July 13, 1977
The Eighth District economy continues to expand., but at less than the rate of gain achieved earlier this year. Consumer spending continues to rise in most areas of the District. Manufacturing activity, after large gains from February through May, appears to have leveled off somewhat. Home construction remains at a high level, but home sales have declined in recent weeks. Agricultural conditions are generally good. Inventories generally remain at a low level. Business loan demand remains relatively low at large banks, but loan demand at smaller banks is strong.
Consumer spending in June, as measured by retail sales, was about 10 per cent above the dollar level of a year ago, or about 4 per cent above a year ago in real terms. One retailer noted that the strongest selling items were weather-related goods, such as air conditioners, fans, and watering equipment. Automobile sales are still strong, but have apparently remained level in the past 2 or 3 months.
The rate of increase in manufacturing activity apparently slowed in June and early July after sizable gains earlier this year. A representative of a major chemical firm notes a relatively high level of incoming orders, but finds little change from a month ago. Some weakness was reported in a few items such as plastics. A boxboard manufacturer reported strong sales gains in March through May, but a leveling off in June. Firms producing consumer products, including apparel, shoes, and appliances, also noted little change in orders in the past 2 months. Steel shipments were reported to be strong in the second quarter, but are expected to decline more than seasonally in the third quarter and pick up in the fourth quarter. Defense-related manufacturing is generally at a high level and continuing to gain strength as real defense spending increases. A representative of a paint and coatings firm reports good sales and profit gains in recent months. On the other hand, a manufacturer of telecommunications equipment has experienced weak demand.
Home construction remains one of the strongest sectors in the District. The value of newly constructed single-family dwellings in the St. Louis area is more than double that of a year ago. During the spring, sales outpaced construction; however, builders report that sales have declined in recent weeks. Single-family homes have been the strongest part of the housing market, but apartment construction has made gains. Much of the recent gain in the apartments, however, involves projects with Government financing. A construction representative noted that further increases in rents—will be necessary before a substantial boost in privately financed apartments can be expected. Rent increases in the St. Louis area over the past 5 years have been small relative to increases in other major cities. Currently, apartment dwellings in St. Louis are virtually at full occupancy.
A "shortage" of skilled workmen in the home building industry continues in the St. Louis region. Workers are now coming from out of town and the number of apprentices is increasing. Builders also report delays in procurement of certain building materials. For example, the delivery time for bath tubs and a number of other plumbing items has increased from 7 to as much as 30 days.
Recent rains have greatly improved crop production prospects over most of the District, although a few areas continue to report drought conditions. Cotton is reported to be in the blooming stage and is generally in excellent condition. About 20 per cent of the cotton crop is reported to be sold forward. Soybean plantings were delayed in several areas and this crop is somewhat behind schedule. The corn and tobacco crops are reported to be in excellent condition in most areas of the District. The recent rains have caused a slowing in cattle sales in the District as the pasture and hay crops have improved.
Both manufacturers and retailers report that inventories are being maintained at very low levels. Retailers have been especially cautious about the buildup of inventories during the current expansion. A representative of a major steel company reported that both steel manufacturers and steel fabricators were carrying a month less than the normal supply of inventories.
Representatives of the larger banks in the District continue to report sluggish demand for business loans. However, some expect such demand to gradually rise over the second half of the year as business inventories are increased. Loan demand at smaller banks is generally strong, reflecting rising demand for consumer, real estate, agricultural, and small business loans. Bankers are generally expecting a modest rise in interest rates of 50 to 75 basis points for short-term paper and 25 to 50 basis points for long-term by the end of the year.
Savings and loan associations report rising demand for mortgages, reflecting the high demand for new and older homes. On the supply side, however, these institutions have had sizable increases in net savings in recent weeks, particularly since mid-June. One savings and loan association, offering maximum interest rates, reported that some funds are now being received through brokers on the East coast where rates are below maximum levels. Mortgage interest rates have generally remained unchanged over the past month.