April 10, 1974
In summary, economic activity in the Eighth Federal Reserve District has apparently turned up following a minor slowdown near the end of last year. Retail sales continue to increase, and construction activity has turned up on a seasonally adjusted basis. Manufacturing activity generally has remained at capacity levels, with the exception of those industries affected by the petroleum shortage, and most businessmen believe that the decline in output in these industries has bottomed out. Loan demand has risen sharply in recent weeks. On the agricultural scene, large crops are in prospect, but some producers are taking losses on meat animals. Inflation remains a major concern of businessmen, and little optimism was expressed that the problem will be satisfactorily handled.
Retail sales generally continue their uptrend of the past year. Representatives of department stores reported further sales gains in recent weeks on a seasonally adjusted basis. The decline in automobile sales apparently has bottomed out after a sharp decline late last year. Dealers expressed greater optimism as a result of the improved gasoline supply situation.
Businessmen report that both residential and commercial construction is picking up throughout the District. Materials shortages are still a problem in the industry, but fewer complaints of shortages were heard this month than a month ago.
Manufacturing activity continues at a high rate, and backlogs of orders are still reported for many industries. Such backlogs, however, do not appear to be as critical as in recent months. Profit margins in manufacturing have improved with the lifting of price controls, and larger supplies of most products are being made available. As a result of the greater incentive for producers, plant expansion is on the upswing in those industries where shortages were a problem. Furthermore, with the higher prices, consumers demand a smaller quantity of products than at the lower controlled prices.
Loan demand has increased sharply in recent weeks, and interest rates have risen. Commercial loans have increased for all purposes, and rising construction has boosted the volume of real estate loans. The prime rate on commercial loans is somewhat higher than a month ago, and the points charged on real estate loans are also up.
The recent rise in market interest rates coupled with the restrictions on rates paid on savings is again causing disintermediation among the savings and loan associations. Savings and loan officials reported that the 7-1/2 percent maximum rate payable by their firms is not competitive with the 8 to 8-1/4 percent rates on Government and Government Agency securities with similar maturities. They have reported sizable outflows of savings in recent weeks. Usury laws are also a problem in most of the Eighth District states as market rates have risen above the maximum permissible rates on loans.
Farmers in the Eighth District are planning sizable increases in crop plantings for 1974. Cotton planting is expected to be up 20 percent in eastern Arkansas and 33 percent in west Tennessee. Corn, soybean, and hay plantings are also expected to increase. The earlier-than-expected decline in fat cattle and hog prices, however, has reduced the incentive for expansion of livestock feeding at current feed/livestock price ratios.
Businessmen continue to view inflation as the nation's most serious economic problem. An Arkansas businessman asserted, "worldwide inflation is a serious threat to our society and the current situation is frightening."
A representative from Louisville said, "There is an inflation psychology that is the worst in history, and people are resigned to it." A leading corporate representative in St. Louis stated, "Continued high inflation is the major problem with business and consumers."