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St Louis: March 1983

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Beige Book Report: St Louis

March 23, 1983

The economic recovery in the Eighth District, which began around the turn of the year, strengthened in February and early March. Favorable weather contributed to greater retail sales and robust construction activity. Orders for manufactured goods have been rising, and shipments of goods have been inching up. Inventories are relatively low, a positive sign for future production. Total District employment, however, has changed little from January levels, and, although the price level has been increasing only moderately, a few respondents are concerned that the oil price decline is concealing an ominous rise in other prices. Expectations are that sales, production and employment will rise in the spring and early summer, but capital spending plans have changed little.

Sales at department stores in the District averaged nearly 10 percent more in February and early March than in the corresponding period in 1982, a gain of about 7 percent after adjusting for merchandise price increases. Most merchandise sold well, particularly "large ticket" items. Weather was exceptionally good for shopping this year, unlike last year when much of the area was blanketed with deep snow. Merchants also noted that some customers had received large tax refunds as a result of overwithholding after the July tax cut. Automobile sales in the District, after rising sharply in January, changed little in February and early March. Five dealers reported slight increases in sales, while four experienced declines.

New and existing homes sold well in February and early March. More sales of new homes were made in February in the St. Louis area than in any other month in three years, and sales continued at that pace in early March, according to the St. Louis Homebuilders' Association. Favorable reports also were received from other parts of the District.

Residential and commercial construction in most areas of the District has been relatively strong. The average size of new homes has declined, however, reflecting high prices of construction, high mortgage rates, and a sharp rise in gas heating prices. Reflecting the pace of construction activity, lumber sales in the mid-south region have risen, causing an increase in the price of standing timber. Several contractors voiced concern over costs of materials, noting that since last October board lumber has gone up 20 percent; brick 9, percent; concrete, 7 percent; and heating and air conditioning equipment, 4 percent.

Industrial production in the District remained depressed during February and early March, and several large operations were closed, including a tire plant, a foundry, a farm equipment plant and a lead mining facility. However, most industrial firms, other than those producing business equipment and farm machinery, reported increases in new orders and shipments. Total District employment changed little, since most output gains were accomplished by improved productivity, and over two thousand employees were idled by the plant closings. Managers claim that a tight rein has been kept on inventories.

Although shipments from many industrial firms are expanding, reports from transportation companies still present a mixed picture. River traffic at the Memphis harbor declined in February. District rail and trucking activity reportedly was little changed for most products, although an increase was noted in grain and lumber shipments.

It appears that many District farmers will participate in the PIK (payment-in-kind) program of the government. Farmers believe it is favorable for them, and it is expected to reduce inventories of agricultural commodities significantly. Prices of most crops, however, are not expected to rise much above support levels. The sales outlook for farm equipment and seed is bleak with the PIK program.

The financial condition of savings and loan associations in the District is improving, although one large association and several others have been liquidated since January. With the new money market deposit accounts, the associations are able to attract funds, and, with the decline in interest rates since last summer, the associations are now operating at a profit or much smaller loss. Reflecting a substantial inflow of money market deposits in February and early March, the associations have increased their liquidity, reduced average rates on money market deposit accounts from 11 percent to 8.5 percent, made and acquired a greater volume of mortgage loans, and extended more loan commitments. A survey of 14 financial institutions indicates that check withdrawals from the money deposit accounts has averaged less than one a month per account.