Beige Book Report: St Louis
April 12, 1978
Business managers in the Eighth District report that economic activity has increased in recent weeks. Retailers in St. Louis noted that sales began to improve around mid-March, and the excess inventories built up earlier in the year are expected to be worked off in the next few weeks. Construction activity has increased sharply with the improved weather conditions. Home sales remain at a relatively high level. Manufacturing activity has also gained momentum with the settlement of the coal strike. In the financial sector, net saving inflows into savings and loan associations have slowed further in recent weeks and with continued strong demand for mortgage loans, interest rates have moved up. In the agricultural sector, field work is somewhat behind schedule, but this is not a serious problem at this time of year.
According to area retailers, sales picked up strength around mid- March, after a relatively severe winter slump. A major St. Louis department store representative reported that March sales were about 5 percent above a year ago, and that the sales were accelerating in the last half of the month. Inventories are excessive in some soft goods items, but the excess is expected to be worked off within a few weeks. While some retailers were fairly optimistic about sales in the next few months, others remain apprehensive about the future course of consumer spending. One representative noted that fear of inflation by consumers may inhibit their spending while another observed that consumers are nervous and seem only willing to buy at special sale events.
Construction work has accelerated in recent weeks as weather conditions have improved. Order backlogs for new homes remain at a high level and new orders continue to come in at a brisk pace. With the large backlog of orders as well as the new orders expected, builders look forward to a high level of construction activity this year.
Manufacturing activity apparently has picked up some momentum in a number of industries recently. One major manufacturer of appliances and capital goods reported improvement in sales throughout its line of products in the past month. Also, a major chemical firm reported overall improvement in sales in March, with strong sales for agricultural chemicals, phosphates, and plastics. A steel industry representative reported that orders on the books for the second quarter are very strong, especially from capital goods firms, and that overall steel shipments are estimated to be up from last year's level. It was pointed out, however, that world wide, the steel industry is suffering from excess capacity. A representative of the paint and coatings industry reported very strong sales in recent months, up 15 percent from a year ago, and that a strong second quarter is expected for this industry. Production in this industry is near capacity. A firm making connector plates used in construction reported poor sales early this year, but that sales recovered nicely in March and are expected to make up for the early 1978 losses later in the year. Other firms reporting strong business activity included manufacturers of air filtration equipment, lighting fixtures, and cutting tools.
Savings and loan institutions reported some further slowing in net deposit inflows during recent weeks from the January-February levels. Gross inflows of deposits continue at a relatively high level, but withdrawals have increased, leaving smaller gains in net savings. S and L's are increasing nonprice competition for funds by boosting advertising budgets and premium offerings. Representatives of the industry point out that 4-year certificates, first offered about 4 years ago, are now subject to withdrawal and these funds are beginning to move into alternative investments. Counter to the experience of the S and L's, total time deposits at large commercial banks in the District have continued to increase in recent weeks.
With the demand for home mortgages continuing quite strong, and with slowing in savings growth, interest rates have risen further. The prevailing mortgage rate in the St. Louis and Memphis areas is now 9 percent for an 80 percent loan. Not only are loan rates increasing but in some cases more rigorous loan policies are being implemented. Some institutions now require prospective mortgage customers to hold savings at their institution before being granted a loan. One S and L representative reported a reluctance to make new loans or loan commitments at current interest rates since he believed that rates will go higher in the near future. Demand for most other types of loans also remains at a high level. Commercial banks reported large increases in commercial and industrial loans in March, and the demand for farm loans continues up from the very high levels of a year ago.