Beige Book Report: St Louis
January 28, 1981
Eighth District businessmen report that area economic activity has changed little in recent weeks, but are optimistic that conditions will improve by the second half of 1981. Contributing to this optimism are expectations that changes in government policies by the new administration will have beneficial effects. Retailers report that January sales did not rise in real terms. Manufacturing activity remains sluggish in the automobile, aluminum, and chemical industries. On the other hand, manufacturers supplying products for the oil, gas, and military equipment industries reported increasing orders. Construction activity is mixed; nonresidential building continues at a high level whereas homebuilding, particularly single-family homes, is at a very low level. Financial institutions report little or no increase in loan volume. Savings and loan associations offering low minimum balances on NOW accounts report that a sizable number of new accounts have been opened.
Consumer spending remains sluggish, according to area retailers, and some report that January sales were below last year in nominal terms. Retailers, nevertheless, are generally optimistic about 1981 sales, especially after mid-year. Some automobile dealers, however, reported that January sales were above the "low" levels in November and December. Department store retailers noted that heavy promotions have been necessary to move goods. They also reported that credit sales continue to grow at a slower rate than total sales.
Both manufacturers and retailers generally report that inventories are lean and that these low inventory levels are desirable. However, new automobiles and some building products inventories were reported to be greater than desired.
Manufacturing activity, on balance, remains unchanged from last month. While manufacturing representatives generally expect some gain, on average, in 1981, higher interest rates have led several to expect sales to worsen before getting better. Automobile manufacturing remains particularly depressed with employment down about 60 percent from two years ago. A representative of a major chemical firm reported a sizable decline in sales in January after a substantial gain during December, due to anticipation of higher prices. New orders for aluminum declined in the fourth quarter due to lower export demand, and no immediate pick-up is expected. A wood-working firm reported that employment would have to be reduced if sales did not improve. On the positive side, a major appliance firm representative reported that orders had increased significantly in the fourth quarter and that the higher sales were sustained in January. However, a downturn was anticipated in the first quarter. Also, several industries that manufacture products for the oil, gas, automobile repair, and defense industries continued to report increases in orders. A major military contracting firm reported the largest backlog of orders on record.
Single-family home construction continues at a very low level, largely reflecting high interest rates. Homebuilders note that no pick-up of sales is expected until interest rates decline. Some gains in multi-family construction have occurred in recent months. Most of these projects, however, are partially funded by the government. Much of the decline in the work force formerly engaged in the construction of single-family homes has been absorbed by increased employment in remodeling of existing homes and booming nonresidential construction. Major building projects currently under way in the St. Louis area include office buildings, a large factory, hotels, shopping areas, and a waterway project.
The financial sector reports little increase in loan volume in recent weeks. These representatives generally expect interest rates to fall in the next few months and noted that sharp fluctuations of yields have made investment uncertain. Mortgage interest rates in the St. Louis metropolitan market range from 14-1/2 to 15-1/2 percent. Savings and loan associations that have offered NOW accounts with low minimum balances have received a large number of these accounts, while others with higher minimum balances have received few. Some commercial bankers report that NOW accounts will likely reduce their profits in 1981.