March 25, 1981
According to reports from several area businessmen, overall economic activity in the Eighth District has remained unchanged in recent weeks. Department store representatives noted increases in sales, but these gains were less than price markups. Car dealers realized substantial increases in unit sales, but these gains are expected to recede when current price concessions by manufacturers are removed. Manufacturing activity generally continues sluggish and homebuilding very low. On the other hand, demand for energy-efficient equipment, oil and gas drilling equipment, defense-related equipment and commercial construction remains strong. In the financial sector, loan volume was unchanged in recent weeks and interest rates, except for mortgage loans, have declined* In the agricultural sector, moisture conditions have improved somewhat in drought areas although subsoil moisture remains low.
Retail
Retail sales in late February and early March were bolstered by
substantial gains in automobile sales. These gains, however, are expected
to disappear as the rebates are terminated. Department store sales rose in
February and early March but remain below last-year's level after adjustment
for price increases. Largest gains were reported for discount outlets.
Manufacturing
Manufacturing of products for the automobile and housing industries
remains very sluggish, whereas the output of items related to energy
production, energy conservation and defense equipment continues to expand.
A representative of a major appliance firm noted that while February sales
were somewhat greater than expected, orders in the first half of March
appeared to be slowing. A decline in contract sales of appliances is also
expected in the next two or three months, if the February decline in housing
starts continues. Representatives of two major chemical firms reported
depressed demand for their products from the automobile and housing sectors
but a pickup in demand from other sectors. A spokesman for the lumber
industry noted further declines in demand, indicating that further cutbacks
in output and employment may be necessary. On the other hand, firms
producing such energy-efficient equipment as heat-recovery boilers and
energy-efficient motors report a continued high level of sales. Oil
drilling activity in Arkansas is increasing, as approximately 20 new wells
are drilled each week. Present prices allow developers to drill wells with
low output that would have been uneconomical 10 years ago.
Automobiles
The inventory of domestic automobiles has been reduced as a result
of the rebate program. Among those retailers and manufacturers contacted,
no substantial inventory problems were reported.
Housing
Residential housing activity, already at a low level, apparently
worsened in the past six weeks. Although builders report a substantial
number of prospective homebuyers looking at model homes, few homes are being
sold. Because of high interest rates, most prospective home buyers cannot
qualify for loans on the types of homes they desire. Some localities that
issued local housing bonds to reduce borrowing costs report these funds
nearly depleted. In addition, government construction, such as highway
projects, has declined substantially. Commercial construction activity, in
contrast, continues at a high level in the District.
Loan volume has been flat in recent weeks. While most interest rates have declined, mortgage rates have remained in the range of 14-3/4 percent to 15-1/2 percent. Representatives of savings and loan associations report that associations are now in a loss situation. Heavy promotion of NOW accounts resulted in a sizable number of new accounts, but fewer promotions have occurred recently, resulting in slower growth in these deposits. Life insurance companies also report poor current earnings, reflecting largely the high interest rates which encouraged policyholders to borrow against the cash value of their policies.
Agriculture
Abnormally low moisture conditions in much of Arkansas and Missouri
have eased somewhat in recent weeks but subsoil moisture remains low. The
wheat crop of relatively large acreage is in good condition. Among
livestock producers, hog growers report that continued losses of 5 cents to
10 cents per pound are being realized, and cattlemen report that the mild
winter has held down costs of wintering herds.