Beige Book
CONFIDENTIAL (FR)
CURRENT ECONOMIC CONDITIONS BY DISTRICT
Prepared for the
Federal Open Market Committee
by the Staff
July 1, 1980
TABLE OF CONTENTS
SUMMARY page i
First District-Boston page 1
Second District-New York page 4
Third District-Philadelphia page 7
Fourth District-Cleveland page 10
Fifth District-Richmond page 14
Sixth District-Atlanta page 17
Seventh District-Chicago page 20
Eighth District-St. Louis page 24
Ninth District-Minneapolis page 27
Tenth District-Kansas City page 29
Eleventh District-Dallas page 32
Twelfth District-San Francisco page 36
SUMMARY*
[Asterisk: Prepared by the Federal Reserve Bank of Cleveland.]
Business activity among the Districts continues to weaken in June,
with mounting evidence that declines in consumer spending and construction
are spreading to the capital goods sector.
especially for big ticket items.
Consumer spending remains soft,
An inventory buildup is widely noted,
although swift adjustments in production are generally thought to have kept
inventories close to desired levels.
There is little indication that
capital spending plans have been altered, although scattered reports of
cutbacks and delays are cited.
Loan demand has not improved from last
month's low levels despite easing of restraints and lower interest rates.
Substantial declines in mortgage interest rates and improved credit
availability has sparked some improvement in mortgage loan inquiries and
sales of existing homes.
Manufacturing of durable goods declined further this month, with
signs of the recession spreading to the capital goods industry.
of auto and steel-related products is being cut sharply.
Production
A sharp fall in
new orders of consumer and producer durables is reported by New York,
Richmond and Philadelphia.
Some weakening in capital goods orders are
reported in Cleveland, and Chicago notes an increase in order cancellations,
although not on the scale of 19 74-1975.
Manufacturing sales, especially
of defense goods, however, are continuing to hold up in Boston, and backlogs
of capital goods orders remain large in New York.
Despite a decline in
manufacturing activity, Minneapolis points out that the District
has been able to avoid an employment decline as a result of significant
strength in industrial output and nonresidential construction, as well as
sustained demand in energy exploration and production.
San Francisco notes
that a continuing healthy aerospace industry has helped to buoy the retail
business in the northwest.
Consumer spending, especially for automobiles, appliances, and
furniture, remains weak throughout the nation, with little improvement
expected before the end of the year.
Real retail sales in nondurable
consumer goods generally are holding better than durable goods, although
Atlanta and St. Louis note declines in both.
There are, however, signs
of a pick up in retail sales in the Minneapolis area, and fashion items
continue to do well in St. Louis and New York.
Sales of new cars and trucks
are well below year-ago levels, but improvements over the May level are cited
in Dallas and Cleveland.
New York notes that discount stores have been
benefiting from the growth of price-conscious consumers.
Rising inventory levels at the producer and retail levels are a
growing concern to businessmen across the nation, but most still believe that
accumulations have not become excessive.
Chicago reports that output has
dropped faster than consumption as a result of substantial downward adjustments in production schedules.
However, trouble spots are noted, especially
for major appliance firms, by Cleveland and St. Louis.
Energy stocks are
reported to be well above year-ago levels in Cleveland, and storage facilities
in the Dallas area are full.
Further production and employment reduction
may be necessary through the summer months to prevent inventory building
among manufacturing firms.
Most firms appear to be reluctant to reduce capital spending
programs, but there are widespread reports that reassessments are underway.
Boston reports a sharp decline from the previous month in the number of
firms planning to increase capital spending over the near term.
New York
and Chicago note that some existing programs are being stretched out rather
than being reduced.
Cleveland, however, cites announcements of substantial
reductions in the steel and rubber industries.
Weakening cash flow and
declining market demand are the most common reasons given for delays and
cutbacks.
Lending activity continues to decline virtually across-the-board,
although consumer loans appear to be flattening out.
Recent easing of credit
restraints and lower interest rates do not appear to have increased consumer
borrowing.
Atlanta reports that many banks are aggressively seeking new
loans, but Cleveland notes that banks have been reluctant to lower interest
rates.
Some banks report that interest rates have been slow to adjust to
weakening demand.
Industrial loans have dropped because smaller business
firms fail to qualify, while large firms have access to commercial paper
markets.
A rise in bankruptcies, especially among auto dealers and home
builders, is reported by Chicago area bankers as a result of the recession
and new bankruptcy laws.
Thrift institutions have been aggressive in lower mortgage rates,
but note only a mild pickup in inquiries.
Loan commitments have been slow
to respond because of a recognition lag and consumer uncertainty about
the economy.
Thrift institutions across the nation are experiencing sizable
increases in deposit flows, which are frequently used to rebuild liquidity
positions and repay borrowings.
St. Louis and Chicago report some pickup
in loans on previously owned houses, and San Francisco expects a turnaround
by late summer.
The agricultural sector continues to be adversely affected by rising
costs and falling farm income.
Chicago expects that real farm income for the
year will be at one of its lowest levels since before World War II, although
income from livestock will improve in the second half of 1980.
Dry weather
has been a problem for crops and livestock in Atlanta and Richmond during
Jumis while heat in Dallas and cool weather in San Francisco have adversely
affected agricultural production.
While funds for agricultural loans are
available, loans have been very weak.
FIRST DISTRICT - BOSTON
Signs of recession are becoming more widespread in the First
District.
