Beige Book Report: St Louis
December 8, 1971
Leading businessmen in the Eighth District report that business activity in recent weeks has continued to move up at a moderate rate. Consumer demand is encouraging with pre-Christmas sales well above levels of the same period a year ago. The higher sales level, however, has had little impact on business confidence and spending plans. Uncertainty continues to dominate the local business community, largely as a result of the confusion relative to Phase II of the new economic program. Construction has leveled off. A high rate of savings flows continues, while interest rates on mortgages are generally unchanged. Commercial loan demand remains relatively low. Agricultural conditions in the District are generally favorable and long-run trends toward greater efficiency continue.
Retail sales have increased substantially in recent weeks. One large St. Louis department store reported that sales were running well ahead of the budgeted level. Another reported that early Christmas sales were significantly above levels of the same period last year. Likewise, other cities in the District, particularly in the Little Rock area, report similar trends in retail trade. Retail inventories have apparently lagged sales trends. One major District department store reported that inventories are now 14 per cent less than a year ago despite major sales gains. The achievement was made through machine inventory control.
Despite increased consumer optimism, much of the business community remains relatively pessimistic and confused. Businessmen question the compatibility of the decisions of the wage and price boards, and see little hope for improvement in prices and profits. A representative of a major St. Louis corporation reported that the controls had stymied business investment. Another reported that manufacturing industries are still not ready to make new investment commitments. Even though sales are picking up, the outlook for profits is not sufficient to provide incentive for new capital outlays. Reporters in Memphis also conclude that the wage-price program is hurting industry.
Construction in the Eighth District has tended to level off in recent weeks, but the pattern is quite mixed. Following sharp gains in residential construction in St. Louis during the summer months, home sales have dropped substantially in recent weeks and builders have larger than desired inventories of new homes. Apartment construction has also been dampened by a higher vacancy rate. In other parts of the District, however, construction continues to expand. Numerous commercial projects are reported to be under way in the smaller cities and towns, especially in the Memphis and Little Rock Branch areas, and the industry generally remains optimistic about the prospects for next year.
Savings flows remain strong throughout the District. A large share of the gain in savings, however, is going to the savings and loan associations. Rates paid savers and the rates charged on mortgages have both remained stable for several weeks.
Reflecting both business pessimism and the greater efficiency in handling inventories, commercial loan demand remains weak at major District banks. National credit lines are reported to be inactive, and demand for credit by small local firms is not sufficient to offset the decline by larger firms. A large St. Louis retail firm reported major savings in costs of money borrowed for inventories despite the rise in sales.
In the agricultural sector, autumn weather conditions were excellent for harvesting the generally large crops. The dock strike was believed to have had an unfavorable impact on farm commodity exports and grain prices. Nevertheless, the farm situation is much better than a year ago. The larger volume of production has more than offset price declines for most crops and livestock products. The long-run decline in number of farms continues. Good managers are expanding their operations, and the less capable ones find employment elsewhere. An Arkansas reporter estimated that the number of rice farmers would decline 10 per cent from 1971 to 1972.