Beige Book Report: St Louis
March 11, 1980
Economic activity in the Eighth District remains at about the same level as in January. Retail spending has remained about constant in real terms, and sales have been somewhat better than expected. Automobile manufacturing, which declined substantially in the District during 1979, has apparently stabilized in recent weeks. Nonresidential construction remains at a high level and aerospace manufacturing is reported to be gaining strength due to increased defense spending. Homebuilding, however, remains at a very low level as sharp increases in mortgage rates have discouraged home buying. Savings and loan association officials report a sharp decline in small savings deposits and time certificates, although total net inflows of savings are still positive.
Consumer spending has been mixed recently. On the whole, retail sales have apparently increased at about the rate of inflation. One department store representative noted that sales of nondurable goods have offset losses from the sales decline in durable goods to the housing industry. Automobile sales have been surprisingly strong at some dealers in recent weeks, especially for energy-efficient intermediate and small-sized cars. Total car sales, however, have remained substantially below year-ago levels.
In general, inventories were reported to be at desired levels both in the retail and manufacturing sectors. Retailers report that they are keeping inventories to a minimum, and complained that high interest costs have substantially reduced profit margins.
Manufacturing activity in the District continues at about the same level as in recent months. During 1979 the District fared somewhat worse than the nation as a whole, partly because of a sharp decline in the manufacture of transportation equipment. In addition, a slowing occurred in chemicals, furniture, lumber, and apparel production. Production in most of these industries has apparently continued at about the same level as late last year. On the positive side, the aerospace industry has experienced increasing demand for its products, reflecting increased defense spending and continued strong demand from commercial airlines.
Homebuilding has been very sluggish in the District in recent months and is now expected to decline further. As a result of significantly higher mortgage interest rates, monthly payments for new homes have risen beyond the reach of many prospective home buyers, and lenders report that a sizable proportion of mortgage loan applicants are being turned down.
Nonresidential construction remains at a high level in the District. Construction representatives still report backlogs of projects and most expect to be busy throughout the year. Many projects underway, however, are reported to be financed through municipal, state, and federal funding.
Credit demands in the District remain strong, particularly demand for business loans. Banks report strong demand from their business customers for credit line extensions as businessmen are apparently shying away from long-term credit. Requests for mortgage loans have fallen off with the higher rates, and some savings and loan officials report that they have quit taking applications. Net money inflows continue positive at most financial institutions. Savings and loans are offering the maximum rates on money market certificates, but recent sharp increases in rates are causing some associations to review their policies with respect to rates that can be offered. Withdrawals from passbooks and other time deposits continue at a rapid pace, as conversions into higher yielding money market certificates become more attractive. Consequently, some savings and loan associations are reported to be in a liquidity bind, and in a few cases mergers may be required to save some weaker associations.