Retail sales are soft and are not keeping pace with inflation.
Surveys of manufacturers show more and more reporting reduced new orders and
backlogs; however, there continue to be substantial numbers with increasing
business.
There is still very little housing activity; funds are available
but the demand is simply not there.
Retail sales are not keeping pace with rising costs.
However, the
head of a large department store chain with affiliates across the country
reports that the New England situation is substantially better than that in
most regions.
One consequence of the weak retail sales is that state sales
tax revenues are falling well below projections.
Manufacturers are experiencing declining demand for almost anything
related to the consumer market.
Among the products which were mentioned as
experiencing difficulties were all types of appliances, automotive products,
textiles, apparel and vision products.
Sales to industry are continuing to
hold up fairly well and defense remains a source of strength.
Most
manufacturers contacted had observed a buildup in inventories in the past
month.
While this buildup is not considered alarming, all respondents are
taking action to bring inventories to more desired levels.
For most these
actions represent a continuation of existing policies of tight control, but
in one of the region's largest employers a major new inventory reduction
program has been begun.
It appears that a reassessment of capital spending plans is taking
place.
A survey of New England purchasing agents shows a dramatic decline
from the previous month in the number
of firms planning to increase capital
spending over the next three to six months.
spending plans increased substantially.
direct contacts.
The number reporting reduced
This situation was confirmed by
Two firms reported that they are reexamining capital plans
very closely; another has been following a selective policy since the first
of the year.
One respondent did say that his firm has not altered its
investment plans; however, these expenditures are intended to cut costs and
increase productivity rather than add to capacity.
The primary concern at
the present time is future product demand.
There continues to be very little housing activity.
institutions are starting to see an increase in deposits.
The thrift
While a
significant share of these funds is being used to repay past borrowings and
improve liquidity, the thrifts are easing back into the mortgage markets and
rates have fallen substantially.
The decline in rates has stimulated an
increase in demand, but the improvement is very modest.
Most of the demand
comes from people who are moving from one part of the country to another;
there is almost no demand from people who want to improve the quality of
their housing.
The second group of buyers is by far the larger.
Professors Eckstein and Samuelson were available for comment this
month.
Without a tax cut, Eckstein believes the continuing shrinkage of
consumer purchasing power would swamp the anticipated modest rebound in
housing and inventory investment, rendering a 1981 recovery very dubious.
"With the economy in deep recession, it would be the extreme of
irresponsibility, and the worst economic policy since 1930, to let taxes
increase to the programmed extent."
The tax cut announcement should be made
as soon as possible, according to Eckstein.
"Every day of delay needlessly
worsens the recession, discourages capital formation, and encourages worse
tax and expenditure policies.
Eckstein feels this is "a good time to be
monetarist," striving to achieve the announced monetary growth targets.
"Nonetheless, the international factor will put a floor under interest rates
not much below their present levels."
The dollar is overvalued and should
be allowed to depreciate, albeit in an orderly fashion.
Samuelson noted that in previous business cycles, a sharp drop in
sales, such as occurred in the second-quarter, would have brought forth
stimulative governmental policies and a quick recovery.
But because a short
recession will not make a serious dent in the core rate of
inflation—despite the spurious improvement soon to appear in the CPI—the
government may choose instead to "invest in austerity."
Once incorporated
into business planning, this policy would result in a sluggish recovery at
best.
Having lived by the monetarist rule when rates rose sharply,
Samuelson urges the Fed "to travel on monetarist steam at this stage of the
cycle."
The monetary growth targets should be achieved even if it should
lead to lower interest rates and a weaker dollar.
SECOND DISTRICT - NEW YORK
Business activity in the Second District declined in May, although
the decline appears less rapid than in April.
Consumer spending at some major
department stores showed signs of picking up, but domestic automobile sales
continued soft.
There is no evidence that the recent easing of the consumer
credit controls spurred spending.
was generally pessimistic.
Outside the consumer sector, the outlook
New orders declined further or stabilized at low
levels for many manufacturing firms.
have limited inventory build-ups.
Production cutbacks, as orders fell,
Despite the uncertain economic conditions,
few changes have been made in capital spending plans and capital goods producers still report strong demand.
upward pressures on prices.
The weakening in demand has reduced the
On the financial side, loan demand continues
to languish despite the recent sharp decline in interest rate.
Consumer spending in the Second District was mixed in May.
Sales
at retailers that cater to high-income consumers in Manhattan and nearby New
York suburbs generally improved over April's disappointing levels.
remained below January's and February's levels,
Still, sales
A large influx of tourists and
foreign visitors helps account for some of the good showing in Manhattan, but the
sales at the New York suburban malls also point to an underlying strength.
Other
large retailers reported sales to be disappointing and did not expect a pickup until the end of 1980.
The pattern of consumer spending varied in other
regions of the Second District.
Retail business in New Jersey began the month
rather sluggishly but then recovered somewhat.
New York remained mixed.
Retail sales in upstate
Scattered inventory problems were cited among re-
tailers, but tight management seems to have averted any serious difficulties.
Concerns appear to focus on the build-up of certain large-ticket items.
Domestic car sales continued soft in May, but there were reports of
some pick-up in June.
Overall conditions have been described as "disastrous"
with many dealerships folding.
Lack of consumer interest and confidence, as
measured by a low volume of floor traffic, were cited as reasons that were
more important than lack of credit availability in causing the weakness in
sales.
Inventories are in satisfactory shape for the most part.
