May 16, 1979
The rate of growth in the Eighth District economy appears to have slowed in recent weeks. Although activity in many sectors such as commercial building and industrial goods continues strong, a slowing in consumer demand was reported. Retailers reported a slowing in sales and some undesired buildup in inventories. Some manufacturers of consumer products, such as apparel and furniture, also reported a noticeable slowing in sales. Nevertheless, overall industrial activity appears to have gained modestly in April from the high March level, spurred by continued gains in the capital goods and chemical industries. Construction activity also continues quite strong in the District, led by advances in nonresidential construction which have apparently more than offset the decline in home construction. In the financial sector, savings and loan associations experienced a net outflow of funds in April, and mortgage lending requirements have become more restrictive, particularly in Arkansas, Mississippi, and Missouri where low usury ceilings still exist.
According to several area retailers, growth in consumer spending has begun to slow noticeably in recent weeks. Some retailers noted the recent slower growth in consumer incomes and felt that the "buy-now" attitude is apparently coming to an end. Department store retailers reported that inventories have become greater than desired as the slowdown in sales exceeded expectations. An apparel manufacturing representative noted that sales in rural areas have also softened in the past month and that retailers in these areas are cutting back on fall orders.
Industrial activity generally continued to expand in April, although the increases were more modest than those in March, when some activity was partially induced by anticipation of the truckers' strike. The capital goods industry continues to be the strongest sector. Firms manufacturing railroad cars, commercial airplanes, welding and cutting equipment, lubrication equipment, and metals reported that sales growth has continued to increase. A representative of a chemical firm noted continued strong sales, partially attributable to higher export demand. Some decline in production, however, was reported by a number of consumer goods firms, such as apparel, furniture, appliance, and recreational vehicle manufacturers. A representative of a paper manufacturing firm reported that April sales were not as large as in March, but believes that no significant downturn was indicated.
Construction activity in the District continues to grow, although the type of construction is changing. Residential construction has declined from a year ago in a number of areas in the District. Housing permits issued in the St. Louis area are down about 20 percent from last year, and home construction has declined somewhat. Nonresidential construction, however, has taken up the slack, and overall construction employment is up relative to a year ago. Large contractors report that they are turning away new business, and that difficulties in obtaining materials and supplies is prompting them to place orders far in advance of the start of new projects.
Savings and loan associations in the St. Louis area reported a net outflow of funds in April with only 4 of the 27 associations in the area reporting positive net inflows. They attribute the decline to the recent changes in regulations concerning money market certificates. These officials also noted increasing competition from banks, credit unions, and money market funds. Loan qualification standards and down payments continue to be raised on mortgage loans, particularly in states where usury laws constrain mortgage rates. S and L officials in Missouri have warned the state legislators that substantial amounts of funds will leave the state if the 10 percent usury law is not changed. In Tennessee the usury ceiling was recently changed. Effective May 1, the usury ceiling on mortgage loans began to float at 2 percentage points above the FNMA auction rate on conventional mortgages.
Substantial rainfall over much of the District has delayed the planting of corn and cotton. Plantings of these crops, however, are likely to be only minimally affected unless these unfavorable weather conditions persist. Floods along rivers in the District have caused considerable property damage, but spring-planted crops in most cases were not damaged because of the late planting season. However, some damage to the wheat crop was reported, and in some flooded areas, plantings of corn and cotton may be prevented.