September 13, 1978
The pace of economic expansion has continued at a moderate rate in recent weeks according to Eighth District businessmen. Retail sales continue up and inventories remain at satisfactory levels. Increases in orders are reported by some manufacturing industries and, overall, the construction industry continues to register some gain over a year ago. In the financial area, saving inflows continue above the expectations of many financial officials, and interest rates on mortgages have declined slightly in some markets. In the agricultural sector crop yield prospects are near normal despite adverse weather conditions in some areas.
Retail sales continue to post modest gains after inflation is taken into account. Department store sales varied among respondents, but, on average, sales remain on an upward trend. Some store managers, whose sales have been stagnant recently, noted less aggressive sales promotions as one reason for their lackluster performance. Managers of those stores having gains, noted that the largest sales gains were among fashionable dresswear for men and women, jewelry, and higher quality stereo equipment. Inventories are near desired levels given the sales outlook. Retailers generally believe the sales outlook is encouraging although some sentiment was expressed that "high" levels of consumer credit might dampen consumers' ability to maintain spending. Automobile sales are reported to be quite good in the District. The primary complaint of automobile dealers was the inability to obtain enough larger-sized cars to meet customers demands.
The pace of manufacturing activity continues unabated. A major chemical firm representative reported that larger than expected sales gains were registered in the past month. A box board company also reported that increases in sales occurred in recent weeks and that supply constraints are causing substantial increases in prices. Manufacturers of building products report a continued high level of demand, although gains, in general, have not been as rapid this year as last year. A building products manufacturer expects residential housing construction to remain near current levels through next year. Exceptionally strong increases in sales were reported in oil and gas industry products, with growing backlogs as a result of the worldwide surge in drilling. One representative reported that production is being hampered by long delivery schedules for forgings and certain semi-processed metal products.
Overall the construction industry has continued to advance in the District. Nonresidential construction has made gains over last year while housing construction has remained at a high plateau. In the St. Louis metropolitan region housing starts are holding at approximately the same level as a year ago. However, more of the new homes are being built in outlying areas.
Banks and thrift institutions report greater than expected inflows of savings deposits. These institutions report that the new higher-yielding certificates are partially responsible for the continued high level of inflows. Some, however, expressed concern about the effects of the higher yields on profit margins. However, none of the officials contacted contemplated a change in policy relative to the new certificates. Overall loan demand remains generally strong although demand for some types of loans has apparently lessened in recent weeks. For example, business loan volume at large commercial banks was unchanged in August after registering large gains in earlier months. Nevertheless, the prime lending rate for District banks rose along with the rate in the larger money markets. The growth in demand for agricultural loans has subsided in recent months, due, in part, to improved income in the agricultural sector. Continuing to register large increases in loan volume during August were real estate and consumer loans. Quoted rates on home mortgages have remained steady at 9-3/4 percent for an 80 percent loan and 10 percent on a 90 percent loan; however, lenders in some parts of the District reported that the actual lending rate had declined slightly.
Farm income prospects continue to be more favorable than a year ago, largely based on higher crop and livestock prices. Recent prices for cotton and soybeans provide farmers an opportunity for a profit and forward contracting is reported to have increased. In some areas, for example, farmers have already sold as much as one-third of their soybean crop. Abnormally hot and, in some areas, very dry conditions in August damaged crop prospects in some southern portions of the District. Reports indicate, however, that, on the whole, crop yields will be near normal. Reports indicate that dry pastures in West Tennessee have led to liquidation of some cattle.