March 10, 1976
According to recent reports from District businessmen, economic activity continues on the uptrend. In addition, considerable optimism was expressed that this trend will continue over the year. Gains in retail sales, manufacturing orders, and residential construction activity have occurred in recent weeks. Reflecting these gains, the employment picture also has improved. Overall bank loan demand remains weak, although a few reports of improvement were heard. On the other hand, loan demand at saving and loan associations continues to strengthen. Large deposit gains and recent declines in mortgage interest rates were also reported by savings and loan associations.
Consumer spending continues to strengthen. Retailers note increasing sales for big-ticket items, such as appliances, furniture, and other home furnishings. Car dealers report their sales are brisk especially for intermediate- to full-size automobiles. Easing in gasoline prices, improved gas mileage, and increased preference by many owners for larger cars are some of the reasons offered for the unexpected surge in larger car sales.
In general, manufacturing activity has continued to register gains in recent weeks. One large manufacturer of both consumer and capital goods has experienced an increasing number of orders for consumer durables, with backlogs starting to build up, while orders related to nonresidential and industrial construction are still low. In addition to appliances, sales of other housing-related products, such as paints and coating, lumber, and plywood, are increasing. Producers of these products are generally optimistic about the future outlook. In the St. Louis area, one car-assembly plant which produces the larger size cars is now on a 58-hour week. A major chemical manufacturer noted improving sales in most fiber and plastic products and agricultural chemicals, while sales of industrial chemicals have been flat recently and are expected to improve only slightly this year.
Single-family residential construction activity continues to make gains, while other types of housing construction remain at a low level. Housing permits in the St. Louis area increased in January and, according to a housing industry representative, they apparently increased again in February. Consumer optimism and attitudes toward home buying are reported to be very good, and sales so far this year have been at a brisk pace. Multifamily construction activity, on the other hand, remains weak. The profit expectations in such construction are very low, and improvement is not expected without a relative increase in rents. One housing representative noted that, assuming interest rates in the 9 percent range, a 15 percent increase in rents is necessary before substantial increase in such construction can be expected. Adjustments in rents are apparently occurring, as several reports of rent increases were received. Government programs aimed at improving multifamily unit construction are not expected to have much impact until late this year and, then, to have only a marginal overall impact.
Commercial and industrial construction remains generally depressed in the District. A construction firm representative noted a dearth of projects for the current year and does not expect any substantial improvement until at least the second half of this year. Reports indicated, however, that several economic factors are now favorable for construction, including lower interest rates, relatively attractive cost of materials, and low profit margins of contractors.
Employment conditions continue to show improvement, as several firms reported recent additions to their work force. Recent statistics show substantial increases in employment on a seasonally adjusted basis throughout the District and declines in the percentage of the labor force unemployed.
Bank loan demand remains weak, although a few reports did note some strengthening recently. Bankers are generally expecting some pickup in demand in the near future and are anticipating some increases in interest rates over the coming months. Loan demand at savings and loan associations has increased, reflecting the housing industry pickup, but such demand increases are not strong enough to absorb the large increases in savings inflows over the past several months. As a result, mortgage rates have declined in recent weeks.
Farmers are reported to be apprehensive about profit prospects for 1976. The margin for profit is reported to be low with existing price relationships. Also, uncertainty about price movements of individual crops may delay planting decisions until the last possible moment. At present, prospects are excellent for a good winter wheat crop in the District.