March 15, 1978
Business managers in the Eighth District remain optimistic about further economic gains, despite some setbacks this winter as a result of unfavorable weather and the coal strike. Retail sales, in recent weeks reported to be at about year-ago levels, are expected to resume growth as normal weather returns. Inventories are considered to be satisfactory. Some losses in manufacturing production have occurred because of the weather and the coal strike, but orders in most industries indicate that demand remains relatively high. Construction activity in the District has also been hampered by the weather, but demand for new homes continues to be strong. In the financial sector, business loans at larger banks increased substantially in recent weeks, and moderate increases have occurred in most other loan categories.
Retail sales in recent weeks have been affected adversely by unusually cold and snowy weather. St. Louis department store representatives indicated that sales have about equaled year-ago levels. Some sales gains, however, were registered in areas, such as Little Rock, where weather conditions were not as severe as in St. Louis and Louisville, for example. Automobile dealers report sales were good on days with normal weather and that overall sales have been running near year-ago levels. Retailers were generally optimistic that the current slump in sales is temporary and that sales gains will occur when the weather improves and the coal strike is settled. Current inventories at the retail level are considered to be satisfactory given the expected increases in sales this spring. Retailers noted, however, that this assessment would change rapidly if the expected sales gains are not forthcoming.
Major utility companies in the District report that coal stockpiles have tended to stabilize in the past few days. This reflects some voluntary cutbacks in electrical power usage, greater incoming coal shipments, and the burning of larger quantities of higher-priced oil and natural gas. Only voluntary reductions in electrical power usage have occurred so far. With the tendency of coal stocks to stabilize and the prospects for additional coal supplies as a result of the Taft-Hartley injunction, the "crisis" situation appears to have eased somewhat. None of the utilities contacted indicate mandatory curtailments are in prospect in the near future.
The effects of the coal strike on employment and production have been relatively minor in the District. A zinc processing plant in the St. Louis area, which had a special contract with the utility company, chose to shut down its operations rather than pay a higher rate for energy. Also, a local chemical firm closed a phosphate and a textile plant as a result of the coal strike. Earlier this month, a major automobile assembly plant was expected to shut down due to a lack of parts as a result of the strike. However, conditions have apparently improved in areas where the automobile parts are manufactured and the shutdown is not foreseen at present.
Despite the threat of power cutbacks and bad weather, manufacturing activity appears to have made modest gains in recent weeks. A representative from a major chemical firm noted strong sales for agricultural and industrial chemicals, textiles, and plastics. An appliance firm representative reported some production losses due to adverse weather, but that orders were strong, partially reflecting the strength in homebuilding. Other products showing strong sales include paper and boxboard, heating equipment, pharmaceuticals, clothing, and recreational equipment.
The demand for new homes continues at a high level. Bad weather, however, has hampered construction work, and some lengthening in order backlogs for new homes has resulted. The backlog of new home orders is now estimated to be 60 to 90 days in the St. Louis area. Most home construction continues to be of the single-family type. In Memphis, the vacancy rates on apartments, which was very high in 1975 and 1976, are now reported to be falling rapidly, but rents have not adjusted upward sufficiently to encourage apartment construction.
The dollar volume of commercial and industrial loans at larger District banks has increased sharply in recent weeks. The volume of real estate, consumer, and agricultural loans has been growing rapidly for more than a year. Mortgage loan demand is reported to be excellent at savings and loan associations, reflecting the large amount of construction. Time and savings deposits registered sizable gains at commercial banks and savings and loan associations, but S and L's report gains are somewhat below those registered in 1977. Interest rates on most types of loans have remained generally unchanged from a month ago. Recently, a constitutional amendment was passed by the Tennessee voters which removed the 10 percent interest rate maximum from the state's constitution and placed the power to set usury ceilings with the legislature. This limit has been an important factor in reducing the availability of credit in the state and in the relatively low earnings of some Tennessee banks during years of relatively high market interest rates.