August 9, 1978
Reports from Eighth District businessmen indicate a continued moderate rate of economic expansion in recent weeks. The manufacturing sector continued to post gains in sales and employment in several important industries. Home construction remains at a relatively high level, partially aided by a large backlog of orders. Retail sales were up moderately. Some savings and loan officials have become more optimistic about the outlook for growth of savings deposits as recent gains have exceeded expectations. Credit demands have continued generally strong, but interest rates have changed little over the past month. Field crops are progressing satisfactorily over much of the District, reflecting generally adequate soil moisture.
Retail sales at department stores continued to register moderate gains in July, and retailers remain optimistic about sales prospects over the coming months. Some retailers in the St. Louis area noted little advancement in sales of large appliances. However, over most of the District, retail sales were reported to have increased at about the same pace as in the first half of the year. No serious inventory problems were reported.
Several manufacturing industries, including paints and coatings, chemicals, transportation equipment, building products, and agricultural equipment, have registered recent gains in orders. A representative of a paint and coatings firm reported that sales volume was very good and expressed cautious optimism about future sales. A major chemical firm had increased sales for July in several product lines, including agricultural and industrial chemicals, textiles, and plastics. A sizable fall off in sales, however, occurred in some intermediate chemicals. A manufacturer of railroad cars reported substantial improvement in sales over the past three months and order backlogs of double the level of a year ago. However, it was pointed out that the pickup in demand for railroad cars partially reflected rising inefficiency in railroad car usage. A major aircraft manufacturer also experienced increased sales and a lengthening in backlogs of orders, due mostly, in this case, to rising sales of military aircraft. Another manufacturer of diversified products reported a 15 percent increase in order backlogs.
Home sales remain at a generally high level in the District. However, industry representatives continue to expect some slowing later this year. New home sales in the St. Louis metropolitan area are reported to be down slightly from a year ago, declining moderately in the higher-cost areas nearest the center of the city, and accelerating in the lower-cost outlying areas. New single-unit home construction continues at a faster rate than the sale of new homes as builders are operating on the large backlog of orders accumulated over the past year. Construction of multi-family residences, while still at a fairly low level, is beginning to increase. In some areas vacancy rates are quite low and apartment complexes have waiting lists.
Savings and loan officials noted that while net inflows of savings have increased at a slower pace than last year, the rate of increase has unexpectedly accelerated in the past two months. The recent increase was partly attributed to the new six-month and eight-year certificates. Officials reported that somewhat less than 50 percent of the funds entering the new certificates are from existing accounts.
Loan demand remains generally strong. Banks continue to experience a surge in demand for business loans; however, mortgage loan demand, although strong, is somewhat less vigorous than last year. Mortgage lending rates have remained essentially unchanged in recent weeks at a 9-3/4 percent rate for loans with a 20 percent downpayment. One bank official expressed some concern about the future availability of funds should a credit crunch develop. He noted that country banks, which often supply funds to larger banks during such periods, are currently loaned up, reflecting unusually strong demand for agricultural loans.
Prospective yields for field crops are good, reflecting adequate soil moisture. Very hot weather in the southern portion of the District is said to be favorable for the cotton crop, although it may hamper soybean yields. Livestock prices are generally favorable for expansion of livestock feeding. Poultry production has been expanding rapidly in the District and hog production is also expected to make gains later in the year.