May 10, 1978
Business activity in the Eighth District has continued to register gains in recent weeks. While consumer spending on many summer-related items has been retarded by unfavorable weather, automobile sales have shown considerable strength. Inventories of some items are reported to be higher than desired, but this situation is not viewed with alarm, and retailers generally remain optimistic about future sales gains. Manufacturing activity continues to advance in several key industries, including suppliers of homebuilding products, transportation equipment, and chemicals. Demand for single-family homes continues to be strong, but concerns were expressed by homebuilders about their prospects next year. Some savings and loan associations, as well as commercial banks, registered either declines or no change in time and savings deposits in April. With strong demand for mortgage credit, mortgage interest rates have continued to increase. In the farming sector, crop planting is behind schedule, although the situation is not critical at this time.
The movements in retail sales were mixed in April as department store sales were reported to be somewhat sluggish, but automobile sales registered further gains. The sluggish performance of department store sales was largely blamed by retailers on the colder-than-normal spring weather which hampered sales of such items as summer clothing and air-conditioning equipment. Inventories were reported to be somewhat excessive for these items, but the sales slump is not expected to be permanent and the inventory buildup is not considered to be a serious problem at this time. Retail passenger car and truck sales in April registered gains relative to a year ago and dealer inventories are at desired levels for most models.
Manufacturing activity continues to expand. Firms supplying the homebuilding industry are among those experiencing continued strong demand. A representative of a major appliance manufacturing firm reported sizable increases in orders, particularly from the contract business, but felt that the current growth rate was not sustainable over the longer term. Firms manufacturing such building products as connector plates, electrical fixtures, tools, other hardware, paints, and coatings reported strong demand. In general, however, the gains in 1978 are expected to be less than in 1977. The transportation equipment industry is another sector showing strong performance in the District. A representative of the automobile industry reported automobile orders are running above a year ago and assembly lines are operating at a high level. Aircraft, railroad car, and barge manufacturing firms are also experiencing high levels of demand for their products. The chemical industry, a major industry in the District, has also made some gains recently. A representative of a major chemical firm reported strong demand for agricultural and industrial chemicals and some pickup in demand for fibers after a poor first quarter.
The District housing industry continues to "boom" with the gains concentrated in the single-family market. The large order backlog of new homes in the St. Louis area has not yet dissipated, reflecting continued strong home sales. As construction activity has gained some momentum this spring, shortages of skilled workers and bricklayers are beginning to show up. However, such shortages are not viewed by homebuilders as an insurmountable problem and apprentice programs are bulging. Homebuilders are beginning to express some fear about a sharp decline in home demand in the future. Their special concerns are the possibility of disintermediation, rising mortgage rates, and the continuation of sharply rising costs of building supplies. Builders report that the cost of building materials rose about 15 percent last year.
Representatives of some savings and loan associations reported a net outflow of deposits in April. This was said to reflect improved yields on short- and medium-term securities as well as renewed interest in the stock market. Representatives of the savings and loan industry report increased advertising budgets and more offerings of premiums in an attempt to maintain or advance their market share of savings. With strong demand for mortgages, considerable upward pressure has been placed on mortgage interest rates. Rates have advanced about 1/4 of one percentage point in the St. Louis and Memphis areas since last month. Considerable concern was also expressed by savings and loan representatives about the recent action of the Federal Reserve which allows automatic transfers between savings and demand accounts at commercial banks. These officials fear that interest-sensitive funds would be withdrawn from their institutions and thus reduce the supply of credit to the housing industry.
Similar to the savings and loan associations, small consumer time and savings deposits at large commercial banks registered little or no increase in April from a month earlier, although sizable increases in the volume of large CDs occurred. Loan demand at commercial banks showed considerable strength in April in both commercial and industrial loans and consumer installment loans.