Beige Book Report: St Louis
September 29, 1982
Economic activity in the Eighth District changed little during August and early September. Retail sales were about the same in real terms as in June and July, after adjusting for seasonal influences. Orders and production at most manufacturing firms contracted further, but many service firms reported improved business. Also, construction activity increased moderately in August and early September from earlier depressed levels. Crop harvests will be large, but selling prices for many farmers are below production costs. On the other hand, most livestock and dairy operations have been profitable.
Retail sales, adjusted for both price increases and seasonal differences, were virtually flat in August and early September at about the June-July level. In nominal terms, sales were up at a 3 or 4 percent annual rate. Automobile sales rose slightly from the June-July pace, though they remained below the level of a year ago. This improvement was greater for used cars than for new models. Department store sales have changed little in real terms since early in the summer, though consumer preferences shifted toward higher quality goods and away from "fad" items. Inventories at department stores rose, reflecting earlier purchases of stock in anticipation of improved August-September sales; however, inventories are not considered a major problem. Grocery sales have risen moderately since the earlier summer months.
Merchants are currently expecting a moderate improvement in sales during the coming Christmas season. They believe there is significant pent-up demand. They also cite the improved financial condition of consumers, in terms of both disposable income and volume of liquid savings. Further, the recent decline in interest rates and the rise in stock prices are likely to stimulate an increase in consumption.
Industrial activity in the Eighth District contracted during August and early September, with the exception of defense, food and livestock feed production. Most other manufacturing firms, both large and small, reported declines in orders. Production schedules were trimmed in order to prevent a build-up of inventories, and employment decreased at firms producing consumer durables, chemicals, aluminum, steel, industrial equipment and wood products. A major chemical firm offered early retirement incentives to 1,900 salaried employees to facilitate staff cuts. A collection agency for industrial companies reported that collections in August were 23 percent below normal.
In contrast, service firms in the District reported an improvement in activity. Business was particularly good at repair shops for automobiles, air conditioners and televisions. A computer service company, operating at capacity, noted that the demand for processing Medicare claims has risen. A restaurant and a fast-food chain reported excellent business. A printing shop also claimed business was near capacity. A casualty insurance company experienced a moderate increase in business.
Construction activity, which has been severely depressed in the District, improved slightly since July. Homebuilders in the St. Louis area report increased traffic through model homes and a slight upturn in sales to about 20 percent of normal. Lower interest rates, an increase in consumer disposable incomes, the rise in stock prices and several special public bond issues (which provide mortgage funds to home buyers at subsidized rates) have been beneficial for residential sales. Despite the depressed conditions, unions representing both plumbers and electrical workers obtained a $2.32 an hour increase in wages recently by maintaining tight control on entrance into the unions. Commercial construction, which has been less depressed than homebuilding, also improved moderately in August and early September.
Weather has continued to be favorable, and crops in the Eighth District are excellent. For many farmers, however, selling prices are less than production costs, leaving them with a net loss for their efforts. With the current level of interest rates, many farmers are finding it difficult to service their debts. On the other hand, relatively favorable feeding margins are benefiting hog, cattle, dairy and poultry producers.