May 12, 1982
During April and early May, business activity in the St. Louis District was virtually unchanged. Most respondents feel that the economy is at or near the trough of the recession. Retailers and most manufacturers continue to experience weak sales. Although respondents anticipate a recovery beginning within the next few months, they expect that the early upswing will be sluggish. Yet, with a gradual acceleration of economic activity and with the pace of inflation receding, they expect the expansion to be sustained for a relatively long period.
Major department stores in St. Louis and smaller merchants scattered across the District report continued weak sales in April and early May, particularly for durable goods. Farm equipment dealers have made few sales, although farmers continue to buy large amounts of herbicides. Retail sales picked up temporarily following the severe winter, and some store managers, anticipating a prolonged upswing in activity, increased orders from suppliers. Since sales soon fell again, these excessive inventories must now be worked off. Some retailers noted that consumers are saving at a greater rate than in the past several years, reflecting the high interest rates available to savers and a lower expected rate of inflation.
One bright spot is that automobile dealers have increased car sales in the past two months—a continuation of the uptrend reported in the last redbook. Despite the gains, automobile sales remain relatively depressed. In St. Louis, the demand for mid-sized cars has strengthened, whereas in some smaller cities, the greatest improvement has been in larger- and smaller-sized rather than medium-sized cars. Financing purchases with below-market 12.8 percent loans and the granting of direct rebates have helped car sales.
Industrial activity has been unchanged on balance since March. Defense procurement remains vigorous, while sales by food producers were about normal. Orders remain at relatively depressed levels at firms producing consumer durables, chemicals, aluminum, wood products, industrial equipment and refined oil products. Because of the continued economic weakness and expectations of only a gradual recovery, several medium-to-large producers have trimmed capital spending plans in the past two months.
Most manufacturers have held inventories at or near desired levels. In order to avoid inventory accumulation, they have maintained production at relatively low levels. A major chemical company operated at 67 percent of capacity in April, about the same rate as in the first quarter. One specialty food processor closed down its operations for two days to avoid inventory expansion—an unusual development in this industry.
Employment has remained relatively stable since March. Several firms, however, have imposed a "freeze" on new hiring, allowing employment to decline with attrition. On the other hand, a few smaller firms, especially in the service industries, have increased their work forces. Several firms noted that employee dedication had improved, and absenteeism had declined recently.
Throughout the region, residential home sales continue to be weak. Some dealers claim that the market is virtually dead; one real estate agency that had been reporting to us went out of business in April. According to most respondents, high interest rates, high home prices and a low level of economic activity are major factors contributing to the lack of sales.
Commercial banks, both large and small, have experienced only minor changes in loans and deposits since March. Deposits and loans at most savings and loan associations have also changed little. Most savings and loans are still operating at a loss, estimated at an annual rate of 1 to 2 percent of total mortgage loans outstanding. This negative margin is rapidly eating into their capital. Five associations located in the St. Louis area are currently being liquidated.
Weather conditions have been favorable for land preparation and planting in the District. Also, relatively wide feeding margins are benefiting most livestock producers. Farmers, however, are registering complaints about high interest rates and low grain prices.