Imported
car sales, which had also dropped precipitously in April and May, seem to have
recovered in June.
Used car sales appear to be picking up as well.
There
are scattered reports of an easing in auto lending credit conditions.
Outside the consumer sector, overall business conditions have deteriorated further in recent weeks.
A sharp fall-off in new orders was reported
by manufacturers in such diverse industries as copper, brass, and aluminum
products; machines and tools; chemical products; industrial packaging, and
other paper products.
Smaller declines were registered among manufacturers
of consumer related non-durable photographic supplies, auto-related electrical
products, and sheet metal.
Sharp declines were reported earlier by firms in
such diverse industries as steel, fibers, large electrical appliances, plywood
and lumber.
Inventories in these industries are generally at satisfactory
levels due to immediate cutbacks in production in response to falling orders.
In contrast to other Second District producers, capital goods manufacturers are still reporting strong demand.
are robust.
Backlogs remain large, and orders
Similarly, business is strong for manufacturers of small elec-
trical appliances and audio equipment.
industries are also doing well.
The aerospace and the home improvement
It appears that at least at some larger firms
plant and equipment spending plans will be maintained despite the near-term
falloff in business activity.
On the other hand, a major chemical firm
reduced its current dollar spending plans.
There are some reports of retailers
either reducing their plans or deferring them.
The most common technique of
making adjustments, however, seems to be stretching out or postponing capital
spending, rather than reducing its dollar amount.
With the economy weakening, evidence is mounting of an easing in
inflation—apparently more marked than in the previous recession.
List prices
have not been lowered all that much, but prices are not rising much from the
previous month and even some discounts are apparently being offered.
Wage
pressures also seem to be easing in response to the weakening in the labor
markets.
No evidence was seen of any increase in consumer spending resulting
from the recent easing of the credit controls.
impact of
Instead, the psychological
the program was still felt to be severe.
Financing terms at com-
mercial banks are reported to have eased in recent weeks.
All major thrift
institutions have lowered mortgage interest rates and some have even begun to
aggressively advertise for borrowers.
Business loan demand at banks has not
recovered despite the recent drop in interest rates.
THIRD DISTRICT - PHILADELPHIA
Reports from the Third District indicate that business activity for the month
of June is sluggish.
Business conditions in the industrial sector have declined
significantly this month, while retailers report sales to be just even with a year ago.
Looking ahead, manufacturers are expecting an upward swing six months from now, but
local merchants say sales will remain flat, despite end-of-year Christmas buying. Area
bankers say commercial loan volume is up, but by less than projected, and foresee little
improvement this year. Interest rates are expected to continue their decline through the
next two quarters.
Manufacturers responding to the June Business Outlook Survey report another
significant decline in area manufacturing activity, extending the slump in the local
industrial sector to a full year. Both new orders and shipments are down substantially as
producers' backlogs continue to diminish. Inventory liquidation appears to have abated,
however, at least temporarily. The pinch continues to be felt by area labor, with about
one quarter of the respondents to the survey reporting decreased payrolls and half
reporting a shorter average workweek.
For the longer term, survey participants are projecting a significant upward
swing in general industrial business activity in the next six months. New orders and
shipments are expected to increase; however, plans to add to inventories have not yet
been made. Likewise, manfacuturing managers foresee little change in employment, the
average workweek, or expenditures on plant and equipment.
A Director of this Bank whose business is in the manufacturing sector feels
that this cautious attitude is appropriate. He takes exception to the survey results, and
does not expect recovery until 1981, pointing out that many of his customers anticipate a
recession deeper than that of '73-'75.
Industrial prices are up again this month as nearly 60 percent of the survey
respondents report paying more for inputs than they did in May and 40 percent report
charging higher prices. Looking ahead to the balance of 1980, responding manufacturers
expect inflation to continue. Over 80 percent anticipate increases in raw material prices
within the next six months and 70 percent plan price hikes for the goods they sell.
Area retailers report this month's overall sales to be in the range of zero to 5
percent above those of June '79. Expectations were gloomy to begin with, though, so
merchants are not unhappy with their current sales performance. Moreover, the bleak
outlook early this year led many retailers to plan cautiously, so that even though sales
have slowed recently, inventory-sales ratios are still healthy.
Sales of soft goods-
apparel and small household items—are fairly brisk, but big ticket items are very
sluggish, owing at least partly to credit tightening. Credit sales in general are down
slightly, with cash sales up, and collection of outstanding credit is reported to be slow.
Local department store executives are continuing their trend of recent
months, and are planning cautiously and defensively. They believe "the other shoe has
fallen" and are projecting flat sales through year-end, despite December Christmas
buying. They feel that the current recession will be deeper than generally believed, and
do not expect recovery until 1981.
Bankers contacted this month report sluggish loan activity. Reports of C&I
loan volume range from 5 to 7 percent over year-ago figures, somewhat below projected
volume for this period.
Consumer loans, on the other hand, are flat, which contacts
attribute to the continued restrictive posture taken toward retail lending. Looking ahead
to the next two quarters, bankers are projecting little change in lending activity, as the
economy slips deeper into recession.
Banks in the Third District are currently quoting a prime rate of 12 percent,
and report a nominal amount of below—prime lending as a result of stiff competition for
customers. Projections for the prime indicate a continued drop through the balance of
1980, leaving the rate about 200 basis points below its current level by the end of the
year. Falling interest rates have had a positive effect on banks' deposit flows. Deposits
at commercial banks have stabilized as rates have plummeted, but are still down
compared to last June's levels.
