October 14, 1980
Overall economic activity has changed little in recent weeks according to Eighth District businessmen. Consumer spending at department stores has increased somewhat from August to September. In contrast, automobile sales, while on an uptrend since April, declined slightly from August to September. Manufacturing activity is mixed but, on balance, has changed little since early September. Increased orders and production were reported by manufacturers of metals, chemicals, and construction materials, while orders for capital goods declined further. Home sales in September were adversely affected by rising interest rates. Overall loan volume increased in recent weeks, led by business loans to manufacturers. Even though agricultural harvesting is proceeding rapidly, sharply reduced crop yields in parts of the District will substantially reduce farm incomes this year.
Consumer spending has increased modestly in recent weeks according to area retailers. Department store representatives report that September sales were up from both August and from a year ago. Some retailers noted that recent gains have been achieved by markdowns and promotions, so that profit margins remain depressed. Retail sales in some rural areas are reported to have shown little improvement in recent months due to depressed farm incomes. Automobile sales have generally risen since last April, although September sales were down somewhat from August. Car dealers report that substantial showroom traffic has been generated recently by the newer energy efficient models of domestic manufacturers, but that is too early to assess their sales potential.
Inventories are at generally acceptable levels at both the retail and manufacturing firms. A major chemical firm reported that excessive inventories of some plastics, intermediate chemicals and industrial chemicals have been reduced to satisfactory levels.
Manufacturing activity appears to have been unchanged in recent weeks, and no further substantial layoff of workers was noted. Gains were reported by manufacturers of construction materials, metals, chemicals, and feeds. A producer of construction materials noted, however, that the recent gains are likely to be short-lived because higher interest rates are expected to reduce housing activity. Some manufacturers of clothing and appliances noted little change in recent weeks. Capital good orders are on the downside; high interest rates and anticipated tax benefits from legislation next year are reported to be reasons for the falloff.
Residential housing sales declined in September after increasing in the early summer months. A representative of the St. Louis home building industry reports that home sales in September may have declined to one-half the level of July and August, and that, for the year, they may be only about 20 percent of normal. Rising interest rates are cited by homebuilders for the decline. Rates have risen from 11-1/2 percent to around 13-1/2 - 14 percent since mid-summer. Virtually no backlog of home sales exists, so that residential construction layoffs will occur as sales decline. Nonresidential building continues at a high level as a result of existing projects. A representative of one St. Louis firm noted, however, that an office building project has been shelved because of the recent rise in mortgage interest rates.
Recent financial developments include somewhat higher loan volumes at area financial institutions and higher interest rates. Business loan volume at banks is reported to have increased in recent weeks. Higher demand for loans was noted by manufacturing firms, particularly textiles, petroleum refining, and chemicals. In addition, a small increase in consumer installment loans and a seasonal increase in agricultural loans associated with grain storage from the fall harvest was noted. Partially offsetting these gains were declines in loans to retailers and wholesalers. Lenders report that the movement away from long-term fixed rate mortgages is gathering momentum, and that such mortgages may soon be regarded as a thing of the past. Some banks report a reluctance to lend to consumers since a change in the personal bankruptcy law has increased bad debt expenses.
Agricultural producers in the District, particularly in Arkansas and Missouri, face substantially reduced incomes this year due to poor crop yields, death losses of poultry, and higher production costs. In Arkansas, the soybean and rice crops are reported to be down 50 and 25 percent, respectively, from original estimates. In addition, Arkansas poultry producers suffered heavy financial losses last summer due to heat related deaths of poultry. As a result of reduced incomes in these areas, local banks report the potential for bad loans is the highest in many years.