Beige Book Report: St Louis
December 15, 1982
Consumer spending increased during November and early December in the Eighth District, an indication that the economy is about to move out of the business trough. Respondents noted marked increases in purchases of homes and automobiles, and other retail sales began showing signs of life. At the same time, however, industrial production and employment changed little from their depressed levels.
Just as a recovery appeared to be developing, the District's economy was dealt a blow by the weather. Heavy rains over much of the area in late November and early December, accompanied by several tornadoes, and followed by flooding of the Mississippi River and many of its tributaries, caused widespread damage. Estimates of the direct loss of wealth are running into the hundreds of millions of dollars. Moreover, operations of many businesses were severely interrupted, and the cleanup will place a further burden on the economy.
Automobile sales have strengthened. Ford dealers in the St. Louis sales district reported that passenger car sales in November were up 26 percent from last November and that truck sales jumped 71 percent. One large dealer said that his used car sales in the month were comparable to previous peaks. Two dealers in the Memphis area reported a moderate improvement in sales, and dealers in Arkansas have been encouraged by the lifting of the 10 percent usury ceiling which should facilitate credit sales.
New home sales in the St. Louis area during November were greater than in any other November in recent years, according to the St. Louis Homebuilders Association. Home prices have declined slightly since the spring of 1981, and have fallen strikingly in real terms. This decline has been even sharper because prices have been effectively reduced through "creative financing" offered by sellers to consummate deals.
Sales at major stores in the District (Sears, J.C. Penney, May Company, and Woolworth) were, on the average, 6.4 percent higher this November than during November 1981, an increase of nearly 3 percent after adjusting for merchandise price increases. Early December sales were running at a similar pace above those of last year. Five smaller retailers reported gains of 9 percent since October in year-over-year nominal sales. Consumer demand has probably strengthened more than the sales data alone indicate as managers made fewer price concessions this year than last. A shoe chain reported an 11 percent increase in sales from November 1981 to November 1982.
Orders, production and shipments at most District manufacturing firms were slightly lower in November and early December than in the early fall. Companies producing business equipment, chemicals, metals and wood products were particularly depressed. On the other hand, a supplier to firms producing consumer durables noted the first improvement in orders and production in many months. Businesses producing food, defense goods and boxes noted a slight improvement in activity. Employment declined at many industrial firms; a chemical company retired over 1,200 workers. At many smaller businesses, however, employment continued to increase.
Deposits changed little at District savings and loan associations in November and early December. Several associations continued to report a moderate net outflow of funds, but others gained funds by bidding aggressively for them. Most associations still report the current rate of earnings on assets to be slightly less than the cost of obtaining funds, but the negative yield spread has narrowed.
The agricultural situation appears to be near a trough. Favorable selling prices and low feed costs are generating profits for livestock raisers, particularly those engaged in hog production. Prices of grain are holding at current levels, largely supported by government programs. Carry-over stocks of grain, however, are estimated at near 50 percent of annual usage—the highest level since 1960. Many farmers are in severe financial difficulty, reflecting large debts at the beginning of the crop year, high interest rates, and low selling prices for crops.
Scattered farm groups in Illinois, Missouri and Tennessee reportedly have adopted militant tactics to discourage creditors from foreclosing on farm debt. Their activities include blocking entrances to farms, bullying bidders at auctions, and hiding farm equipment. Although the number of actual cases is small, the incidents have received publicity. A few creditors reportedly have agreed to delay foreclosure and negotiate further.