Housing sales in the Third District have started to show some signs of life
again, although new starts remain depressed.
The increase in sales is attributed to
increased mortgage availability and lower mortgage rates. Some 80 percent mortgages
are now available at 12 to 13 percent.
Housing prices had generally levelled off in
January of this year, but are once again on the upswing, especially in prime areas. On
the construction side, starts have not taken off again yet, as builders finish projects
started late last year and hold back on new groundbreakings.
One broker feels that
developers will wait for two to three consecutive months of economic improvement
before undertaking new construction.
FOURTH DISTRICT - CLEVELAND
Business activity in the Fourth District continued to decline sharply
in June as the recession begins to affect business spending.
Most respondents
expect the recession to bottom out late this year, followed by a sluggish
recovery in early 1981.
liquidation.
The summer months will likely be marked by inventory
The worst of the decline in consumer spending appears over, but
new car sales are expected to remain relatively flat until the introduction
of new fuel-efficient models later this year.
Loan demand, according to
District bankers, continues to be weak across-the-board.
Housing remains
depressed, despite significant reductions in mortgage rates and improved
deposit flows into S&Ls.
Economists who attended the Fourth District Economists Round Table
meeting held at this Bank on June 13 have revised their forecasts of real GNP
downward since the March meeting.
Although virtually all of the 27 economists
who attended the meeting forecast a sharp decline, only four expected an
equally sharp recovery.
The median forecast of the group shows a 7.3% annual
rate of decline in real GNP in the second quarter, 4.3% decline in the third
quarter, 1.6% decline in the fourth quarter, and a recovery at annual rates
of 1.3% and 4.7% in the first and second quarters of 1981, respectively.
Next quarter's anticipated reduction in real GNP is largely associated with
a decline in inventory investment and a further contraction in residential
construction.
However, a higher level of consumer spending from the second
quarter is anticipated.
Generally, most officials believe capital spending plans for 1980
are unlikely to be adjusted downward unless cash flow weakens more than is
now expected.
Although several capital goods producers report no adjustment
in spending plans, there is concern that a cash flow squeeze could result in
some cutbacks in the period ahead.
However, some firms directly affected by
weakness in consumer spending have already begun to cut back capital spending
because of poor operating rates and a poor profit outlook.
A rubber and
chemical producer reports that capital spending for 1980 is being cut to $200
million from $300 million because of poor earnings and projected sluggish
growth for rubber products.
A steel producer has announced another postpone-
ment of a $280 million project for its Ohio facility because of a poor profit
outlook and is planning to trim a $400 million capital spending program for
1980 by $50 to $100 million.
Some liquidation of inventories is expected to get underway following a
sudden step-up in inventory accumulation in recent months.
Generally, most
respondents believe that inventories are not nearly as out of line with desired
levels as they were in 1974-1975.
General merchandise inventories rose sharply
between March and May, according to a major retailer, and inventories are now
at least 6% higher than desired and will be promptly liquidated during the
summer months.
Adjustment of soft-goods inventories is expected to be com-
pleted by the end of summer, but will take longer for furniture and appliances.
Passenger tire stocks are still considered lean at the plant and distributor
level.
One producer has offered dealer incentives to build stocks, but dealers
have preferred to keep inventories low until sales pick up.
Inventories of
steel mill products are judged to be excessive and are already being worked
down by capital goods as well as consumer goods users of steel.
Energy stocks,
especially petroleum products and coal, are judged to be more than ample.
The
buildup in crude oil and gasoline stocks until recent months was planned because
of uncertainties in world oil markets, but large stocks will contribute to an
easing in utilization rates to the low 70s through the balance of 1980.
Consumer spending appears to have bottomed out.
Sales of small
appliances continue to show surprising strength in recent months, according to
a consumer durables producer, while declines in major appliances have been quite
sharp.
Nondurable goods are experiencing a return to more traditional spending
patterns, with a greater willingness among consumers to spend without the
influence of price hedging.
Although auto sales have remained very weak
throughout June, a producer and some major auto dealers report that June sales
will be higher than May.
Recent improvements are partly attributed to lower
instalment lending rates on direct auto loans, but lending rates throughout
the District have not fallen much from highs
in March.
Heavy discounting,
except for slow-moving standard-size cars, have been avoided, according to an
area dealer, because of the low volume of sales generally.
Several auto
dealers remark that sales will be flat until new model cars appear in the
fall.
Otherwise, recovery in sales will be delayed until spring.
Demand for consumer and industrial loans remains very weak.
Several
bankers report that consumer credit demand continues to decline virtually
across the board, despite some easing of credit terms.
not been lowered very much thus far.
Instalment rates have
One area banker states that lower auto
loan rates could not be justified because they would not induce additional
demand to offset the profit squeeze, and alternative investments offer better
returns than auto loans.
A Pennsylvania banker states that interest rates on
consumer loans never rose much because of usury laws in that state, and when
they were finally modified, demand had already begun to weaken.
Although
some borrowing to finance inventory may be occurring, a banker expects C&I
loans to remain soft for the rest of the year, as large corporations continue
to issue commercial paper and small businesses fail to qualify for bank credit.
Banks and S&Ls in the District uniformly report strong growth in
savings and time deposits in June.
With mortgage loan rates in the range of
11% to 13%, borrower demand has shown little improvement.
