Beige Book Report: St Louis
September 12, 1979
According to interviews with District businessmen, overall economic activity in August was unchanged from July, but is below that of the first quarter of the year. The decline appears to be mild, except for the automobile and housing industries. Consumer spending, which has been sluggish in recent months, registered gains at about the current rate of inflation. Inventories are being closely watched as several businessmen expect the economic slowdown to continue for several months. Output in the manufacturing sector appears unchanged in recent weeks following a decline in the second quarter. Construction activity, as a whole, remains strong with losses in residential building offset by gains in other types of construction. In the financial sector, inflows into savings and loan associations continue to register small but positive gains. Reports indicate that mortgage loan demand has slowed in recent weeks, whereas reports are mixed about the strength of commercial loan demand.
Indications from area retailers are that real consumer spending was unchanged from July to August. Some large department stores posted nominal gains of 10-12 percent and a few retailers noted some improvement in sales of household appliances and back-to-school items. On the other hand, other retailers reported only small gains and expressed disappointment about their recent sales volume. Automobile sales improved in August as incentive programs offered by dealers and manufacturers to reduce heavy inventories helped generate sales. Car sales in the St. Louis District (eastern Missouri and southern Illinois) of one major U.S. manufacturer were down only slightly in August compared with a year ago. However, sales on a year-to-date basis were down about 15 percent from a similar period last year.
In general, inventories are reported to be at satisfactory levels but inventories of automobiles, certain types of appliances, and some apparel items are considered excessive. Automobile inventories, however, are down substantially from a month ago as a result of recent sales efforts. Some firms reported efforts to reduce inventories in order to cut carrying costs and to bring them in line with expected slower sales volumes. Some expressed the reservation that an unwanted buildup of inventories may occur, since consumer purchases did not seem strong enough to sustain current production levels. Also, some respondents reported more hand-to-mouth buying of raw materials and fewer long-term commitments.
Manufacturing activity appears to have stabilized in recent weeks after noticeable declines in the second quarter. The declines occurred largely in the automobile, lumber, furniture, textile, and apparel industries. Layoffs have occurred at most District automobile assembly plants. All three plants in St. Louis have reduced their work force, with one plant cutting back workers by one-third. Some manufacturing firms, particularly those producing capital goods, continue to report strong activity. A major capital goods manufacturer noted that incoming orders continue at "good" rates. Several smaller manufacturers of such items as industrial motors, lubrication equipment, pumps, welding and cutting equipment, and machine tools noted continued increases in sales and, in some cases, growing backlogs.
Construction activity in the District remains at a high level, despite declines in homebuilding. Housing construction appears to be dawn about 15 to 20 percent from a year ago. Nonresidential building activity, however, has registered sizable gains, and decreases in labor employed in home construction have been largely absorbed in the nonresidential building.
Savings and loan association representatives reported some gains in savings inflows in August, but the rate of gain was slower than in the first half of the year. Among individual S and Ls, however, the pattern varied substantially, with those offering premiums and advertising heavily attracting most of the new funds. The slower growth of savings deposits is attributed to increased competition from Treasury bills, money market certificates at banks, and money market funds. Mortgage loan demand was reported to have slowed in the past two months, but with fewer loanable funds, rates on 80 percent loans remain relatively high at 11-1/4 to 11-1/2 percent. Some commercial bank representatives reported brisk demand for commercial loans while others noted a recent slowing in demand for such loans. Arkansas banks have cut back drastically on consumer lending due to the high cost of funds relative to the "low" usury ceilings on such loans.
The agricultural picture remains generally favorable for farmers. Crop production is expected to be relatively large. However, as a result of the recent decline in farm product prices, farm incomes may not be quite as large as anticipated earlier in the year.