November 10, 1976
Eighth District businessmen remain generally optimistic about prospects for economic activity in the coming year even though manufacturing activity has continued to slow in recent weeks. There is some pickup in machine tool sales, but no plans were reported for additional fixed capital investment. Retailers continue to report sizable gains in sales over last year; however, few reports indicate any marked increase in manufacturing activity and several indicate weakness in factory sales and orders. Employment has declined somewhat. Home building, one of the stronger areas of economic activity, has also slowed in parts of the District. Banks and savings and loan associations continue to search for loan opportunities. Loans have increased somewhat in most categories, but liquidity of financial institutions remains relatively high.
Prospects for gains in retail sales are good according to area retailers. One large St. Louis retailer reports October sales are up about 8 percent from a year ago. In some other cities in the District department store sales have registered gains of 15 percent above a year ago. An appliance retailer noted that sales have been sluggish in recent months among major home appliances, though audio equipment sales are doing well. Also appliance sales are expected to improve during the Thanksgiving-Christmas period and most retailers are optimistic as to prospects for the coming year. The volume of automobile and truck sales is quite large at the beginning of the new model year.
Manufacturing activity continues to show weakness according to several reports. The chemical industry has experienced no change or slight declines in orders among a wide variety of products including industrial chemicals, plastics, and fibers, but sales of agricultural chemicals remain at a relatively high level. New capacity in the chemical industry is now coming on stream and is expected to limit price increases next year to a relatively modest increase. A major appliance producer in the District is planning to shut down from Thanksgiving to early January as a result of slackening demand. This manufacturer does not expect a pickup in demand for appliances until the first quarter of 1977. One representative of the paints and coatings industry reports less orders in recent weeks than expected, but another representative of this industry reports unit sales 15 percent above last year. A manufacturer of lift trucks reported that inventories have now stabilized, though excess productive capacity remains high. Firms supplying the home building industry are somewhat more optimistic in recent weeks than heretofore. A manufacturer of trusses and connector plates reported that sales have held up quite well in recent months and are expected to rise further as a result of recent increases in housing starts. Also on the optimistic side, a manufacturer of diesel engines reports additional hirings as incoming orders are exceeding current ability to produce.
Recent employment data tends to emphasize the economic slowdown in the District over the past three to six months. Employment has generally declined and unemployment rates have risen.
Homebuilding continues as one of the stronger segments in the St. Louis area. Homebuilding analysts in St. Louis reported that construction of single-family homes has been particularly strong for this time of year. Memphis, however, has experienced a leveling off or some decline in single-family home building in the past few months. Also reports from other parts of Tennessee and from Mississippi indicate that residential construction has slowed in recent months.
Growth of deposits at savings and loan associations has moderated in recent months and mortgage loan demand has improved. Nevertheless, these institutions continue to maintain fairly high levels of liquid investments which can be converted into mortgage loans. One association which decided to expand its lending for consumer durables reports strong competition from commercial banks which are also searching for loan opportunities. Loans at commercial banks in the District have increased in most categories in recent weeks. The prime bank loan rate, however, has declined in line with the decline nationally.
In the agricultural sector, weather has generally been favorable and harvesting operations are nearing completion. Crop yields have been mixed varying from good to poor. For example, in the Louisville area crop yields are reported to be quite good while in drought areas, such as Eastern Missouri, they are fair to poor. Although beef cattle prices have shown some slight increase recently, cow/calf producers are still reported to be in a loss position and poultry producers in recent weeks have experienced a sharp drop in their profit margins.