April 11, 1979
According to a number of Eighth District businessmen, the District economy continues to advance at about the same rate as a month ago. The strongest gains apparently were registered in the manufacturing sector where larger orders were reported by several important industries. In some cases, however, anticipation of the truckers' strike may have affected March orders. In addition, the strike is currently having substantial effects on the automobile manufacturing industry and will threaten others if it lasts very long. Retailers report that sales have continued to increase, but some noted a possible slower trend. Inventories, however, remain at about desired levels. Construction activity continues at a high level spurred by increased nonresidential construction. Homebuilding, on the other hand, remains somewhat lower than a year ago, but such activity improved in March over the very low levels of January and February.
Overall, retail sales continue to increase although some retailers indicate a slowing in recent weeks. One representative of a major St. Louis department store noted that recent sales have been increasing, but at a slower rate than the current rate of inflation. Two representatives of national retail marketing chains also reported a slower growth in sales. Retailers, however, do not report major problems with inventory accumulation. Unit sales of automobiles are apparently about the same as a year ago. Dealers, however, noted a marked shift toward smaller cars.
Manufacturing activity has continued upward in recent weeks, but recent gains may not totally reflect the underlying strength of the economy since some orders were placed in anticipation of the truckers' strike.
Representatives of firms manufacturing boxboard, chemical, and construction materials all indicated that part of the strength in March sales may have partially reflected the impending strike. A representative of a major steel firm reported strong orders and a sizable backlog of orders. Several machine tool firms reported sales to be quite strong and that delivery dates have lengthened. A major aircraft manufacturer reported that commercial aircraft manufacturing activity is "booming" as a result of recent orders.
While anticipation of the truckers' strike may have boosted activity in March, the strike is currently having a major impact on the automobile industry. In the St. Louis area more than 18,000 workers have either been laid off or are working fewer hours. Other firms noted that the strike will not cause them to shut down in the immediate future, but that a prolonged strike will cause serious problems in obtaining raw materials and delivery of finished products will develop if the strike is prolonged.
Overall, construction activity continues at a high level in the District as a decline in the homebuilding industry has been offset by nonresidential construction. Contractors of commercial, highway, and other types of construction report long backlogs of projects, and, in some cases, are refusing to bid on new projects. Homebuilding activity, on the other hand, was off substantially in the first two months of the year, but gained momentum in March. While new home sales also have picked up, builders indicate that it is too early to estimate the current strength of home demand. Most homebuilders are expecting a 15 to 20 percent decline in unit sales this year.
Recent regulatory changes concerning money market certificates apparently are exerting an adverse effect on savings inflows at savings and loan associations, but are boosting the inflow into commercial banks. While in earlier months S and Ls were able to attract large amounts of funds via these certificates, some S and L officials noted that the inflow of these funds tapered off during March. These officials said, however, that it was too early to predict the final impact of the recent changes. Missouri S and L officials contacted are not upset by the regulatory change since these funds are not very profitable in view of Missouri's 10 percent usury ceiling on home mortgages. Legislation has been introduced into the Missouri legislature to amend the usury law.
Commercial banks report that loan demand remains strong although the volume of loans at larger banks has not shown much gain in recent weeks. S&L officials report continued high demand for home mortgages, particularly for existing homes. Some S&Ls, particularly in states affected by usury ceilings, are continuing to ration credit to customers by increasing the down payment on loans.