Beige Book Report: St Louis
May 20, 1970
A select group of knowledgeable persons in the Eighth Federal Reserve District, including directors at the head office and Louisville branch of the St. Louis Reserve Bank, officials of larger business firms and newspaper financial editors, was questioned with respect to their views concerning the economic outlook. Their comments point to some further decline in business activity in the near future, with an occasional expression of doubt as to the extent of recovery of business profits in the longer run.
Of greatest concern at the moment for most firms are the contracts which are being negotiated with labor unions and the anticipated higher wage settlements. The business representatives almost unanimously indicate that they will be unable to pass on all of the rising labor costs to consumers. A continuation of the profit squeeze of the first quarter of this year is therefore expected.
There are no indications of major layoffs of workers by those interviewed, except in the construction industry. Some firms are, however, reducing wage and salary costs by failing to replace workers who retire. A slackening in demand for labor is also indicated by the slowdown in demand for June college graduates. One business school dean reported a slowdown in growth of both job opportunities and in starting salaries compared with other recent years.
Excluding stockbrokers, pessimism appears greatest in the automobile, chemical, construction, and defense industries in the Eighth District. Concern for their profit outlook in the immediate future and to a less extent in the longer run indicates some decline in demand for investment funds in these industries. A number of smaller industries which are associated with residential construction, notably furniture and fixtures, likewise view the outlook with little optimism. The breweries, food, and feed industries have apparently been little affected by the current economic slowdown and have made little change in their long-run spending plans. One representative of these industries remarked that his company was "looking across the valley" to a recovery later in the year.
Great concern was expressed by a number of people for the major downward movement in the stock market. Several accredited this movement to restrictive monetary policies, which they believe were necessary to bring the rate of inflation down to a more moderate level. In some responses, and especially in the case of our own board members, a need for continued moderation in the rate of growth in the stock of money was indicated despite the problems involved in reducing demand to more sustainable levels.
Farm land prices apparently continue to decline in the predominantly agricultural areas of the Eighth District. Estimates of price declines during the first year run as high as $50 to $100 per acre on land that previously sold for $500 to $1,000 per acre.