October 11, 1978
Economic activity in the Eighth District continues to grow according to reports from area businessmen. Consumer spending is expanding moderately. Inventories are generally at or near desired levels. Loan demand continues up and savings inflows into financial firms remain at a relatively high level. Manufacturing activity is expanding, and occasionally shortages are reported. Inflation continues a major concern. Crop production prospects are generally good.
Consumer spending has expanded moderately in recent weeks following a lull in the late summer. One major chain store reported that sales in recent weeks were running about nine percent above year ago levels, while another reported little change in overall sales during the past four months, and only a two or three percent growth is expected for 1978. Sales by a major retailer of shoes were 10 to 12 percent above those recorded a year ago. Automobile orders are reported to be coming in well and another year of high automobile sales is expected.
Most respondents indicated that inventories were at or near desired levels. A representative of a major department store chain reported that a number of large department stores had started a move to place more control on inventories which may eventually involve some inventory reduction. A distributor of fabricated steel products reported that inventories were relatively high, but at a desired level. Inventory shortages were reported in a few lines of goods including cement, lubricating equipment, and pumps, and paper is expected to be in short supply by the end of the year.
With few exceptions, manufacturers note continued expansion. A manufacturer of lubricating equipment, pumps, and other industrial equipment reported that orders were 10 percent ahead of a year ago and that inventories were low. A leading chemical producer reported that textile orders continued to be abnormally high, and that plastics are off seasonally but not as much as expected. Export orders for agricultural chemicals are very strong. A boxboard manufacturer reported a recent pickup in business following an August lull. Other areas of strength reported were juvenile furniture, sporting goods, fabricated steel products, and products used for mining coal and uranium. On the other hand, construction, especially of residential housing, may be declining somewhat, and some weakness was reported in industrial chemicals, automatic controls, and resins.
Businessmen in the area continue to speak of inflation as a major concern. Sharply rising prices were reported for a number of industrial raw materials and paper products.
Demand for credit is strong throughout most of the District and especially strong in the smaller communities. An Arkansas banker reported that almost all loans there are being made at the legal maximum rate of 10 percent and that consumer lending is being discouraged. Extension of mortgage credit in Kentucky continues unabated even at a 9.5 percent rate and a 25 percent down payment. Loan demand has increased somewhat in recent weeks in the larger centers, including St. Louis; however, demand here is still somewhat less than in the outlying areas. Counter to the general trend of credit demand, applications for home loans are apparently down in the St. Louis metropolitan area from a year ago. Home mortgage rates at 9.5 to 10 percent are unchanged from a month ago.
With the exception of a few areas which suffered from drought, above average crops will be harvested in the District. The corn, soybean, and rice crops are generally good and harvesting weather favorable. Lack of rainfall resulted in below average crop yields in southwest Arkansas, western Kentucky, and parts of southern Illinois. Nevertheless, the unexpected size of most crops was sufficient to depress average crop prices from month ago levels.