1976 over the previous year.
A number of other manufacturers report excellent business conditions. One firm noted an upsurge in sales for refrigeration equipment used primarily in food stores. A firm manufacturing industrial cutting and do-it-yourself tools reported more orders than capacity to fill. The prospects for a pickup in the aircraft industry next year are quite bright according to a representative of a large aircraft manufacturer. An upswing in both military and civilian aircraft production is expected. On the less optimistic side a representative of the stone and cement industry reported a substantial decline in business in mid-June and no upturn yet.
Inventory stocks in the late summer period of slower economic activity reached somewhat higher levels than desired in some industries. A representative of one large supplier of software goods stated that inventories began to get out of hand six weeks ago, but recent sales gains were alleviating this problem. An apparel manufacturer noted a very cautious attitude on the part of retail store buyers to increase inventories. A representative of a major manufacturer of appliances and capital goods stated that lack of inventory building had contributed to the slower growth of the economy in recent months.
Announcements of capital spending plans indicate that moderate to large increases in such spending will occur next year. One major food processor announced a substantial increase in investment spending next year, while another expects only a normal increase. Investment in the paper industry is being increased somewhat, but mostly by the addition of machines to existing facilities. A paper industry representative reported that this industry will probably experience a "shortage" of capacity by late 1977 or early 1978.
The liquidity of thrift institutions and banks continues to increase. Funds are flowing into these institutions at a rapid pace, and despite the fact that mortgage loan demand is described as strong, there is downward pressure on mortgage interest rates. Rates on an 80 percent loan in the St. Louis area are currently 8 1/2 to 8 5/8 percent, down from 8 3/4 percent a few weeks ago.
Livestock feeding operations continue to be unprofitable, and according to one observer, this situation is not expected to improve materially in next 6 to 8 months. Reports also indicate that in certain drought-stricken areas farm income is down substantially. In Southeast Missouri, for example, where cotton yields were generally only 50 percent of normal, banks report some increase in problems of loan repayments. On the other hand, in other sections of the District such as southern Illinois, west Tennessee and Kentucky, crops were generally excellent, and the financial conditions of farmers have improved significantly.