March 14, 1973
Economic activity in the Eighth Federal Reserve District continued strongly upward and fears of accelerating inflation intensified in February and early March, according to a selected group of businessmen. Retail sales rose throughout the District with the exception of the St. Louis metropolitan area. Manufacturing activity expanded further. Construction continued at a high level throughout most of the District. Employment was up, and the unemployment rate generally declined. Banks reported further upward pressure on interest rates.
Retail sales at department stores in the Eighth District were generally well above year-ago levels in February and early March. The uptrend of the past year apparently continued throughout the District except in the St. Louis area where department stores reported little change in sales from a year ago. This is consistent with other economic trends for the St. Louis area. For example, even though the unemployment rate has fallen, employment in St. Louis declined about 2 percent in the past twelve months and at an annual rate of about 2 percent for the past three years.
Businessmen indicated widespread strength in the manufacturing sector. Representatives of all manufacturing firms interviewed reported rising output and sales. Sales by major chemical firms in the District continued to exceed year-ago levels by 10 to 15 percent. A representative of the aircraft manufacturing industry reported that orders for passenger planes are moving sharply up and that production is being geared to higher levels as a result of the larger incoming orders. The paper and paperboard-container industries are still operating at capacity, and representatives report that there will be little expansion in the near future as little construction of additional productive capacity is currently underway. The clothing industry likewise reported that plants were operating at capacity levels and that few plans were being made for plant expansion. Employment is increasing, however, at some of the clothing plants.
Construction continues at a very high level throughout most of the District. Contractors in northeast Mississippi are four to seven months behind their schedules and must wait six months to get delivery of bricks. Some builders in eastern Arkansas are postponing projects because of excessive demands for construction resources. Building is beginning to increase in St. Louis, where it has been at a relatively low level since 1970.
Employment continued to "inch up" throughout the District, and the unemployment rate continued to decline. Most firms reported some additions to their work force, and some manufacturing establishments reported that a second shift of production workers was being used. In general, labor markets continued to tighten for both skilled and unskilled workers. The January unemployment rate was down in most of the District, and it declined sharply in St. Louis where the rate was relatively high throughout last year.
Representatives of financial firms reported further upward pressure on most interest rates in recent weeks. Bank deposits have continued to rise, and savings at savings and loan associations continued up but at a somewhat slower rate than last fall. Loan demand has continued sharply upward. Savings and loan associations in St. Louis were lenders of funds outside the area last year, but they now report that local demand is picking up and fewer loans will be made elsewhere. Mortgage rates remain stable but are expected to rise later in 1973.
Agricultural conditions are generally favorable to farmers, with the exception of those operators who lost a large percentage of their 1972 crops because of unfavorable harvesting conditions. With the recent sharp increases in prices of farm commodities, there is sufficient incentive for expansion of output and larger crops are in prospect for the current year. Financing, however, may be somewhat more difficult for those farmers with low equities as a result of higher production costs and "tighter credit markets".
Inflation continues to be a major topic of discussion among businessmen. Such expressions as "now inflation is the chief economic problem" and "how do I hedge against the declining value of the dollar" were frequent during the recent survey. Most of those interviewed expressed concern about rising food costs.