Beige Book Report: St Louis
August 7, 1979
According to Eighth District businessmen, sluggish economic conditions continue in a number of important area industries. Real consumer spending and manufacturing output remain unchanged from a month ago. Sales of automobiles, appliances, and some chemicals remain quite slow. On the other hand, capital goods manufacturing and nonresidential construction continue strong. Some reports, however, indicate a reduction in the growth of demand for capital equipment. Although layoffs of industrial workers have occurred in the automobile and certain durable goods industries, layoffs are not generally contemplated by most businessmen at present.
Consumer spending remained relatively low in recent weeks. On balance, July department store sales in real terms were about the same as in June but down from July 1978. Department store representatives noted that sales of big-ticket items were well off their 1978 pace. Only selected items, such as products for home repair, registered gains. A major retail chain representative noted that sales at large conventional stores were holding up better than at discount stores. Retail representatives also noted increased difficulties in collecting accounts and a sharp rise in personal bankruptcies.
Automobile sales are down from year-ago levels, but reports from some dealers indicate that sales improved somewhat in the past two weeks. Sales increases at fast food establishments were also reported to have slowed substantially in recent weeks. An industry representative blamed this slowdown on the recent sharp increases in their product prices rather than the gasoline problem. Spending on tourism was also reported to be well below normal, having adverse impacts on local areas largely dependent upon this business. Tight gasoline supplies and consumer uncertainty over gasoline availability are blamed for the decline. However, the gasoline supply situation in the District has eased considerably in recent weeks. Service station hours have increased and the long lines of a few weeks ago have disappeared.
Output in the manufacturing sector, on balance, appears to have remained unchanged in recent weeks. Declines have occurred in automobile and related industries, appliances, home furnishings, and building products. But production of chemicals used by the oil industry and agriculture and a number of home supplies remain strong. One major chemical firm reported that the recent slowing in sales probably indicates a recession. This firm is cutting back on production schedules to avoid a buildup of inventories. A firm manufacturing apparel for a major retail chain noted that orders have been lower than expected and that production schedules have been trimmed.
Capital goods manufacturing activity is still quite strong and large order backlogs remain unfilled. However, one large capital goods firm noted that the outlook for this sector is not as favorable as two or three months ago. Some manufacturing firms in the chemical and appliance industries have trimmed their capital expenditures budget in expectation of a sluggish economy.
So far only a few industries have announced a layoff of workers. Among the most affected by layoffs have been the automobile and related industries. Scattered reports of layoffs were also reported in the appliance and apparel industries. However, most firms with sales declines apparently are coping with this situation by reducing hours worked.
Construction activity continues at a high level in the District despite sizable declines in residential housing. The volume of nonresidential construction continues well above year-ago levels in most of the District, although some weakness has apparently developed in the St. Louis area. Here, nonresidential contracts let in the second quarter were well below year-ago levels. Representatives of the residential housing market noted that home sales in recent weeks have also been well below year-ago levels. Homebuilders report that current traffic looking for new homes is very light, but that more of those looking are serious home buyers. Housing permits issued in the St. Louis area so far this year are down about one-fourth from a year ago. Carpenter hours worked were reported to be down only about 10 percent from a year ago, which indicates that builders are working on earlier orders.
In the financial sector, some net savings inflows into financial institutions occurred in July, but the rate of increase remains at a much slower pace than a year ago. Savings and loan officials report that money market certificates are the primary means of attracting new funds. However, they have been less successful in attracting these funds since the regulation change removed the differential rate paid by S and Ls over similar instruments issued by banks. The new usury law in Missouri, which was passed by the state legislature in June and which permits higher interest rates on loans, became effective in early July. Home mortgage rates in St. Louis have subsequently increased to a range of 10-7/8 to 11-1/4% for 80 percent loans, in line with national rates. Subsequently, availability of mortgage funds was reported to have improved and the terms of loans relaxed somewhat.