November 15, 1978
Economic activity in the Eighth District has continued up in recent weeks, although the rate of gain appears to be moderating in most sectors of the economy. A number of positive features were reported including gains in consumer spending, industrial sales, and production in a number of important industries including agriculture. No excessive inventories were reported; however, some moderation in gains was reported in the housing and housing-related industries. Home sales reportedly dropped off somewhat more than seasonally this fall, and appliance sales have also flattened out. In addition, credit for homes may become scarcer as usury laws limit the interest rates that may be charged in some states.
Retailers report that consumers are still in a "buying mood" and that the overall sales trend continues up. Department store representatives are optimistic about Christmas sales and express satisfaction with current inventory levels. Automobile sales are also reported to be at a high level, and further gains are expected for the remainder of this year.
Overall, industrial activity continues to register gains, but slowing was reported in some industries. A slowing in sales was most notable among firms related to the homebuilding industry. Two major appliance manufacturers reported that sales so far this quarter were not as strong as earlier in the year, and one reported production plans for a downturn in sales in the near future. Reasons given were a slowdown in the housing industry and changing consumer attitudes toward credit purchases. A representative of a major chemical firm noted that sales gains have continued, but the rate of increase has slowed somewhat from the rapid advances of the past few months. A paper industry representative described business as being at a "frantic" pace, but some slowing is expected early next year. A representative of a car assembly plant in the area reported operations are at a very high level, although part of this production is to fill inventory demand created by the new models. An automobile replacement parts manufacturer has experienced excellent sales this year and expects 1979 to be a very good year. Representatives of the steel industry are also optimistic about sales for 1979.
Construction activity, on the whole, remains strong in the District. A representative from Arkansas noted that construction in that state was booming and some material and skilled labor shortages have developed. While current home construction activity is still fairly strong, based on past backlogs, recent home sales are reported to have dropped off somewhat more than is normal for this time of year. Current home mortgage rates in the St. Louis area are in the 9-3/4 to 9-7/8 percent range on 80 percent loans, and at the 10 percent Missouri usury ceiling on 90 percent loans. Loans with small equities have in general become unavailable in states where rates are bumping up against the state usury ceilings.
Loan demand continues to advance at a very rapid rate in recent weeks. Large commercial banks report sizable increases in industrial, consumer, and real estate loans and have raised their prime lending rate in step with the trend in the national loan market. Deposits at commercial banks have also increased rapidly in recent weeks as bidding has been aggressive for both large and small CDs. Inflows at savings and loan associations continue to advance at a moderate pace. The new six-month certificates are reported to be drawing considerable customer interest as rates paid have risen. Savings and loan officials, however, are concerned over the rising cost of these funds, particularly in areas where usury laws restrict the rate that can be charged on mortgage loans.
Unusually good weather conditions have accelerated this year's harvesting of crops in the District. Production of corn, soybeans, and tobacco exceeds last year's level, but cotton production is down substantially, reflecting decreased plantings and lower yields. Greater production and higher average prices than last year are expected to result in substantially higher farm incomes than a year ago.