Beige Book Report: St Louis
August 11, 1981
Economic activity in the eighth district has remained sluggish in recent weeks according to area business representatives. Retailers reported that real consumer spending was generally flat in July, and some inventory accumulation occurred for air conditioning equipment and other mid-summer sale items. Overall, manufacturing activity has shown no marked change. Sales of building supplies, metals, and some chemicals have weakened, whereas sales of energy-efficient equipment, oil and gas drilling equipment, and military hardware continue to rise. Home construction remains at a very low level, and numerous bankruptcies of small builders were reported. In the financial sector, little overall change in loan volume has occurred. Savings and loan associations are beginning to offer mortgage loans with adjustable interest rates, and officials of these institutions are pleased by the inclusion of the tax-exempt saving certificates in the recent tax legislation. In the agricultural sector, crops are generally in excellent condition.
Consumer Spending
Retailers report little strength in consumer
spending in recent weeks. Some department store representative noted
that sales have been holding up fairly well, but others noted a
softening in early July. Inventories of some items, particularly air
conditioning equipment, were reported excessive, but the excesses
were expected to be eliminated by late August. On the whole, car
dealers report no improvement in sales, although a few individual
dealers reported gains based on heavy advertising campaigns.
Manufacturing
Manufacturing activity remains generally unchanged as
gains in some industries have been offset by declines in others.
Automobile manufacturing continues at the low level of recent
months. Manufacturers of various building materials, such as lumber,
gypsum, and connector plates, report weakening sales as homebuilding
continues to decline. Primary metal producers also report sluggish
sales. Steel producers report that a weak domestic market and stiff
foreign competition have reduced their sales, and aluminum producers
indicate that declines in foreign sales have adversely affected
their business. Chemical manufacturing representatives report
increased sales of agricultural and specialty chemicals, whereas
those products tied closely to the housing and automobile markets
remain sluggish. On the other hand, manufacturers of oil and gas
drilling equipment report increasing sales. Military equipment
producers also report that backlogs of orders have increased.
Construction
Despite substantially higher interest rates, housing
permits issued in the St. Louis metropolitan area during the first
half of this year have averaged somewhat above the very low level of
a year ago. Unlike last year, however, builders do not expect a
significant pick up in building in the second half of the year, and
bankruptcies are occurring in the industry with increasing
frequency. In St. Louis, 14 small builders have filed for bankruptcy
since April. Nonresidential construction continues at a strong pace
based to some extent on large backlogs. New contracts, however, have
fallen below the pace of a year ago.
Financial Developments
Business and agricultural loans in the
district have remained essentially unchanged in recent weeks,
whereas consumer loans declined and real estate loans increased.
Mortgage lenders are adapting to new regulatory rules by offering
the new adjustable interest rate mortgage loans. S&L officials,
however, expressed little interest in the new graduated payment
adjustable mortgages. One major St. Louis S&L is now offering
adjustable mortgages tied to the national average cost of funds to
savings and loan associations. This institution is fixing the
payments for a five-year period but adjusting the rate every six
months, with changes in interest payments amortized over the
remaining life of the contract. S&L representatives also indicated
they are attempting to encourage the turnover of existing low
interest loans in their portfolios by offering below-market rates of
interest to buyers of homes on which they currently hold mortgages.
Mortgage interest rates continue to increase with rates commonly in
the range of 16-1/2 to 17-1/2 percent.
Deposits at area financial institutions continue to increase despite stiff competition from money market mutual funds. Although passbook savings accounts at district banks continue to moderately decline, time deposits have increased rapidly. Deposit growth at savings and loan associations has been less rapid than at banks, and there are reports that some deposits, primarily, large CDs, have been moved from S&Ls to banks due to the financial condition of some S&Ls. Some S&L officials expressed optimism that the new tax-exempt saving certificates would help them compete for relatively low-cost funds.
Agriculture
Crop prospects are generally good in the district.
Areas hard hit by drought last year, such as Missouri and Arkansas,
have received adequate to excessive rainfall this year. Thus, low
subsoil moisture conditions have not been a problem in these
regions. The wheat harvest is complete and yields were very good.
Some intended plantings of soybean following wheat were not
realized, however, due to wet field conditions.