August 18, 1982
Economic conditions in the St. Louis District have changed little since May, baffling a number of respondents who thought that business activity would accelerate during the summer. Retail sales, after adjusting for price changes, were less in June, July and early August than in the like period last year. Manufacturing orders continued at the earlier depressed pace, and employment was essentially unchanged. According to Southwestern Bell's composite index, economic activity in June declined 0.5 percent in Arkansas and 0.2 percent in Missouri. Farmers have had a favorable growing season, but the anticipated large grain and soybean harvests are likely to result in low selling prices.
Retail sales in the District have been listless during the summer. Nominal sales were up about 3 percent in June and July over the corresponding period in 1981, but fewer goods were moved as average prices rose faster than dollar sales. Smaller retail stores, especially those handling luxury-type merchandise, and small service businesses performed better than major department stores. July sales were particularly disappointing to retailers in view of the 10 percent tax cut and the larger social security payments. The demand for consumer goods may have been strengthened more than the sales figures indicate, however, since some merchants expected improved sales in July and offered fewer price promotions than normal.
Industrial activity has remained steady since May. Defense procurement is still strong, while sales by food producers are normal or up moderately. On the other hand, orders remain at relatively depressed levels at firms producing consumer durables, chemicals, aluminum and wood products. Several companies, particularly those producing industrial equipment, indicate further sales deterioration. Capital spending plans of most manufacturers have changed little since May.
Employment in the District remains at May's level. A few larger industrial firms have continued to reduce work forces through attrition, and several plants were shut down longer than usual during the summer for model changeovers. On the other hand, many smaller businesses have hired more workers.
Residential home sales continue to be slow, and home construction remains depressed. According to the Home Builders Association, home sales in the St. Louis area were 10 percent lower in June and July than in the same months a year ago, and the trend continued in early August. New housing starts in the St. Louis area in June and July were only 20 percent of normal. A moderate improvement is expected in the near future, however, since the typical interest rate on residential mortgages has fallen from 16 3/4 percent plus 3 points in May to 15 3/4 plus 3 points in early August. Also, about $50 million of lower interest rate mortgage funds for first time homebuyers in the St. Louis area soon will be available from state revenue bonds. The demand for commercial construction, although restrained, remains stronger than for residential.
Crops in the St. Louis District are excellent, reflecting near ideal weather conditions during the planting and growing season. Also, relatively favorable feeding margins are benefiting hog and cattle producers. Because of the high interest rates and low grain prices, however, many farmers remain in financial difficulty. Prices of farm land, according to scattered reports, have decreased somewhat, and there have been few purchases of major farm equipment. Bankers serving rural areas are anticipating fewer pay-downs of agricultural loans than normal this fall.
Savings and loan associations in the District continue to lose deposits, primarily to the higher yielding money market funds. As a result, these associations have made few new loans to home buyers. Virtually all associations are operating at a loss, and four associations in the St. Louis area currently are being liquidated.