June 15, 1977
Business activity continues to improve in the Eighth District according to area businessmen. Consumer spending has been mixed in the past two months with sales of consumer durables, particularly automobiles, quite strong and department store sales relatively weak. Manufacturing activity continues to register gains in sales and orders over a wide range of industries. The home building industry is especially strong in the District with gains in both single- and multi-family units. Loan demand at financial institutions has been sparked by demand for homes, land, and consumer durables, while commercial and industrial loans remain sluggish at larger banks. Sharply rising farm land prices have outpaced the growth of farm income in the past two years. Several real estate observers are questioning whether land sold at current prices can be farmed profitably. Continuing dry weather conditions are making crop prospects for the current year more uncertain than usual.
Sales of consumer durables, such as appliances and cars, generally continue upward in the District. In some areas, small cars are reported to be outselling larger models. On the other hand, department store sales have been rather sluggish. Major department stores in the St. Louis area experienced only small gains in May over a year ago, not enough to offset price increases, hence real sales have declined. Reports from Mississippi, Tennessee, Arkansas, and Kentucky tend to reinforce this general pattern.
Manufacturing industries are moving closer to capacity as orders continue to rise. Representatives of the chemical industry report continuing strong sales over a large number of product lines. Heating and air conditioning equipment sales for the home building industry continue to flourish. Firms in this industry expect internal capacity problems in sheet metal fabricating to develop within the next two years. Welding and cutting equipment firms also report strong demand for their products and one such firm recently started scheduling overtime. Demand for commercial aircraft from domestic sources is increasing, but weakness in foreign sales is expected to offset these gains this year. Current orders, however, indicate that commercial aircraft manufacturing will increase substantially next year, perhaps as much as 35 percent. A major appliance plant in the District reports strong orders so far this year and plans to add 1,200 workers to their work force within two months. Strong sales gains were also reported by tools and automobile parts manufacturers. On the negative side, a local steel processing firm, has announced that several small plants will be closed throughout the country. This move is said to be linked to the sluggish pickup in overall plant and equipment spending.
Home building remains one of the strongest sectors of the District economy. Current sales for single-family dwellings now exceeds the ability of builders to deliver in the near term, thus backlogs are lengthening. One of the chief bottlenecks in expanding housing production is said to be the availability of skilled carpenters. As a result, overtime is a fairly common practice in the industry. Overtime was made more attractive in the St. Louis region as a result of the reduction from double-time to time-and-a-half overtime pay in the recently negotiated wage contract.
Multi-family housing construction is also making significant gains in some parts of the District. Surveys conducted in the St. Louis area indicate apartment occupancy is now in the very high 95 to 99 percent range. New projects in the St. Louis area so far this year already exceed the entire production of last year. About one-half of these units involve government programs. In contrast, multi-family construction in the Memphis area is still quite low, although reports indicate that the occupancy rate is increasing steadily. Some signs of a revival of construction in the commercial area is also being detected. One St. Louis area observer noted that while few major projects are underway, numerous small projects are having a significant impact. A contractor in the southern portion of the District reports a number of new industrial projects as well as a number of new shopping centers are in the planning stage.
Growth of savings deposits at thrift institutions has slowed from the high rates of a year ago but is still reported to be fairly strong. Savings deposits at commercial banks have slowed noticeably in the past several weeks. Liquidity, however, remains relatively high and loans are still readily available. Loan demand is strongest for homes, land, and consumer durables. On the other hand, business loan demand at large commercial banks has continued sluggish in recent weeks. Mortgage interest rates have remained generally unchanged in the past month in the St. Louis area, while bank lending rates have gone up with national rate increases.
Dry soil conditions are again plaguing some areas of the District. After substantial rainfall in the early spring, there has been little precipitation for several weeks in some areas. Most of the spring planting has been completed, but plantings in some parts of the District have been postponed due to lack of sufficient moisture to germinate seed. The recent dry weather, combined with last year's subnormal rainfall in the eastern portion of the District, makes this year's crop prospects very much subject to timely rainfall during the growing season.
Land prices have risen rapidly in the past two years in the District, despite little or no net income gains in farming. Reports from the Delta portions of Arkansas and Mississippi indicate land prices have increased about 30 percent in the past year alone. Bankers say these large increases are difficult to justify on the basis of current returns in agriculture. Reports indicate that the purchasers are largely existing farmers plus some foreign buyers.