December 13, 1978
Business expansion In the Eighth District continues, but at a more moderate rate than in the first half of the year. According to reports from retail representatives, consumer spending has slackened somewhat on the "big ticket" items, while automobile and soft goods sales continue to register moderate gains. Business inventories have begun to increase slightly in some sectors, and business loan demand continues strong. Farmers in the District are enjoying a relatively profitable year, having produced large crops and receiving higher average prices than a year ago for commodities sold.
While most retailers remain optimistic about pre-Christmas and early 1979 sales prospects, they report some slowing in sales of home appliances and other major expenditure items. One major retailer reported that sales of clothing and other soft goods are "coming along great", but sales of large home furnishing items were softening. This trend was also noted at the manufacturing level where a major manufacturer of small electric motors reported that sales of such motors to appliance manufacturers had declined. One major manufacturer of home appliances reported layoffs of some employees. Nevertheless, sales of automobiles and other consumer items continue up. One automobile dealer reported that overall sales in November were above the year-ago level, but that buyers were more selective than last year as indicated by a larger percent of customer orders rather than sales off the lot.
Inventories at all levels have apparently increased somewhat. A representative of a furniture manufacturing plant reported an eight percent increase in inventories from a year ago; a shoe company reported some buildup in inventories; and an automobile dealer reported some excess in inventories, reflecting the larger than usual special orders from the factory by customers. Nevertheless, no one contacted expressed a great deal of concern about excessive inventories. On the other hand, one building contractor reported some shortages of materials, tools, architects, subcontractors, and other skilled workers.
Reflecting the continued upswing in business activity, loan demand at District banks is increasing, furthering upward pressure on interest rates. A major St. Louis banker reported a strong business loan demand and rising interest rates; some Little Rock banks are selling loans to improve liquidity; and some Louisville bankers have instituted stricter credit standards. A number of smaller banks in outlying sectors report that they are loaned up.
Interest rates have continued up In the District where usury laws permit then to rise. Usury laws in Arkansas, Missouri, and Tennessee were reported to be having adverse impacts on lending activity in these states. Some disintermediation has occurred In Tennessee savings and loan associations and St. Louis associations report that virtually all the increases In their deposits are from the new money market certificates. Those S&Ls in St. Louis which are advertising extensively and offering premiums to attract the new CDs report that they have gained sizable amounts of these funds, whereas those choosing to limit promotional efforts are experiencing some net withdrawals of savings capital. Some savings and loan institutions actively seeking more CD deposits, however, are purchasing higher-yielding large CDs at commercial banks rather than making permanent mortgage loans.
In the agricultural sector conditions are generally good. Farm commodity prices are higher than expected, and relatively large crops were harvested. One representative in Kentucky reported the tobacco crop to be the best in many years. The soybean and corn crops were generally good throughout most of the District, and the harvesting weather was favorable. Prices received for both crops and livestock products are above those of a year ago, and net incomes of most farmers are up.