Beige Book Report: St Louis
May 18, 1983
The economic recovery in the Eighth District picked up momentum in April and early May. Retail sales continued significantly above year-ago levels, and construction activity has been robust. Orders and shipments of manufactured goods have been increasing, and inventories are relatively lean. Employment is inching up, and a few plans for future capital expansion have been revised upward. On the adverse side, many plants are operating substantially below capacity, unemployment remains high, and price increases have accelerated slightly. Expectations are widespread that economic activity will continue to expand during the summer and fall of 1983.
A recent survey of 166 executives in the St. Louis area by a local management association found that 25 percent of the businessmen expected their business will continue to be good in the next six months, another 48 percent anticipated their business will improve, 18 percent said it will remain at about the same depressed level, and 3 percent thought it would deteriorate. Six percent did not predict. A number of other respondents noted that a climate of optimism had developed, and that the mid-year tax cut should further bolster sales and production. Producers of business equipment, especially for the petroleum industry, seemed to be the least optimistic. They believed that any significant upturn for them would be delayed until at least the fourth quarter of this year.
Sales at six department stores in the District were 8 percent higher in April and early May than in the comparable period in 1982. Most types of merchandise shared in the improvement; furniture and other home furnishings sold particularly well. Two retail shoe chains reported that sales averaged 12 percent above the year-ago pace. A restaurant chain and a fast food firm also reported that business had improved. Automobile sales improved in April and early May at five dealers and declined at two dealers. A large Ford dealer sold 40 percent more cars, 25 percent more trucks and 12 percent more used cars in April and early May than in the same period last year.
Both new and existing homes have sold well since March. Reflecting the demand for homes, as well as a slight increase in orders for office buildings, construction activity has expanded. The average size of new homes, however, has decreased, reflecting high costs of construction, relatively high interest rates, and higher gas heating prices.
Most industrial firms in the District reported an increase in new orders and shipments since March. The gains were largest for consumer goods and for products sold to automobile manufacturers, residential construction contractors and related businesses. Firms producing business equipment and metals reported little change in sales or only a slight pick-up. Inventories at most firms are either at or below desired levels, a positive sign for future production. Trucking companies reported an increase in tonnage hauled, but rail and river barge traffic has changed only slightly.
Total District employment inched up, reducing the unemployment rate slightly in April and early May, but the number unemployed is still relatively high. Whirlpool is adding 2,000 workers at an Arkansas appliance plant, and many other firms have hired selectively as activity has improved. On the other hand, businessmen are still striving to control costs, and some further reductions in employment have occurred. These attritions and layoffs, however, are becoming less frequent.
While financing of District business has come from increased cash flows and from borrowing in capital markets, the demand for commercial and industrial credit at large District commercial banks also rose in April and early May. In addition, both real estate and consumer loans increased moderately at these banks. Bank deposits rose more sharply than loans, with both money market deposit accounts and super NOW accounts continuing to rise rapidly. Savings and loan associations likewise have experienced a huge inflow of funds to these new accounts, enabling them to increase their lending and improve their liquidity.
Because of unseasonally cool weather and heavy rains, planting of cotton, rice, corn and other crops in the District has been delayed. There is still time to plant these crops, however, if the weather improves. The PIK (payment-in-kind) program, which limits the amount of land in production, has provided more flexibility for timely planting. Livestock production has become less profitable than during 1982 since feed prices have risen relative to selling prices. Because the PIK program reduces acreage planted, it has adversely affected both farm implement and seed sales at many dealers. Some Implement dealers, however, have had an expansion of sales, reflecting the bargain prices available and the more favorable income outlook resulting from the PIK program.