Beige Book Report: St Louis
November 14, 1979
Economic activity in the Eighth District remains near the level of a month ago according to district businessmen. Manufacturing activity with the exception of automobile production remains about unchanged, but at a relatively high level. Residential building continues down, largely offsetting the rising commercial construction. Sales at department stores have declined in real terms from a year ago, but are about the same as a month ago. Inventories generally remain at moderate levels. Farmers remain relatively prosperous with net incomes expected to approach record levels.
Most manufacturing operations continue at about the same level as a month ago. Output of basic metal products, aircraft and aircraft parts, electric motors and parts, most capital goods, boxboards, and textiles remains at a high level, and in some cases these industries have large backlogs of orders. One woodworking plant reported the largest backlog of orders on record. Automobile production, however, has declined sharply and all of the Eighth District plants have laid off workers. Also, output in automobile-related industries has declined.
Construction activity in October remained at about the same level as in September. Commercial building remains relatively strong. Residential construction has been about 25 percent below levels of a year-ago for most of this year and is beginning to slow further as new home sales have virtually come to a halt over much of the District. This reduction in new home sales largely reflects local usury laws which have generally failed to allow mortgage rates to rise in step with market interest rates.
Retail sales at major department stores are above year-ago levels in nominal dollars, but less in real terms. Reports on sales changes in recent weeks are mixed and no significant change in overall volume is apparent. Sales of some software are down, but sales of home improvement items are good. Retail inventories remain at desired levels with a few minor exceptions. One major chain of stores reported a 16 percent increase in shoe inventories from year-ago levels which must be worked off. A common complaint among retailers is that consumer debt is excessive and that new credit to consumers is expected to level off for six months or more.
month. The volume of loans outstanding at commercial banks has increased despite the higher interest rates. Savings and loan associations report that they have been making very few mortgage loans in Missouri since the maximum legal interest rate in October, under the floating rate formula, was only 11.4 percent or well below the market rate; and for new commitments a down payment of 40 percent or more is required. Mortgage lending has come to a standstill in Arkansas and Illinois for similar reasons. In Tennessee, where the usury rate floats with national mortgage rates, such lending continues but at a reduced volume. The restrictive usury rates have led to some special lending arrangements in Missouri. Some mortgage lenders, for example, have agreements with some large companies to finance home sales or purchases of the company's transferred employees provided the company deposits sufficient funds with the lender to cover the loan. Another result of usury restrictions is the sharp increase in older homes for sale. In St. Louis the number of used houses on the market is three times the number a year ago.
The agricultural situation in the district is generally good. Harvesting weather has been favorable; large crops were harvested and prices received were generally above year-ago levels. Hence, an increase in net incomes of farm operators is projected for this year.