January 30, 1985
Summary
Although lower than earlier expected, Christmas retail sales were
strong, but inventory pressure held prices and profits down. Auto
sales in 1984 were above 1983 levels and are expected to remain
strong in early 1985. The construction industry anticipates
increased activity if interest rates continue to fall. Business
loans grew at a 16 percent annual rate in December, only slightly
below the 17 percent rate for the year. The outlook for prices of
most District agricultural commodities suggests another difficult
year for farmers.
Consumer Spending
District retailers report smaller sales volume increases for
December than those realized in the previous year. Large inventories
required retailers to mark prices down heavily, potentially
resulting in lower profit margins. Lower than expected Christmas
sales in the Louisville area forced some retailers to carry larger
than desired inventories into 1985.
Automobile sales ended the year above 1983 levels. District dealerships reported increases in both new and used car sales for 1984, though new car sales experienced larger gains. December sales were slightly above the December 1983 level. Dealers are attempting to build inventories, but do not expect 1985 sales volumes to reach 1984 levels.
Business Activity
General business activity declined in Arkansas at an annual rate of
2.6 percent in December, based on preliminary calculations of an
index of seven indicators. The decline follows a 4 percent increase
in November. Business activity in Missouri maintained its November
growth rate of 5 percent.
Orders for scrap iron and metal were up in January, implying a small increase in steel production; scrap prices rose 5 percent. The movement to limit steel imports has spread cautious optimism in this industry.
Construction
Single-family housing construction continued the decline that began
in May. In the St. Louis area, single-family housing starts for
November and December were approximately 20 percent below the 1983
level. Respondents look for an increase in housing starts if the
steady decline in interest rates continues. Multi-family housing
construction continues at a pace substantially above that of 1983.
Banking and Finance
The volume of total loans and leases outstanding at large weekly
reporting District banks increased at a 30 percent annual rate from
November to December (not seasonally adjusted), nearly twice the
growth rate for the entire year. Consumer lending, bolstered by the
strong seasonal influence, grew at a 40 percent annual rate for the
month compared to 11 percent for the year. Loans for business and
real estate purposes, however, grew at rates of 12 and 6 percent
respectively, about half the rates for the entire year.
Lending trends at small District banks differed from those of the large banks. Total loans grew at an 11 percent rate in December, slower than the 15 percent growth rate for the year. Business loans, however, grew rapidly in December, increasing at a 25 percent rate compared to the year's 11 percent rate. Consumer loans at small banks grew at a 19 percent rate in December, only slightly faster than the 17 percent growth rate for the entire year.
An informal survey of the five largest banks and five largest savings and loans in the St. Louis area found that only one bank had adopted the newly-reduced $1,000 minimum deposit level for Super- NOWs and MMDAs. Two of the institutions stated they would later adopt a tiered rate structure offering lower rates for lower deposit balances. The remaining respondents had not yet publicly announced their intentions.
Agriculture
The status of Eighth District farmers can be summarized by comparing
current cash prices for major District products to prices one year
ago. Despite a 15 percent increase in export volume, corn prices
have fallen about 20 percent. Soybean exports are running about 15
percent below last year's volume and prices are down 25 percent.
Cotton exports are holding near the previous year's volume but
prices are down about 15 percent. Abundant cattle supplies are
expected to prevent any significant price increases this year. Only
hog producers, who expect to see substantial price gains by year-
end, might look to 1985 with optimism.