Beige Book Report: St Louis
February 2, 1983
Economic activity in the Eighth District showed signs of improvement during December and January. Consumer spending increased, continuing a trend that began last fall. Industrial production and employment changed little on balance from earlier depressed levels, but a few manufacturing firms reported that orders began to strengthen around the turn of the year. Some businessmen have become more optimistic about economic developments in 1983, noting the recent improvement in sales, an accompanying decline in inventories, greater after-tax incomes, lower interest rates and more stable prices.
Within the District, economic activity has varied. According to Southwestern Bell's index (based on measures of employment, trade and construction), business activity in Arkansas recently was 4.3 percent below year-ago levels, while in Missouri activity changed only slightly. In Arkansas, a relatively large share of the work force is engaged in manufacturing, which was severely affected by the recession, but in Missouri employment is more diversified in trade, transportation, public utilities, financial services and government.
Automobile sales in the District have been relatively strong. Six of eight dealers reported sales improvement in December and early January. At two large dealers, sales in December were the best for that month in over 10 years, with year-over-year jumps of 27 and 25 percent. Both the larger American cars and smaller foreign cars have been moving well, and one dealer reported that used car sales were particularly vigorous. Two dealers added salesmen and repairmen to handle the increased volume.
Sales in the District also increased for both new and existing homes during December and early January, according to respondents. One realtor noted that, once a house sells, another sale is stimulated, since the seller then has funds and needs a place to live. Sales of new homes in the St. Louis area were 66 percent higher in early January than in the like period last year, but were still about half of normal, according to the St. Louis Homebuilders Association.
Sales at major department stores in the Eighth District were 6.2 percent larger in December than in December 1981, a gain of about 2.5 percent after adjusting for merchandise price increases. Some smaller clothing stores and outlets specializing in automobile and tractor parts experienced even larger year-over-year gains. In the first four weeks after Christmas, sales at major department stores, aided by unseasonally good weather, were about 9 percent higher than during the corresponding year-earlier period. Two restaurant chains also reported relatively large receipts in December and early January.
Performance in the industrial sector has been mixed. Firms producing industrial equipment, chemicals, wood products and metals had slightly lower orders, production and shipments in December and early January than in the fall. On the other hand, firms producing consumer durables, defense goods, shoes, food, synthetic fibers, paper and boxes noted an increase in activity. Orders and shipments rose faster than production at a number of firms, and inventories declined. Most capital spending plans were unchanged in December and January, but a few companies stretched out completion dates. Federal Express set records in December for the number of packages handled. A company dealing in motivational programs for businesses reported an increase in new accounts, usually an indicator that business will improve.
The efficiency of many industrial firms improved during the recession, permitting them to remain profitable at relatively low levels of operation. Break-even points were reduced by pruning excess personnel, closing marginal facilities, liquidating unprofitable lines and applying stringent cost controls. As sales pick up, profits are expected to rise rapidly.
At most businesses in the District, employment was reported to be virtually unchanged since early December. A few firms, however, continued to trim staffs through attrition. In addition, International Paper laid off 200 woodhaulers, a steel foundry idled 500 workers, and Pyro Energy laid off 250 coal miners. On the other hand, International Harvester recalled 800 workers at a foundry in Louisville, American Greeting Card Co. hired 300 workers in Arkansas, and Carrier Air Conditioner brought back 700 employees in the Memphis area. Chrysler and General Motors announced plans to hire 3,200 and 900 employees, respectively, in the St. Louis area. According to a private consulting group, over two-thirds of the firms surveyed paid a holiday or year-end bonus to employees even though in many cases profits had declined.