A large S&L in
Cleveland recently introduced a 9 3/4% mortgage rate for a 1-year rollover
mortgage.
Lenders note an increase in inquiries in response to reduced mortgage
rates, but not much pickup in commitments and loans, nor do they generally
expect a significant pickup for the time being.
However, one S&L official
reports loans are currently in a $6 to $8 million range compared with a more
typical $25 to $30 million range, but hopes the recent pickup in inquiries
and applications will lead to a $15 to $20 million loan month in the near
future.
An economist with a regional FHLB in this District asserts that some
lenders are reluctant to make commitments and loans, and instead, they choose
to rebuild liquidity and repay advances from the FHLB.
Apparently, some
associations are intent on reporting a profit as soon as possible following a
disastrous first quarter and perhaps first halt.
FIFTH DISTRICT - RICHMOND
The level of business activity in the Fifth District fell sharply
over the past month.
Of manufacturers surveyed over two-thirds experienced
declines in shipments, new orders, and order backlogs.
Inventory accumulation,
particularly of finished goods, occurred across a broad front.
among manufacturers surveyed also fell on balance.
Employment
Retail sales activity
continued to slip in June as both total sales and relative sales of big
ticket items fell.
Retailers, however, appear to have trimmed inventories
further and forestalled serious problems in that area.
Contacts in the con-
sumer lending area indicate that consumer credit demand continues to weaken
around the District.
Furthermore, there is little evidence that lenders are
eager to make additional loans, despite the recent declines in interest rates.
Respondents in our latest survey express somewhat less pessimism about the
future than in other recent months,
although most expect some further deterio-
ration in business conditions in the period immediately ahead.
Of Fifth District manufacturers responding to this month's survey
over two-thirds report declines in shipments, new orders, and order backlogs
during the past few weeks.
At the same time inventories continued to expand
as did concern over the level of current stocks.
Fully half the respondents
report stocks of finished goods up from a month ago, and well over half find
current levels excessive.
Employment was also down among manufacturers and
most establishments reduced the length of the workweek.
The number of respondents
finding current plant and equipment capacity in excess is substantially greater
than a month ago, but there remains very little sentiment for altering current
expansion plans.
In the retail sector sales were down as were relative sales of big
ticket items.
Retailers, however, are still able to keep tight control over
inventories, which so far have not become a serious problem.
Indications are
that employment among retailers was down somewhat from a month ago.
In general,
however, retailers find the current numbers and sizes of outlets appropriate.
Survey Responses suggest that price increases have become somewhat
less widespread in recent weeks.
Both manufacturers and retailers report
less frequent rises in employee compensation this month.
Manufacturers report
increases in prices, both paid and received, as less common now.
continue to report declines in prices received.
Some retailers
The pessimism which has per-
vaded our survey for some time lifted slightly in the latest survey period,
but most respondents still expect some further deterioration of business conditions over the next six months.
In general consumer credit demand in the District remains weak, particularly for automobile and personal cash loans.
Mortgage lending has apparent-
ly made little response to recently reduced rates. Neither borrowers nor lenders
seem eager to initiate loans at this time.
Richmond directors note a recent
increase in the pace of repayments of credit-card and other consumer instalment
debt balances.
Directors from banks and thrift institutions do not find that
the 6-9 percent lending growth guideline has been a binding constraint on
lenders.
June weather varied widely throughout the District, with extremely
dry conditions prevailing in the Carolinas—especially in South Carolina—
and in Virginia.
Elsewhere, soil moisture supplies were mostly adequate.
and pastures appear to have been affected most.
Corn
While some relief from the
dry weather occurred during the third week of June, more rain is still needed.
Corn at that time was reported to be beyond recovery in some areas.
The
peach harvest now in progress is expected to be 12 percent under the 1979
crop.
Expectations point to sizable reductions in the North and South
Carolina crop but significantly larger crops in Maryland and the Virginias.
SIXTH DISTRICT - ATLANTA
The District economy remains in a recessionary state.
sales dipped in real terms.
Residential construction exhibited no signifi-
cant improvement; however, real estate sales rose modestly.
remains weak.
Retail
Bank lending
Carpet and lumber mills report large production cutbacks,
layoffs, and the elimination of excess inventories.
Much of the District's
early corn crop was lost to dry weather, and hog prices received by producers advanced substantially.
The Cuban "Freedom Flotilla" and the devastating riots in Miami
profoundly affected Florida both socially and economically.
Over 100,000
freedom-seeking Cuban refugees arrived by boat in Key West for eventual
settlement, primarily in the Miami area.
Upward pressure on unemployment
is certain, as are extraordinary governmental expenditures.
Deep-seated
frustrations sparked large-scale rioting and burning in Miami's black Liberty
City area.
Property damage alone exceeded $100 million.
Retail sales in the District remained level and failed to keep
pace with inflation.
Consumer delinquencies grew slightly.
Department
store executives tightened control even further over employee hours and
inventories to alleviate serious profit squeeze situations.
A major
Atlanta retailer experienced spotty sales, with increases in soft goods,
especially women's wear, offsetting declines in hard goods and home furnishings.
Relatively good sales levels were reported for discount stores
due to the heightened price-consciousness of consumers.
Movie admissions,
which historically fare well in recessionary periods, are up.
Lawnmower
sales, which have previously been strong, dipped, and orders for motorcycles and bicycles softenend for the first time in several years.
Automobile sales were stagnant and well below year-ago levels.
