August 10, 1973
Business activity in the Eighth District continued to expand in July and early August. However, there are indications of a slower rate of growth of output, especially among suppliers to the construction industry. Retail sales at major District department stores continue upward. Factories are generally operating at full capacity, and backlogs of orders generally remain undiminished. Unemployment is at a relatively low rate throughout most of the District, and quality workers are reported to be scarce. The level of construction has apparently passed the peak and is declining moderately in some of the larger District cities. Loans and deposits of major District banks have declined in recent weeks, but loan officers report very strong credit demand and upward pressure on interest rates. Crop conditions are generally good over most of the District as a result of timely rainfall.
The uptrend in retail sales established about two years ago at major District stores has continued in recent weeks. Representatives of major department stores report that, after adjusting for inflation, sales in July and early August were well above year-ago levels.
Backlogs of orders generally have not increased in recent weeks, but large backlogs continue to exist at most District factories. Machinery orders continue to grow faster than shipments, but paper, paperboard and similar product backlogs have stabilized and backlogs of construction-related products have generally declined. A representative of the aircraft industry reported that passenger miles flown during recent weeks were well below expectations and that passenger plane orders were also less than anticipated. On the other hand, a representative of the shoe factory reported considerable improvement in domestic production as a result of the realignment of exchange rates in the past two years. Imports of foreign shoes have declined sharply.
Payroll employment continues to increase throughout the District, and the employment rate has remained stable for several months at a relatively low rate. A representative of a major manufacturing firm reported that its major problem was the large number of nonproductive workers on its payroll. Another firm reported problems in filling all the jobs with the type of people desired. Labor turnover has become a major complaint, with some firms reporting turnover at approximately double the normal rate.
Activity in the construction industry has diminished in some of the larger District cities in recent weeks, following a long period of relatively stable and high level operations. A representative of the paperboard industry reported some slight cutting-back on orders of materials related to housing. A number of St. Louis manufacturers of other construction supplies reported similar moderate declines in orders. A major commercial construction contractor in Louisville reported that he is now seeking construction projects.
As a result of the sharp increase in interest rates in recent weeks, loan rates are approaching the maximum permissible levels under the usury laws in many states, and such laws are becoming a major factor in credit allocation. An Arkansas spokesman reported that lenders in the state are finding that their funds can be used more effectively elsewhere than in Arkansas. A St. Louis savings and loan company reported that savings had picked up with the higher permissible rates in August but that rates on mortgages had also risen. Its rates charged on conventional loans are now 8 percent plus 3 points, up from 7 1/4 percent plus 2 points in May. A representative of a larger St. Louis commercial bank reported that it was turning down all loan requests except the older lines of credit. He noted that problems of arbitrage are making banking more difficult and expressed a desire for the elimination of all interest rate restrictions. Furthermore, most of the businessmen interviewed expressed hostility toward the wage, price, interest rate, and dividend restrictions in effect since mid-1971.
Crop production conditions are generally good to excellent throughout the District. Large crops of corn and soybeans were planted; the planting was somewhat later than average, but weather conditions have been favorable and yields are expected to average about normal for recent years.
Prices of livestock are probably sufficient to provide incentive for enlarging herds and flocks, and if feed supplies are forthcoming this fall, as anticipated, output of livestock products may begin to rise by mid-1974. There are some beef shortages in stores, but increasing concern is reported among cattle feeders that a holdback in marketings of fat cattle until September 12 will result in a sufficient number marketed at that time to drive prices down even below current levels.