July 12, 1978
The Eighth District economy continues to advance, but at a more moderate rate than in April and May, according to a number of businessmen reporting on conditions in the area. Department store sales continue up slightly. Manufacturing activity showed strength in recent weeks in a number of important industries, but representatives of several firms expect some slowing in the second half of the year. Inventories remain at moderate levels. Credit demand has been strong in recent weeks and interest rates have continued to advance. Savings flows have remained at the slower pace of recent months; however, some S and L officials expressed the view that the new higher-yielding CDs will help them retain funds which otherwise would move to higher-yielding investment alternatives.
Retail spending at department stores made only modest gains in June. One retailer noted that sales were about as planned in recent weeks, but that targets have been lowered from those of a few months ago. Wearing apparel items were reported to be selling better than earlier in the year. Sales of some big-ticket items, such as freezers, ranges, and tires, were reported to be sluggish, whereas air conditioners and consumer power tools were registering gains. Automobile sales have remained strong and dealers are now clearing inventories for the new models. Dealers are generally optimistic about sales prospects for the new model year.
Manufacturing activity in major industries, such as transportation equipment, appliances, and chemicals, remains strong in the District. Appliance manufacturers noted that orders have continued up in recent months, rising to 10 percent above a year ago. However, representatives of appliance manufacturing firms are quite cautious about sales prospects for later this year. Chemical industry representatives noted continued overall gains in June, although rubber sales have slowed. Some deceleration in the growth of chemical sales is expected in the summer months. A paint and coating firm has experienced strong sales gains since May, after sluggish sales during the early spring.
Homebuilding remains at a high level, and housing permits are at about the same level as last year. Yet, builders indicate some slowdown in new home sales which is attributed to the higher interest rates and more restrictive lending policies of the mortgage lenders. Realtors report that the demand for older homes continues strong, citing lack of listings as their main problem.
Credit demand continues to expand as indicated by sharply increasing loan volumes and higher interest rates. Banks and S and Ls report continued rapid increases in business loans, consumer installment loans, and real estate loans. Interest rates have continued to advance, with the prime bank lending rate moving to 9 percent and the most common home mortgage rate (80 percent loan) rising to 9-3/4 percent. With the higher rates, state usury laws are becoming an important factor in the credit markets in Missouri and Arkansas. A 10 percent usury law has caused lenders in these states to restrict lending to the less risky customers. Arkansas bankers report more restrictive lending policies on loans to small businessmen and real estate developers.
Inflows of funds into financial intermediaries continue at the slower pace of recent months. Large commercial banks have experienced losses in small passbook deposits, but increases in other time deposits have been fairly rapid. The new six-month certificates have been gaining acceptance by consumers and some savings and loan officials expressed optimism that this source of funds will help avoid serious disintermediation. Currently more than 50 percent of the new CD purchases are made by withdrawals from existing accounts.
Crop plantings, while somewhat later than usual, are nearly complete in the District except for a portion of the soybean acreage which will be planted after the wheat harvest. Soil moisture conditions are generally reported to be adequate.