July 5, 1979
According to Eighth District businessmen, the District economy has slowed substantially in recent weeks. Furthermore, some respondents expressed the opinion that more reduction in business activity is likely in the third quarter. The current weakness is centered primarily around consumer durables such as automobiles and houses, but other major industries such as chemicals are also beginning to experience lower sales. Nevertheless, several businessmen, particularly those in the capital goods industry, continued to report strong activity. A marked slowing in saving inflows into financial institutions has continued in recent months, adversely affecting home building. In the agricultural sector, crops are in generally good condition, despite late plantings in some areas.
Consumer spending has slowed in recent weeks and has apparently declined in real terms. Department store representatives noted a definite softening in sales, particularly big ticket items. As a result, some stores are revising downward their sales plans for the rest of 1979. Automobile dealers in the District reported a substantial drop in automobile sales. Retailers report inventories of large cars and department store goods to be somewhat greater than desired. In the St. Louis area, the slowdown in retail sales has been accentuated in the past several days by a shortage of gasoline as shown by long lines of automobiles at service stations. The St. Louis area has been placed on a minimum purchase plan in order to help alleviate these lengthy lines. Gasoline supplies in other major cities in the District have also been tight.
Overall, manufacturing activity is weakening, reflecting the slower growth in final demand. Most visible has been the shutdown of some automobile assembly plants in St. Louis and Louisville in order to reduce inventories of large cars. Appliance manufacturers note that sales have slackened and that inventories of some items are excessive. Manufacturers of items used in home construction and furnishing reported that sales have been flat in recent weeks and that prospects are for sales to decline if the present slowdown in home building continues. A representative of a major chemical firm reported that sales of a variety of chemical products including fibers and plastics began to soften in late May. Continuing to show some strength are sales by firms in the capital goods industry. Manufacturers of welding and cutting equipment, lubrication equipment, industrial lighting fixtures, valves, and fittings all reported strong sales and sizable order backlogs. However, order backlogs were reported to have stabilized in recent weeks after substantial increases earlier in the year.
Construction activity continues at a high level, spurred by gains in nonresidential construction. However, new home construction has slowed well below year-ago levels. Builders in the St. Louis area report a sharp drop in the past two months in people looking for new homes, and sales have subsequently fallen. Observers of the St. Louis homebuilding market now estimate that housing starts in 1979 will decline in the range of 20 to 40 percent from last year.
Substantially slower growth in deposits at savings and loan associations is apparently having an impact upon effective housing demand. Deposit inflows at St. Louis savings and loan associations are expected to exceed outflows for the month of June, but are expected to total only about one-fifth of the normal net inflow. Those associations which are gaining new funds are advertising heavily. Some feel that their deposits will remain relatively flat for the rest of the year unless interest rates decline substantially. In Missouri, where a 10 percent usury law is in effect, nonprice factors have been used to ration mortgage funds. Currently, mortgage funds are very difficult to obtain except through arrangements made by the builders. Legislation which would raise the usury ceilings has been passed by the Missouri House and Senate and awaits the signature of the Governor.
The planting of crops is virtually complete in the District except for some soybean planting following wheat harvests. Wheat harvesting is now proceeding satisfactorily and reports indicate generally good yields. Other crops are reported to be in generally good condition as soil moisture has been favorable for rapid growth. Further increases in crop prices in recent weeks and relatively high livestock prices point to increases in farm income over last year's level.