December 6, 1983
Economic expansion continued on a broad front during October and November in the Eighth District, and most respondents anticipate further gains during the winter. Retail sales were strong in the early Christmas season. Factory orders and production continued to rise, and inventories expanded moderately. Some capital spending for the purpose of increasing efficiency has been reported. Employment continued to rise. Construction activity, adjusted for seasonal influences, remained vigorous.
Outlook
Seven business economists surveyed expect the economic expansion to
continue in the first half of 1984, but at a reduced pace. The
average expansion for real GNP is expected to be at an annual rate
of about 4 percent, with the first quarter being slightly greater
and the second quarter weaker. They anticipate that their own firms
will expand at a pace consistent with this national projection. Most
feel that a slowing to a more sustainable pace is desirable; one,
however, believes the slowdown will be excessive because of the
relatively slow rate of monetary expansion since summer. All
respondents project prices to rise slightly faster in the first half
of 1984 than during 1983; the median forecast is at a 5 1/4 percent
rate. Yet, for their own company's prices, the median forecast is
just below a 4 percent rate.
Consumer Spending
Department stores, discount houses and small shops throughout the
District report continued favorable year-over-year sales in October
and November. For many stores the gains were in double digits. Most
items have been moving well, especially apparel, footwear, fashion
accessories and home furnishings. Merchants, optimistic about the
Christmas season, have enlarged sales forces to handle the business.
Consumers, with rising incomes and a large amount of liquid savings,
seem to be in a mood to spend.
Automobile sales were mixed. Four dealers reported that October- November sales averaged 14 percent above the same months in 1982, while three other dealers had small declines—averaging 5 percent. Both used cars and trucks sold moderately well. Dealers report that adequate financing is available, and buyers do not seem to be as concerned about the level of interest rates as they had been earlier.
Home sales have slowed seasonally; however, they continue to be considerably above year-ago rates. In the St. Louis area, sales of homes through November 1983 were 2 1/2 times those in the same period of 1982, and industry spokesmen expect that sales will rise another 15 percent from 1983 to 1984. Greatest strength is among first-time buyers purchasing lower priced homes. Demand for apartments has been strong; in one major county, nearly twice as many apartments have been constructed recently as in the corresponding period a year ago, and plans have been made to start building 600 more to satisfy the demand. Demand for new office buildings remains strong despite a rise in vacancy rates due to the substantial amount of new space coming into the market.
Manufacturing
Manufacturing activity continued to expand at a rapid pace in
October and November. Expenditures for capital equipment
accelerated, but most of the outlays were for replacement and
modernization rather than for increased capacity. Orders and
production of consumer goods continued to rise, but at a somewhat
slower pace than during the spring and summer. Defense business rose
again after slowing in the early fall. Some manufacturers and
distributors have been accumulating inventories to handle the
increased volume. Most prices in the manufacturing sector have been
steady, but a few have begun to rise.
Employment
Reflecting the improved pace of economic activity, employment in the
District rose in October and November, and the average workweek in
manufacturing lengthened slightly. Unemployment rates in the
District declined moderately. Major hirings have been in the
manufacturing sector, particularly for nonelectrical machinery and
appliance production. Also, many retail and service firms expanded
their workforces. On the other hand, the number of construction
workers declined seasonally; and a service firm made a sizable
reduction in its staff. The outlook is bright for further gains in
employment during the winter.
Finance
At ten of the larger commercial banks in the District, loans rose
moderately during October and the first three weeks of November.
Consumer installment loans increased $62 million, while real estate
loans declined $35 million. Commercial and industrial loans rose
$200 million, but much of the gain was seasonal. Several bankers
reported that the relatively weak loan demand stemmed from large
business cash flows, thereby reducing the need for short-term
credit.
Liquidity of the banks improved as funds continued to flow in. Demand deposits jumped 14 percent in October and early November, and savings deposits increased 4 percent. Part of the expansion in demand deposits was seasonal; in the comparable period of the two previous years they rose an average of 6 percent.