Beige Book Report: St Louis
August 10, 1977
Economic activity in the Eighth Federal Reserve District continues to increase, but at a reduced rate from that in the first half of the year. Consumer spending continues to increase, but at a somewhat slower rate recently. Inventories of most goods are reported to be lower than desired; however, some planned reduction is occurring in software in a number of retail establishments. Manufacturing activity, with the exception of automobile output, continues to increase. Construction continues strongly upward, particularly for single-family homes. In the agricultural sector crops are generally good, but average prices for most crops are well below those of a year ago. Loan demand has increased somewhat in recent months, but remains relatively weak at the large District banks.
Consumer spending at major stores leveled off in July from the growth rate in the first half of the year. Sales of software, such as clothing, leveled off in the early summer. Sales of automobiles also have leveled off in recent weeks. Part of the slowing in automobile sales was seasonal since model change time is near. Demand for hard goods, other than automobiles, remains strong. Also, purchases of new homes have increased from the June and early July levels but have not regained their February-April level.
Inventories are relatively low with the exception of soft goods at the retail level where inventories were built up unintentionally in the early summer. Reductions of soft goods inventories are now being made through price cutting at a number of major retail stores. Automobile production was reduced as orders declined in July, and there was little buildup of inventories. A machine tool manufacturing firm reported that inventories are well below the desired level. A major home builder in the St. Louis area reported a time lag of a month to six weeks in obtaining some types of lumber, millwork, and insulation materials. Shortages of a number of building materials were reported in Arkansas.
With the exception of the seasonal slowdown in automobile output, manufacturing activity continues to expand. A number of manufacturers of building materials reported very large orders in June and July. A major manufacturer of electric equipment reported a record volume of orders and shipments of both consumer and capital goods. A welding and cutting equipment manufacturer reported rising orders through June and July, and that June sales were 22 percent above a year ago.
Construction continues to expand throughout the District. Home building has risen sharply for more than a year and is reported to be "booming" by most reporters. Commercial and industrial building was in a trough from early 1975 until the second quarter of this year. Now, however, construction representatives report that commercial and industrial construction is beginning to pick up. As a consequence, a number of construction materials are becoming increasingly scarce. Prices of such materials are rising sharply and deliveries are slow—often a month to six weeks is required for delivery. Most builders report that they are hiring everybody who can work.
The prospects are for a relatively large production of farm products. Crops are generally good. Somewhat less beef is expected to be slaughtered in the second half of this year than a year ago, but this will be more than offset by rising production of pork and broilers. Rising production, however, does not portend any rise in farm incomes, since farm prices have declined in response to the rising output and the slower than expected increase in demand. Average prices received for all farm products were about 2 percent lower in July than in June of this year and about 7 percent below the average of a year ago.
Representatives of the financial sector report a moderate increase in loan demand. Banks outside the major cities have experienced a relatively high loan demand for several months, but demand has been relatively weak at the larger banks in the major cities. Loans, however, have slowly increased at these banks. Mortgage companies report that there is plenty of mortgage money and they would like to make more good loans at the current interest rate, but that high quality mortgages are difficult to obtain at the going rate of 8-3/4 percent with a 20 percent downpayment. A major savings and loan company reported that savings inflows have slowed somewhat in the past month but that no further increase in mortgage rates is expected. Financial representatives in the area do not expect a major rise in most nonmortgage rates despite the recent boost in Treasury bill rates.