Beige Book Report: St Louis
October 10, 1979
According to Eighth District businessmen, economic activity remains at about the same level as a month ago, with the only signs of slowdown centered in the consumer-oriented durable goods sectors of automobiles and housing. Because they expect demand to slacken in the months ahead, businessmen are closely watching their inventories which they feel are at satisfactory levels. Real spending at department stores is reported to be about the same as a year ago. Manufacturing activity continues strong in many industries, especially those related to capital spending.
Consumer spending in real terms is approximately at the year-ago level according to area retailers. Department store sales improved somewhat in the August-September period from the early summer months, and the moderate inventory built-up in that period has been largely worked off. Retailers noted that back-to-school sales were generally "good" and that fall and winter clothing items, particularly outerwear, are selling well. They also reported that inventories for the Christmas season will not be increased as much as last year in view of the uncertain economic outlook.
Automobile sales, according to St. Louis car dealers, improved in the August-September period. Currently, inventories vary substantially from dealer to dealer with some dealers reporting excessive inventories (as much as 300 percent above a year ago), while others reported inventory shortages. One dealer complained that the increased interest costs of the excessive inventories were wiping out profit margins.
Declines in manufacturing activity were reported in the automobile and related industries, and in major appliances. On the other hand, a number of industries including chemicals, paper, apparel, and capital goods have experienced little or no slackening in demand; and in some cases, increases have occurred. A major chemical firm, for example, reported that demand has unexpectedly continued to climb and that sales volume is 20 percent above a year ago. Also, capital good firms reported strong activity and, in some cases, growing backlogs.
Overall, construction activity continues at a high level, especially in nonresidential building. Some weakness in residential building was reported compared with a year ago, but further deterioration has not been apparent in recent months. In the St. Louis area, new housing permits are down about 20 to 25 percent from those of a year ago, in line with the industry's expectations. Nonresidential construction has taken up the slack, and the total number of construction workers employed equals or exceeds that of a year ago. Builders expressed concern, however, that higher interest rates and unavailability of credit may cause postponement or cancellation of some building projects.