Beige Book Report: St Louis
January 13, 1977
Eighth District businessmen are generally confident that the recovery will continue in 1977. The lull in business activity last summer and early fall has continued into recent weeks for some industries, but a number of other firms report that activity has gained momentum. Retail sales have been strong over the holiday and post-holiday season. Prospects for capital spending, on the other hand, are mixed. In general, such spending is expected to increase in 1977, but in some industries little change from a year ago is foreseen. Homebuilding made good gains in several areas of the District in 1976 and further gains are anticipated in 1977. Thrift institutions continue to experience large increases in deposits on a seasonally adjusted basis and mortgage rates have edged downward.
Major retailers report that sales were generally excellent over the Christmas season. One major department store in the St. Louis area reported 3 to 4 percent gains in real terms, although aggressive merchandising was necessary to move goods. Reports from smaller retailers in the nonmetropolitan areas over the District were mixed. An appliance and stereo equipment retailer in the St. Louis area noted that sales were more sluggish than anticipated over the early part of the Christmas season, but a surge of buying in the last few days before Christmas made up for the earlier slowness. Also recent reports indicate that post-Christmas sales have been excellent.
A sizable number of manufacturing firms indicate improving economic conditions in recent months. A paper industry representative reported that year-end business was very strong with sales 10 percent larger in December than a year earlier. A small manufacturer of welding and cutting equipment has had a marked improvement in sales beginning in mid-November, and additional workers have been added to the work force. Part of the demand for this firm resulted from increased export sales. Other firms noting improvement in recent weeks include a manufacturer of apparel, a food processing firm, and a manufacturer of refrigeration equipment.
Some notable exceptions to this improving picture can be cited, however. For instance, a representative of a large chemical firm states that sales have been flat recently, although 1976 sales averaged above those of 1975. Among industrial chemicals, sales of detergents are flat and polystyrene sales are described as quite weak, but some other plastic products are doing fairly well. The outlook is bright for sales of agricultural chemicals this year. The steel industry continues in a lull according to a local representative. Considerable excess capacity continues to plague this industry, although shipments are expected to increase 6 to 7 percent this year. A large boost in investment spending is needed before the steel industry will gain much momentum.
Prospects are mixed for capital spending. A representative of a major capital producing firm reported that no major increase in spending is foreseen for 1977. Investment spending in the paper, steel and chemical industries is at a relatively low level. Particularly flat is nonresidential construction spending. A number of firms in the food processing industry, however, have announced sizable investment plans for 1977. In the St. Louis downtown area, several capital investment projects have also been announced for 1977. Spending on such projects may total as much as in the past two years combined. Many of the projects are related to a new convention center which is scheduled for opening later this year.
Homebuilding made considerable progress in most areas of the District in 1976, and prospects are for further increases this year. In the St. Louis metropolitan area 6,000 single-family homes were built in 1976, up from about 4,000 in 1975. Apartment building, however, remained at generally low levels throughout the District. Some projections for 1977 homebuilding in the St. Louis area point to a 15 percent increase this year from the 1976 level. Apartments, however, are expected to total less than 10 percent of the new units built this year. Memphis has continued to unwind from the overbuilding of earlier years, but construction of single-family homes is running above year earlier levels.
The bright prospects for homebuilding are partially related to favorable developments at thrift institutions. These institutions continue to report large deposit gains. Some institutions report net gains during the Christmas season, a period usually characterized by net withdrawals. Smaller passbook accounts apparently behaved in the normal seasonal pattern, but increases in time certificates more than offset these declines. Deposit gains have also been strong in early January and are generally expected to continue upward through the spring months, reflecting the favorable rates offered by savings and loans relative to other market rates. Effective rates on time certificates offered by these institutions, however, have been edging downward over the past six weeks, as both rates and terms have been adjusted. Mortgage interest rates have also been inching downward over recent weeks, another favorable sign for the homebuilding industry.