May 13, 1981
Overall, recent economic activity in the Eighth District has exhibited no marked change from earlier in the year, according to area businessmen. Retail sales apparently are keeping pace with inflation. Manufacturing activity is mixed: appliances, automobiles, metals and paper are among the weaker sectors; chemicals, military equipment, and oil and gas equipment are among the stronger ones. Homebuilding remains at a low level, and, with higher mortgage interest rates, builders fear even further declines. Loan demand at District banks is stable. Prospects for this year s crops continue to improve with the recent rainfall in drought areas of Missouri and Arkansas.
Consumer spending has remained constant in real terms in recent weeks. However, department store representatives report that sales in nominal terms are running well ahead of last year's level and that sales in April were above those in March. A weakness in sales of automobiles and appliances was reported; automobile sales were down 15 percent or more in April from March. This weakness, however, was partly attributed to the end of the rebates. Truck sales, on the other hand, have remained stable.
Several manufacturing industries have shown little strength in activity in recent weeks. Demand was described as unchanged for steel and declining for aluminum. The drop in the demand for aluminum began last fall, in large part as a reflection of reduced orders from Japan and Western Europe. Moreover, an upturn in demand for steel or aluminum is not expected until later this year or early next year. One representative of an appliance manufacturer reported that production has been adjusted at his firm by so-called "tuning days," whereby plants are closed for extended weekends or holidays. Automobile manufacturing in the District remains at the low level of a year ago. A representative of the paper and boxboard industry reported no change in sales in recent weeks, although the shipments in units are below a year ago.
Manufacturing sectors exhibiting some strength include chemicals, military equipment, and oil and gas equipment. A representative of a major chemical firm noted that sales this year have been better than expected. Demand for industrial chemicals and plastics has picked up, and demand for agricultural chemicals remains at a high level. Increased government spending on military equipment has resulted in increased activity for military hardware producers in the District and further increases are expected on the basis of the current military budget. Commercial aircraft manufacturing activity is currently remaining at a high level, based on sizable backlogs of orders built up in 1980; new orders, however, have begun to decline and are expected to continue declining for the rest of this year. Demand for equipment for the oil and gas industries continues to be a source of strength for producers of such products as pipes, pipe coatings, regulators and valves.
No substantial inventory problems were reported by either retailers or manufacturers. Automobile inventories were trimmed by the rebate program, and appliance manufacturers report that they have kept inventories at desired levels by curtailing days worked, despite weakness in demand.
Housing activity remains far below normal levels throughout the District, although seasonal gains were registered in March and April. Builders' expectations about home sales this year were jolted by recent increases in interest rates which were counter to earlier expectations. Some observers note that many residential builders are in considerable financial difficulty and may be unable to survive another year of "low" housing sales. Commercial construction, on the other hand, continues at a high level in the District, particularly in the St. Louis metropolitan area where a number of large projects are under way.
Loan demand is reported by District bankers to be unchanged. However, the prime interest rate on bank loans has been increased along with those in the national money markets, while interest rates on home mortgages have risen to around 16 percent in the St. Louis area. With no increase in loan demand, many banks—especially those in rural areas—are investing funds in money market instruments. Officials of savings and loan associations report little growth in their deposits, and most associations report that they are not actively seeking mortgage loans. lather, they are restricting loans to present customers and building liquidity by investing in bank CDs and other short-term liquid assets. S&L officials reacted favorably to the recent regulatory change allowing federally chartered associations to offer variable rate mortgages. One official predicted that such mortgages would be available at his institution within 30 days.
Low moisture conditions over the eastern portion of the District have about disappeared with the rainfall in recent weeks. Farmers in the region plan to expand rice acreage somewhat, while keeping their cotton and soybean acreage about the same. In Missouri, which was hard hit by last summer's drought, farmers are planning to decrease corn acreage, but increase acreage of grain sorghum, which is more drought-resistant. Planting of corn, cotton and rice is proceeding at a rapid pace, and land preparation for soybeans is well under way.