Although automobile loan rates have been sticky, several dealers felt the
well-publicized general decline in interest rates caused a considerable
jump in showroom traffic.
pense of domestic dealers.
Import dealers continued to do well at the exFor many, stepped-up parts and service receipts
blunted the impact of the slump in sales.
Districtwide, residential construction activity continued to be
sluggish.
One exception is the Atlanta area, where housing permits for
early June climbed to 23 percent above year-ago levels.
while, showed a moderate gain overall.
Home sales, mean-
A southeastern Florida contact was
encouraged by sales in June returning to near normal proportions.
A
Nashville contact experienced a slight increase in sales and a spurt of
inquiries.
Home sales rose modestly in the smaller cities of east Tennessee
and north Georgia.
At District savings and loan associations, generally,
mortgage commitments are up appreciably and savings inflows have improved
sharply.
Weak loan demand still characterizes the District's banking sector,
especially commercial and consumer lending.
aggressively seeking new loans.
Consequently, many bankers are
Numerous banking contacts observed a
decided shift by savers from 6-month money market certificates to 30-month
certificates due to interest rate differentials.
Backlogs of office and other large construction projects in the
Atlanta area are down because of previous nonavailability of permanent
financing.
Occupancy in office buildings, however, has risen to 90 percent
and beyond, and pension funds have recently returned to the market but are
requiring significant profit participation and seeking short maturities.
In several of the District's major industries, inventories are now
down to desired levels, following production curtailments in recent months.
Carpet manufacturers, heavily concentrated in northern Georgia, cut production during the last quarter by about 25 to 30 percent.
Carpet and Rug
Institute, the national trade association, judges inventories to be in line
with sales.
Unemployment among carpet workers is moderately high.
Lumber inventories at mills were reported at planned levels, but
only after production was slashed by at least one-half since QIV:1979 at
numerous firms.
impact.
Sizable layoffs among lumber workers have had a wide
Manufacturers of paper products have enjoyed relatively constant
production and have experienced no involuntary inventory accumulation.
Dry weather severely damaged much of the early corn crop in the
Southeast, but cotton, peanuts, and soybeans were in good condition following a recent rainfall.
A sudden upturn in hog prices recently brightened
prospects for producers.
However, sharply lower prices during previous
months were responsible for a 13-percent reduction in farrowings planned
for the fall months in Georgia.
Sustained losses suffered by broiler pro-
ducers, due to low broiler prices, indicate a further shrinking in production for the industry.
SEVENTH DISTRICT - CHICAGO
Already weaker than the nation generally, economic conditions in the
Seventh District deteriorated rapidly in late March, April, May, and June.
Jobless claims have mounted rapidly.
It now appears that the recession, in
this region at least, will be much deeper, more pervasive, and longer than in
197U-75.
Price increases have slowed and some discounting is noted in whole-
sale markets.
But underlying inflationary pressures remain strong, pushed by
rising labor costs.
Virtually all consumer goods and services have been hard
hit, and the downturn has spread increasingly to capital goods.
The farm
sector, which held up well in 197U-75, is badly depressed despite some recent
rise in farm prices.
Little or no improvement has occurred in housing, but
nonresidential building remains strong.
Credit is now generally available on
more favorable terms, but borrowers are reluctant to incur debt.
cies have increased.
Delinquen-
Although the picture is very gloomy, there are seme
signs that demand in various markets is leveling off at reduced levels, and
there are scattered reports of modest improvement in the past k-6 weeks.
Sectors reporting a leveling off of demand at reduced levels in June
include paper, chemicals, RVs, mobile homes, and steel.
slight improvement is reported.
Ih some cases a
A large national retailer sees seme rise in
sales in June, seasonally adjusted, although the picture is still very dark.
Our contacts in various industries operating in national and international markets tell us that the Midwest, defined broadly as the area north
of the Ohio from the Appalachians to the Rockies, is much the weakest that
they serve.
Some have noticed no clear recession in the South, Southwest,
or West Coast.
Major capital expenditure programs underway have not been halted,
but some have been slowed to cut costs, and managements are using more exacting standards when considering new programs.
On the optimistic side, a
company that advises on new plant locations infoms us that new proposals to
be studied are still ccaning in at a fast pace.
picture remains strong.
The nonresidential building
Contracts had dropped off sharply in the spring,
but new office buildings and shopping centers again are being announced for
near-term starts, mainly in the Chicago area.
Many of these projects are
financed in substantial part by European funds.
Manufacturing industries that have cut production very sharply now
include autos, trucks, tires and other components, steel, farm equipment,
construction equipment, HVs, outboard motors, appliances, building materials,
oil refining, and petrochemicals.
Inventories were generally viewed as lean
early this year, but the rapid drop in sales required substantial adjustments
in production schedules on short notice.
In most cases output has been re-
duced faster than consumption, so a reversal may occur later this year.
Many
plants will be shut for several weeks this summer, confusing normal seasonal
trends.
Electric, gas, and telephone utilities have experienced declines in
demand to a degree unexpected earlier this year.
traffic is down significantly.
idled.
season.
Rail, truck, and airline
Layoffs have occurred, and equipment has been
The airlines will cut operations substantially after the peak summer
Truck lines report tonnage down 20-1*0 percent.
Truckers are very
concerned about shifts in traffic patterns tinder deregulation.
Capital goods producers report increased order cancellations, but
not to the extent of 197U-75 when backlogs contained much more water.
