January 2, 1980
Activity in most sectors of the economy in the Eighth District has slowed somewhat from the pace of October and November. Sales of most products have leveled off, and new orders have generally declined; inventories, however, remain under control, and little unemployment has occurred outside the automobile sector. Major sectors of declining activity are automobile manufacturing and home construction. Partially offsetting these declines, however, is rising activity in both commercial construction and farm- and food-related businesses.
Retail sales, seasonally adjusted, have generally leveled off. Major department stores in the district report that nominal sales are about the same as a year ago. One of the largest retailers reported gains in big ticket items, but offsetting losses in software. Fast-food service chains reported a slowing of sales last spring and further softness in the last two months.
Factory orders have also leveled off or declined. A major manufacturer of plastics reported that orders for all products by the automobile manufacturing and residential building industries were down. Boxboard sales have also leveled off.
In contrast to the general trend, a number of firms in the farm product and food-related sectors report that business is continuing to increase. Manufacturers of feed and farm chemicals reported record orders as livestock feeding is on the upswing. Food processing firms, such as oil and seed processing, reported increased sales and orders. Appliance manufacturers reported small increases in orders in recent weeks.
Real estate activity is mixed. A decline in new home construction has been largely offset by rising commercial construction, but total home sales have declined sharply from mid-1979 levels. Sales of new homes are nearly at a standstill, and new home construction is winding down as the homes sold last fall are completed. Sales of old homes have been sharply reduced, and the number of such houses on the market is reported to be more than double that of last year. Most of the decline of home sales is believed to reflect the high cost and short supply of mortgage money. Increases in new home prices may slow, however, as timber and lumber prices are reported to be falling sharply. Restrictive usury laws in Missouri and Arkansas have tended to restrict the flow of mortgage funds in these two states. Commercial construction, on the other hand, generally remains strong throughout the district although one builder noted that fewer new projects appear to be in the planning stage.
No excessive inventories were reported with the exception of some large-sized automobiles. A common reply to the inventory question was that inventory liquidation will not be a problem during any forthcoming recession. Most businessmen have been expecting a recession throughout 1979 and have watched inventories more closely than before. Hence, the inventory-sales ratio of most firms is at record low levels.
Employment remains at relatively high levels. There have been few layoffs in the district with the exception of automobile and home construction workers, and most of those engaged in home construction have been absorbed in commercial construction projects. A year ago, the St. Louis SMSA residential sector employed 55 percent of the carpenters in the area compared to 39 percent in November; nevertheless, the carpenters' union reports virtually no unemployment in the area.
Demand for credit has moderated from the October-November level. Major banks report a leveling off of loans in recent weeks despite a slight decline in commercial loan interest rates. Mortgage rates are also down somewhat in those parts of the district where usury laws are less stringent. A major mortgage lender in Memphis, for example, reported that its rate on best quality mortgages declined from 13 percent to 12 percent in late November. The net flow of funds into savings and loan associations is reported to be down considerably from year ago levels. Savings and loan officials noted strong competition for funds from commercial banks and money market funds.
None of the financial firms interviewed reported an excessive number of problem loans such as occurred in the 1974-75 recession. Credit card and consumer loan defaults were reported to be rising at commercial banks and major retailers, but were not considered a major problem. Both groups of lenders reported that they scrutinize more closely credit applications.