January 29, 1980
Business activity in the Eighth District appears to have declined somewhat in recent weeks. Although the automobile and housing sectors led the decline, a number of associated industries are beginning to experience reduced sales and orders. On the other hand, capital goods production and nonresidential construction remain relatively strong and, in some instances, continue to increase. Among those capital goods experiencing strong demand are products used for energy conservation purposes, oil and gas exploration, and aerospace and defense. In the financial sector, net inflows of savings have been quite modest in recent weeks as competition from other instruments, such as money market funds, has been acute. Mortgage interest rates have increased to 12-1/2 percent or more and the number of mortgage loans made in recent weeks is reported to have decreased.
Department store sales since the year-end have been about the same as a year ago after adjustment for inflation, but such sales data are not quite comparable since weather has been significantly better this year. Retailers are guarded about prospects for sales, with most retailers expecting no improvement before mid-year. Automobile sales remain substantially below a year ago, and car dealers report that the trend toward more gas-efficient cars continues. A foreign car dealer noted, however, that the waiting list has declined for some gas-efficient models from as much as six months last summer to about six weeks currently.
Manufacturing activity in the District is mixed. Automobile manufacturing has been the hardest hit of the major industries in terms of layoff of workers. In the St. Louis area, where automobile and truck assembly activities are very important, the work force at the end of January is estimated to be down 40 percent from a year ago. Deterioration of business activity was also reported in many auto-related industries, such as auto frames, carburetors, brakes, piston rings, etc. On the other hand, it was reported that some types of consumer tools, such as chain saws and various do-it-yourself tools, are in great demand. Also, suppliers of the residential construction industry believe that the decline in home building will have a major impact on their business in the near future. Some other manufacturers of consumer durables, such as appliances, reported that demand has fallen.
Inventories at retail stores have generally been kept at desired levels as excess stocks have been quickly removed by sales promotions. Inventories of most appliances are at desired levels, with the exception of room air conditioners.
Demand for nondurable products has been affected less than durable products, yet some declines have occurred in this sector. Demand for domestically produced apparel and shoes has slowed, partly due to increasing foreign competition. A boxboard manufacturing representative noted a decline in orders in recent weeks which has led to some layoff of workers. The biggest drop in boxboard orders has been from manufacturers of automobiles parts.
Capital goods production remains the strongest area of manufacturing activity. Farm equipment is experiencing increasing demand, a reflection of the strong farm income in 1979. However, such demand may diminish later in the year if the expected decline in 1980 farm income occurs. Another area of strength is defense-related goods. Major defense contractors reported that production increases are likely in 1980 based on a high level of orders and the prospect of increased defense spending. The aircraft industry has experienced a strong demand for commercial aircraft. Other products with strong demand include energy-efficient motors, welding and cutting equipment, gas and oil drilling equipment, telecommunication products, and data processing equipment.
Nonresidential building remains at a high level in the District whereas residential building has declined further and is now at a virtual standstill over much of the District. Several major commercial and government projects in the St. Louis area are expected to get under way in 1980, including a major office building, hotel, and waterway project. While contractors are fairly optimistic that a high level of activity can be maintained through mid-year because of a backlog of projects, they expect a slowing later in the year as these projects are completed.
Representatives of financial intermediaries report that strong competition from money market funds is having a sizable impact on the net inflows of funds. Saving and loan officials report only modest increases in net savings in recent weeks, although the new 2-1/2 year certificates have been received better than expected. The bulk of new funds, however, continues to be the six-month money market certificates.