Cancellations are most significant for heavy trucks and rail cars, but some
machine tool orders are being canceled.
Oil and gas veil equipment is
booming.
New jobless claims are running about 200 percent above last year in
our states.
In addition, many plants are on short weeks.
White-collar
workers have been affected much more than in earlier recessions.
Many
companies complain about the unwillingness of unions "to give an inch" in
the face of high unemployment and company problems.
Strikes have halted
construction in Milwaukee.
Many lenders complain of a rapid rise in bankruptcies, especially
personal bankruptcies, spurred by the recession, the new law, and lawyers
anxious for business.
Among business bankruptcies, vehicle dealers and hone
builders are most common.
Existing home sales have picked up slightly as mortgage rates have
dropped to 12 percent.
Rates on RHMs are still lower.
Unsold backlogs of
finished or semifinished homes and builder bankruptcies have kept new starts
at the lowest levels since World War II.
Despite recent increases in livestock and crop prices, the farm
picture in the district remains dismal.
Adjusted for inflation, total net
farm income for the year will be at one of the lowest levels since before
World War II.
This is reflected clearly in the severely depressed market
for farm equipment.
Because of higher prices, livestock farmers will do
better in the second half of I98O than in the first half when large losses
were typical.
Crop prices have edged up, but not nearly enough to offset
higher production costs.
Early prospects suggest excellent crops again this
year, but probably not at record levels.
Crops in parts of Iowa were
destroyed by hailstorms in June.
yields will suffer.
Most of this acreage was replanted, but
Federal programs will help cushion losses of farmers
affected by hail.
Loans and deposits at district member agricultural banks have been
very weak this year.
May than in December.
in the 1970s.
Total loans at these banks were 2 percent lover in
No downturns in loans had occurred in this period
Total deposits rose slightly, but less than half as much as
the average for the 1970s.
EIGHTH DISTRICT - ST. LOUIS
The downtrend in economic activity in the Eighth District has
gathered momemtum in recent weeks and most businessmen expect little
improvement before next year.
Consumer spending remains quite sluggish,
particularly for durable goods.
goods has declined significantly.
Consequently, manufacturing of durable
Firms have adjusted their labor force
downward by instigating layoffs, early vacations, and reduced work weeks.
In general, inventories at the retail and manufacturing establishments have
remained at satisfactory levels as orders and production have been adjusted
quickly to slowing demand.
The housing industry remains depressed although
increases in traffic and sales were noted in recent weeks.
Reflecting the
depressed business conditions, overall loan demand is sluggish and interest
rates have continued to decline.
Retailers report that consumer spending continues to decline in
real terms.
Consumers are described by retailers as being "tight-fisted"
and "scared".
Sales of durable goods have been affected most, particularly
automobiles, trucks, appliances, and furniture.
Soft goods sales, while not
declining to the extent of durable goods, have also dropped.
Some items
such as fashion goods, outdoor equipment, and do-it-yourself equipment
continue to sell well.
Manufacturing of durable goods has declined further in recent
weeks.
Metal manufacturers, such as steel and aluminum, are experiencing
declines in orders from the automobile and housing sectors.
One local steel
plant has recently stopped operations.
An aluminum manufacturer has reduced
production of fabricated products, although primary aluminum operations are
still at full capacity.
The price of aluminum has fallen substantially,
however, and production cutbacks may be necessary.
Appliance manufacturing
activity has also decreased rapidly in recent weeks.
A representative of a
major appliance manufacturing firm is now expecting sales to decline by 25
to 30 percent compared to an earlier estimate of only a 5 percent decline.
Other durable goods manufacturing firms have also experienced substantial
declines in orders and production. Included among such firms are
manufacturers of lumber, glass, farm equipment, welding equipment and
lighting fixtures.
Currently, inventories are not generally regarded as a major
problem.
Most firms report that inventories have been kept in line with
declining sales by quickly trimming production and orders.
A few trouble
spots were reported; for example, excessive inventories of large cars are
reported by some dealers, an appliance manufacturing firm noted excess
inventories among selected items; and brick, gypsum board, and connector
plate manufacturers noted sizable inventories.
The firms contacted have not altered recently their plans with
respect to plant and equipment investment.
In a few cases, however, firms
reported that they are taking advantage of the slack in demand to make
repairs and upgrade existing equipment.
Homebuilders report an increase in persons looking for new homes
and some increase in new home sales was evident in June.
St. Louis
homebuilding activity was virtually zero in May when only about one-tenth of
the "normal" amount of new homes were started.
Starts in June are estimated
to be up, but still at a very low level compared with a year ago.
Some
residential real estate developers are beginning to experience increased
demand for lots from local builders reflecting the decline in mortgage
interest rates.
Overall loan demand is reported to be quite sluggish, reflecting
depressed business and consumer spending.
Mortgage loan demand at savings
and loan associations has picked up somewhat in recent weeks primarily for
loans on previously-owned houses.
Mortgage interest rates have declined to
around 12 percent in the St. Louis area.
Installment loan volume at banks
has declined in recent weeks, whereas agricultural loans have registered a
seasonal increase.
Following a relatively long period of decline, consumer
savings deposits at thrift institutions are reported to have increased in
recent weeks.
Most crops have been planted in the District.
Soil moisture
conditions in parts of Missouri and Kentucky are reported to be below
normal, although recent rains have relieved the drought situation in some
areas.
