January 10, 1973
Businessmen in the Eighth Federal Reserve District continue to be optimistic as to business prospects in the year ahead. Christmas sales were generally ahead of expectations despite some unfavorable shopping weather, and retailers expect sales in the coming months to be up on a seasonally adjusted basis. Most manufacturing firms report that operations are at or near capacity levels; thus, plant expansion is expected to pick up in the current year. Residential construction may have peaked, but any decline in home building is expected to be offset by gains in industrial construction. Employment continues to rise moderately in the District and the unemployment rate to decline. Growth in loan demand continues to outpace the growth in supply of loan funds, and interest rates continue their persistent uptrend. A large portion of the cotton and soybean crops remained in the field at the year-end, which will result in deterioration of quality and reduced harvests. An increasing number of businessmen indicate that a higher rate of inflation is in prospect for 1973.
Christmas sales by major department stores in the Eighth District generally exceeded expectations and in some instances exceeded year-earlier sales by 10 percent. As a result, fewer after-Christmas bargains are to be found. This higher level of sales occurred despite unfavorable shopping weather. Thus, retailers are generally optimistic as to the outlook for the months ahead.
All manufacturing industries report higher levels of output in recent months. An increasing number of industries report operations at or near capacity levels and plans for plant expansion. These reports are consistent with the fact that orders for capital goods are rising sharply. Steel representatives report that heavy construction has finally turned upward, that railroad demand for steel is coming back, and that farm equipment and appliance demands for steel are strong. Capital goods industries are thus very optimistic as to the prospects for business in the months ahead.
Construction remains at a high level, and the outlook is optimistic for 1973. Reports on the residential sector are diverse, however, with some areas reporting gains and others sluggishness. The sluggishness is generally confined to St. Louis, where some slowdown has occurred in recent months, and to those rural areas where crops remain in the field. Residential construction generally remains at a relatively higher level in other parts of the District, and industrial construction is believed to be gaining momentum.
Most firms in the Eighth District report further moderate gains in employment. Higher wage rates, however, have raised the marginal returns to labor-saving devices and cost-reducing practices. In retailing, for example, one firm reported that all full-time employees who resign are replaced with part-time help, thereby avoiding many fringe benefit costs. The unemployment rate continues downward, and the labor market is reported to be tighter in most parts of the District.
Interest rates continue their persistent uptrend of recent months. Commercial banks report that all commercial loan rates have generally moved up with the rise in the prime rate. Installment and real estate loan rates have likewise increased somewhat.
Crop harvesting problems are a major economic factor over much of the District. Twenty percent of more of the cotton and soybean crops were estimated to remain unharvested at the year-end in the Mississippi Valley area. The quality of the cotton has deteriorated substantially and much of the unharvested beans are lying on the ground and cannot be harvested with combines. Major losses are thus in prospect for many farmers despite the higher prices for farm products.