Beige Book Report: St Louis
March 23, 1982
During February and early March, economic activity in the Eighth District changed little from its earlier depressed level. Retailers and most manufacturers report that sales continue to be disappointing, and housing sales declined even further. Production schedules at a number of manufacturing firms were trimmed again to avoid an inventory build-up, and employment declined slightly. Farm land prices also weakened. There were, however, bright spots, most notably in auto sales.
Consumer spending has remained weak since January, in part as a result of heavy snows which hindered shopping in February. Seasonally adjusted sales at several major District department stores have been unchanged since January. Retail volume at several smaller Arkansas stores also has remained flat. Apparel, furniture and appliance sales declined in both St. Louis and Memphis, and farm equipment dealers report few sales.
On the other hand, many smaller retailers, such as food processors, repair shops and professional services, continue to thrive. Reports from seven auto dealers indicate an improvement in sales during February and early March. One large Ford dealer sold 25 percent more cars and trucks in February than in the corresponding month a year ago and has added 16 employees since January. A distributor of earth-moving equipment states that business remains good, reflecting both continued road construction and increased coal mining. A major brewer reports rising beer sales.
Manufacturing activity in the District also has been mixed since January. Orders continued to decrease at oil refineries and at firms producing consumer durables, aluminum, and industrial machinery. On the other hand, the demand for defense goods, replacement parts for autos, farm equipment, and fibers has strengthened. A manufacturer of valves, fittings, boilers and heat exchangers stated that production remains at a high level.
Inventories at most manufacturers and retailers are at or near desired levels. In order to avoid excessive inventories, production has been trimmed further at several plants since January. A few companies report that additional employees were laid off, and one large apparel firm closed a plant for a week in February. Several firms report that they have reduced the length of work schedules. In Arkansas, the unemployment rate rose to 12 percent in February.
Construction activity generally remains unchanged from the late-1981 level, with residential construction particularly depressed. Some builders, however, report heavier traffic through their subdivisions, and one builder has had a sales pickup. According to the St. Louis Home Builder's Association, there were 36 housing starts in the area this February compared with 81 in February last year and 280 in a "normal" February. The Association estimates that there will be 150 housing starts in March compared with 500 for a typical March. Commercial and other nonresidential construction continues to be stronger than residential.
Depressed farm income, which will probably continue in the near term, combined with large farm debt and high interest rates, is causing weakness in District farmland prices. Although prices in some locations have declined only slightly, they reportedly have fallen $250 per acre in parts of northern Mississippi. Farm debt is larger than usual for March, and agricultural banks have renewed a number of farm loans, though at times reluctantly. In some instances, farmers have liquidated a portion of their assets to obtain working capital and it is anticipated that there will be few big purchases of farm equipment this year.
Commercial banks report a moderate increase in both outstanding loans and savings deposits since the end of January. Savings and loan associations, on the other hand, are continuing to experience an outflow of deposits, and most are operating at a loss. The new IRA accounts have drawn funds into financial intermediaries, but in most cases the amounts are relatively small.