Beige Book Report: St Louis
July 1, 1980
The downtrend in economic activity in the Eighth District has gathered momentum in recent weeks and most businessmen expect little improvement before next year. Consumer spending remains quite sluggish, particularly for durable goods. Consequently, manufacturing of durable goods has declined significantly. Firms have adjusted their labor force downward by instigating layoffs, early vacations, and reduced work weeks. In general, inventories at the retail and manufacturing establishments have remained at satisfactory levels as orders and production have been adjusted quickly to slowing demand. The housing industry remains depressed although increases in traffic and sales were noted in recent weeks. Reflecting the depressed business conditions, overall loan demand is sluggish and interest rates have continued to decline.
Retailers report that consumer spending continues to decline in real terms. Consumers are described by retailers as being "tight-fisted" and "scared". Sales of durable goods have been affected most, particularly automobiles, trucks, appliances, and furniture. Soft goods sales, while not declining to the extent of durable goods, have also dropped. Some items such as fashion goods, outdoor equipment, and do-it-yourself equipment continue to sell well.
Manufacturing of durable goods has declined further in recent weeks. Metal manufacturers, such as steel and aluminum, are experiencing declines in orders from the automobile and housing sectors. One local steel plant has recently stopped operations. An aluminum manufacturer has reduced production of fabricated products, although primary aluminum operations are still at full capacity. The price of aluminum has fallen substantially, however, and production cutbacks may be necessary. Appliance manufacturing activity has also decreased rapidly in recent weeks. A representative of a major appliance manufacturing firm is now expecting sales to decline by 25 to 30 percent compared to an earlier estimate of only a 5 percent decline. Other durable goods manufacturing firms have also experienced substantial declines in orders and production. Included among such firms are manufacturers of lumber, glass, farm equipment, welding equipment and lighting fixtures.
Currently, inventories are not generally regarded as a major problem. Most firms report that inventories have been kept in line with declining sales by quickly trimming production and orders. A few trouble spots were reported; for example, excessive inventories of large cars are reported by some dealers, an appliance manufacturing firm noted excess inventories among selected items; and brick, gypsum board, and connector plate manufacturers noted sizable inventories.
The firms contacted have not altered recently their plans with respect to plant and equipment investment. In a few cases, however, firms reported that they are taking advantage of the slack in demand to make repairs and upgrade existing equipment.
Homebuilders report an increase in persons looking for new homes and some increase in new home sales was evident in June. St. Louis homebuilding activity was virtually zero in May when only about one- tenth of the "normal" amount of new homes were started. Starts in June are estimated to be up, but still at a very low level compared with a year ago. Some residential real estate developers are beginning to experience increased demand for lots from local builders reflecting the decline in mortgage interest rates.
Overall loan demand is reported to be quite sluggish, reflecting depressed business and consumer spending. Mortgage loan demand at savings and loan associations has picked up somewhat in recent weeks primarily for loans on previously-owned houses. Mortgage interest rates have declined to around 12 percent in the St. Louis area. Installment loan volume at banks has declined in recent weeks, whereas agricultural loans have registered a seasonal increase. Following a relatively long period of decline, consumer savings deposits at thrift institutions are reported to have increased in recent weeks.
Most crops have been planted in the District. Soil moisture conditions in parts of Missouri and Kentucky are reported to be below normal, although recent rains have relieved the drought situation in some areas.