March 14, 1979
According to a number of Eighth District businessmen, overall economic activity in the District continued to expand at a moderate pace in recent weeks, although some sectors are expected to weaken as the year progresses. Retailers report that sales have held up well, and inventories are not a problem. Several manufacturing sectors continue to register sales gains, particularly capital goods and chemicals, but sales have leveled off in the appliance industry. Home building has recuperated somewhat in recent weeks from the very low January level, but is expected to remain below last year's level throughout the year. Total deposits at large banks have leveled off in recent weeks but loan volume has continued to advance.
Department store representatives report that sales in recent weeks have been above a year ago, and that inventories are at satisfactory levels. Overall, retailers continue to be optimistic about prospective sales over the next few months. Despite relatively strong sales since mid-February, automobile dealers report a desire to reduce inventories. High overhead expenses, caused by high interest charges on borrowed funds, is a major factor in the inventory reduction move.
Sales, production, and employment continue to advance in the manufacturing sector. A representative of a major capital goods manufacturer reported that orders have continued to climb in recent weeks, and that sizable gains on a year-to-year basis are expected in 1979. Chemical sales are quite brisk, partly as a result of climbing export sales. Part of these sales gains may reflect stockpiling of petroleum-derived products in view of the Middle East situation. Representatives of the paper industry report that sales have continued to gain at a "vigorous" rate. Appliance manufacturing activity has leveled off and representatives of two major appliance manufacturing firms expect orders to fall off by mid-year, and that production for the year will decline 3 to 5 percent from 1978. Appliance inventories are noted to be somewhat "heavy" on an industry-wide basis.
Sales of homes have picked up significantly in recent weeks as weather conditions have improved. Builders report that recent home sales have been encouraging, and some have backlogs to keep them busy through the early summer. As a whole, however, builders expect unit sales to decline about 15 to 20 percent this year, about in line with national forecasts.
Nonresidential construction activity in the District is apparently quite strong. Seven of eight major construction firms note that current backlogs are significantly above last year's level and that additional projects are in the discussion stage. Some firms reported difficulty in obtaining qualified engineers and supervisory personnel.
Total deposits at large commercial banks have leveled off in recent weeks, although net savings inflows at savings and loan associations apparently have continued to increase. S and L officials report that an increased volume of money market certificates has accounted for nearly all the increases in their deposits. In Missouri, where a 10 percent usury law is in effect on home mortgages, some S and Ls are placing money market funds in large CDs at commercial banks. Interest rates on bank loans to consumers and corporations are not limited to 10 percent in Missouri. Other Missouri S and Ls report they are actively seeking mortgage loans on the expectation that rates have reached their peak and these loans can be sold later at a premium when rates decline.
Loan volume at large commercial banks has continued up in recent weeks on a seasonally adjusted basis; however, real estate loans have increased very little, possibly reflecting the influence of usury ceilings in some District states. The usury laws are reported to be most restrictive in Arkansas where a 10 percent ceiling applies to almost all loans. Large commercial banks in Arkansas report declines in both loans and deposits.
Relatively high prices for farm products may be changing farmers' crop planting intentions from a few months ago. The U.S. Department of Agriculture survey near the first of the year indicated that plantings of feed grains would be down this year. However, results of a major chemical firm's survey indicate that plantings of feed grains and soybeans may be substantially higher than a year ago.