April 9, 1975
Eighth District businessmen generally expressed more optimism than heretofore about the prospects for an economic recovery later this year. Although department store sales remain weak, unemployment high, and general economic conditions relatively depressed, some signs of recovery were observed. Most of those interviewed believe that economic activity has bottomed out. Despite the low level of construction, building representatives are generally optimistic. Funds continue to flow into thrift institutions at a rapid rate, and interest rates have declined from their peaks of last year.
Department store representatives are still rather pessimistic. Despite the early Easter, March sales at major Eighth District outlets were not much above last year's level; thus the real volume of sales was down. Retailers continue to report reduced sales of big-ticket items. However, inventories are being reduced to minimum levels and a turnaround in consumer demand could bring a quick increase in orders to manufacturers. Car sales have also sagged in the post-rebate period, although imported automobiles are apparently selling fairly well.
General manufacturing activity is difficult to gauge as representatives of some industries reported worsening of conditions and of others, improvement. Automobile manufacturing activity, for example, has improved, as manufacturers expect an upturn in car sales in the spring and summer months. One clothing manufacturer reported the closing of some operations, while another was increasing its workday. Still another reported current orders for the fall season down considerably, but was fairly optimistic that sales will pick up substantially in late spring since retailers have reduced inventories below optimal stock levels. A plywood company reported operations at high levels with increased sales. A manufacturer of paint and coating felt the bottom of the decline had been reached, but sales were 14% below a year ago. A substantial drop-off in synthetic fiber sales was reported, while sales of synthetic rubber and freon have increased. Manufacturers of small farm implements and garden tools were highly optimistic, with operations at very high levels and a high sales volume in prospect.
Several manufacturers are more optimistic than heretofore about future conditions, even though sales at the moment do not justify that optimism. Expansionary government policies are no doubt contributing to the belief that the economy is currently at or near the bottom of the recession, and that a substantial recovery will soon begin.
No major changes in business investment plans were reported as a result of the recent tax concessions. As a general rule, firms expect to implement their earlier spending plans which were quite expansionary. Some, however, expressed the view that part of their spending plans hinged on adequate financing at reasonable rates which may be difficult to obtain in view of the level of prospective government borrowing in the capital markets.
Unemployment continues up, reflecting the growing labor force and a moderate decline in the employment level. Some improvement has been registered for employment at automobile plants, but some other industries report plant closings and further layoffs.
An increase in housing sales and new housing starts was reported. One builder stated that March was his best month since a year ago. The tax credit recently passed for new home purchases is expected to help clear existing housing inventories; however, areas such as St. Louis, with a relatively small inventory of homes, will not be helped much by this action.
Funds continued to flow into S&Ls at a relatively high rate in March. The increase in savings so far this year has put downward pressure on interest rates. Since mid-March, however, mortgage rates have remained at about 8 1/2 percent. S&Ls are reluctant to lend at lower rates since lower rates received would require a change in policies with regard to rates offered on CDs. They are reluctant to make this change while considerable uncertainty remains concerning the effects of government financing on credit markets.
Loan volume at commercial banks continued to decline in March reflecting weak demand, and a further decline occurred in interest rates. The volume of business loans declined, on balance, although some increase was noted late in the month. Consumer installment loans also continued to decline, reflecting the decline in sales of big-ticket items such as cars, televisions, and furniture. The level of time deposits at banks was little changed, as a small increase in consumer-type savings deposits was about offset by a decline in other time deposits.