March 9, 1977
Businessmen in the Eighth District continue to be optimistic about
prospects for further economic gains in 1977.
Weather-induced
problems in January are expected to affect first quarter profits of
several firms, yet the view that the economy will continue to make
gains in 1977 has not been fundamentally altered. Retail sales in
February registered moderate gains over February of last year.
Manufacturing activity in such industries as chemicals, aircraft,
and construction-related equipment continues upward. Funds are
flowing into thrift institutions at a strong pace, auguring well for
future homebuilding, and major banks report rising business loan
demand.
February retail sales were moderately above those of a year ago according to major St. Louis retail representatives. Retailers were encouraged by this gain in view of the weather problems earlier this year and the strong sales of February 1976 which were boosted by unseasonally warm weather. One representative reported that sales of such items as shoes, fabrics, and recreation products, have performed well in recent months despite the adverse weather conditions. Strong sales virtually exhausted stocks of many items, such as heavy outer clothing, boots, and overshoes, although reordering at this stage of the season is not contemplated.
While weather conditions and gas curtailments hampered activity of some firms in January, normal weather in recent weeks has alleviated most of these problems. Several firms report, however, that plant closings, higher energy costs, shipping delays, high absenteeism, and other problems will reduce first quarter earnings from what they would have been otherwise. While the lost earnings may not be recovered fully, firms report that a substantial amount of lost production may he made up.
Several manufacturers report rising sales and orders in their lines of business. A major chemical manufacturer reports that considerable optimism is building up in this industry. Sales of fibers, most industrial chemicals, petrochemicals, and herbicides are described as good. Unused capacity for polystyrene production continues, although sales are beginning to improve. A major aircraft manufacturer has experienced some strength in commercial aircraft orders. On the other hand, concern has increased over the possibility of cutbacks in military aircraft which would severely affect this industry. A small apparel manufacturer noted that orders last fall were below expectations, but that orders now being taken are up somewhat from last spring. A small manufacturer of welding equipment reported that incoming orders have been excellent since last fall. A paper manufacturer noted that sales were good in the first two months of the year, although some softening has been detected in the past couple of weeks. This manufacturer also reported that prices of certain paper products have dropped since the beginning of the year after a sharp run-up late last year.
Savings and loan associations had strong net inflows in February. Those institutions continuing to offer ceiling rates on CDs are attracting the largest volume of funds. Mortgage loan demand is said to be moderate with interest rates unchanged in recent weeks. Commercial banks in the District report a rising volume of time and savings deposits. Representatives of commercial banks in St. Louis report business loan demand has been excellent so far this year. Bankers in some other areas of the District, such as Kentucky and Indiana, however, report that loan demand is flat in their areas.
Chronic dry weather conditions and low subsoil moisture was suggested by some respondents as a potential threat to this year's crops. Such fears, however, are probably premature since the planting season has not yet begun. Furthermore, recent precipitation has been more substantial than in late 1976. According to planting intention reports, Eighth District farmers are now planning to increase soybean and sorghum acreage in 1977 over 1976, while decreasing cotton and rice acreage. Corn acreage is expected to remain unchanged.