Beige Book Report: St Louis
August 5, 1980
The rate of decline in economic activity in the Eighth District moderated in July, according to reports from area businessmen, and some expressed the opinion that the bottom of the recession is near. Although automobile and home sales are still below year ago levels, both showed improvement in July compared with June. Department store sales remain below year ago levels in real terms, but did not decline further in July. Manufacturing of consumer durables and primary metals has generally leveled off at well below year ago levels, after declining the first half of the year. Capital goods manufacturing continues to hold up fairly well. In the financial sector, mortgage interest rates have declined about 1/2 percent in the past month. Bankers report little change in loan demand in recent weeks but somewhat higher interest rates at the end of July. In the agricultural sector, hot and dry conditions have adversely affected agricultural production prospects in much of the District.
Retailers continue to report sluggish sales. Department store representatives note that sales are below year ago levels in real terms, but that July sales were about the same as in June. Quality items and very low-priced items are reported to be selling best. Retail margins are under extreme pressure as heavy sale promotions have been necessary to move inventories. On the other hand, automobile dealers report improved sales in recent weeks. July sales were about 80 percent of the year ago level, compared to 60 percent in the previous two months.
Substantial declines in manufacturing activity have occurred in the past three months among consumer durables, primary metals, and some nondurables. While most manufacturers of these products report that sales are still well below year ago levels, incoming orders have not fallen further in recent weeks. For example, automobile manufacturing tended to stabilize in July. A major appliance manufacturer reported that sales are expected to remain about 20 percent below normal for the next three quarters. Representatives of paper and chemical manufacturers, however, noted some further declines in sales over the past month.
Capital goods manufacturing continues to hold up well, as only one firm contacted reported a cutback in capital expenditures. Included among items in strong demand were oil and gas drilling equipment, railroad and barge equipment, high-efficiency motors, hydroelectric turbines, and environmental equipment. Manufacturing of commercial airplanes also continues to be strong, based on a large backlog of orders built up during the past three years. No cancellations of these orders has occurred as yet, despite some decline in airline traffic. Manufacturing of military equipment is also rising and is expected to be boosted further as a result of projected increases in next year's defense budget.
Homebuilding activity has increased over the past two months, but remains at a relatively low level. Housing starts in the St. Louis metropolitan area were only about 25 percent of normal in June, up from about 10 percent in May. Starts in July, however, are expected to show further improvement. Falling mortgage interest rates are reported to be the major factor underlying the upturn. Mortgage rates have continued downward in the past month, and two of the largest S&L's in the St. Louis area are now offering mortgages at 11-1/2 percent. Loan demand at these rates is reported to be very brisk, particularly for purchases of older homes.
Business loans at commercial banks in the District have remained unchanged in recent weeks. Fewer loans at below prime, however, were reported. Loan demand for real estate and consumer purposes was also unchanged. Deposit inflows into financial institutions continues, but at a moderate pace. The increase in passbook savings accounts, noted in June, has continued in recent weeks.
Abnormally hot and dry conditions have adversely affected agricultural production in the District. For example, during a two- week period in July, about 20 percent of the broilers ready for market in Arkansas were lost due to high temperatures. In addition, a small portion of the laying flock for broiler eggs was lost, which is likely to have adverse effects on broiler production later in the year. These weather conditions have also adversely affected crops over much of the District, but the most seriously affected areas are confined to southwestern Missouri. Very dry conditions were also reported in the soybean and cotton producing areas of Arkansas; however, recent rains have reduced the severity of the drought conditions there. Most areas report that pastures and hay crops are also in poor condition and that livestock weight gains have been slowed by both the hot weather and poor pasturage crops.