NINTH DISTRICT - MINNEAPOLIS
The Ninth District is not in a recession.
Total economic activity is
up from a year ago, and there are signs that conditions may have brightened
recently for the District's farmers and retailers.
District economy activity,
however, is being restricted by a further softening in sales of motor vehicles
and homes and in manufacturing activity.
No District Recession . . .
The District appears to be avoiding a recession.
Employment is up from
a year ago. Minnesota employment in May, for example, was up 2.3 percent from a
year ago while national employment was up only 0.5 percent.
Supporting the
employment data, directors' comments indicate that overall economic activity is
greater than a year ago.
In the District's eastern half, fairly strong indus-
trial output and nonresidential building are preventing the economy from declining.
Meanwhile, in the District's western half, oil and coal exploration
and production are boosting the economy.
There are also signs of improvement in District retail sales.
A major
retailer in the District indicates that its sales have recently picked up; in
June it expects its largest year-to-year sales increases so far this year.
Confirming this report, a Minnesota director reports that retail sales recently
have improved in his community.
District retailers, however, are still very
cautious and are watching their inventories closely.
Conditions have also improved somewhat for most District farmers.
Re-
cent increases in farm prices may have halted the decline in farm income this
past winter and spring.
Although drought conditions in northeastern Montana,
northwestern South Dakota, North Dakota, and northwestern Minnesota are still
endangering crop yields, most District crops have gotten enough rain to have a
good start.
While farm income is still down from a year ago, the decline is
probably not as large as was indicated by conditions several weeks ago.
. . . But Some Sectors Are Declining
While the District economy so far has avoided a recession, some sectors
are weaker than several weeks ago.
Motor vehicle and home sales have declined further.
In May, District
domestic auto and truck sales were down MM percent from a year ago, as contrasted to a 36 percent drop in April.
In addition, bank directors indicated
that their communities' housing sales in June have continued to decline from a
year earlier.
Not only motor vehicle and home sales, but manufacturing activity has
been declining. A majority of the manufacturers responding to a May survey
conducted by the University of Minnesota reported declining new orders and
production, many more than a year ago.
Reflecting poor motor vehicle, home, and manufacturing performance,
lending has weakened.
Mortgage loan applications at Minneapolis/St. Paul S&Ls
in June were down 60 percent from a year ago, as they were in April.
Despite
falling interest rates, this softening in home loans has spread to other types
of lending.
Loans at Minneapolis/St. Paul banks in mid-June were up 5 percent
from a year ago, as compared to an 11 percent increase in late April.
TENTH DISTRICT—KANSAS CITY
Business activity in the Tenth District is reflecting the national
downturn.
Weakening sales have led retailers to trim inventories.
Inventory
control is apparently even more of a problem for manufacturers, who are reducing input orders and production.
There is no sign of a revival in homebuilding
or house sales, although inflows to thrift institutions have improved slightly.
Livestock prices may increase somewhat later in the year and thus improve income
prospects in the farm sector.
Loan demand at commercial banks is generally
weak, as is deposit growth.
Most retailers contacted in this month's survey report that total dollar sales through May 1980 are somewhat better than in the first five months of
1979, but are slowing somewhat in the more recent months.
and appliances are particularly weak.
Sales of furniture
Costs are continuing to increase for all
types of merchandise, and at an increasing rate.
The latest cost increases
are expected to push up retail prices as retailers try to maintain markups.
While most retailers indicate that current inventory levels are satisfactory,
all retailers report that they have been trimming inventory levels slightly due
to softening sales.
Half the purchasing agents contacted report an easing off of input
price increases in recent months, and over two-thirds believe this trend will
continue as the year progresses.
Lead times for most inputs have been declin-
ing, and are expected to remain shorter than usual in the coming months.
About
half the purchasing agents indicate that inventory buildup has become a problem
and they they plan to reduce their orders to compensate.
Most firms contacted
have excess plant capacity, and over half have idled some workers.
About
one-third of the companies have recently cut back on their plant and equipment
expenditure plans due to slumping product demand.
Tenth District homebuilders1 associations indicate that housing starts
are down more than 50 per cent compared to last year, with single-family starts
leading the decline.
sales reported.
There is no sign of a revival in homebuilding or house
Many association spokesmen believe that potential home buyers
are waiting for mortgage rates to fall below 12 per cent before buying.
They
also report that inventory of unsold homes is not critically high, due to the
unusually low number of completions, and that home prices are holding steady.
A majority of savings and loan associations contacted report improved
savings inflows in May of this year compared to May 1979 and compared to the
first quarter of this year.
Most savings and loans expect to see only slight
improvement in savings inflows for the remainder of 1980.
While some noted
that demand for mortgage funds has picked up recently, others indicate that demand remains at very low levels.
Currently quoted rates on conventional mort-
gage loans range from 12 to 12.5 per cent with all District savings and loans
expecting rates to drop the rest of the year to between 11 and 11.5 per cent.
Beef supplies will continue to remain tight and the cattle price outlook is beginning to look more optimistic.
The numbers of cattle and calves
on feed in seven states were the lowest on any June 1 since 1975 and 11 per
cent below the level of one year earlier.
the lowest since 1975.
May marketings of fed cattle were
Additionally, May placements of cattle on feed were
off 13 per cent from levels of one year earlier indicating continued tightness
in the future supply situation.
Cattle prices may continue to increase some-
what throughout the summer due to the reduction in beef supplies.
Tenth District hog producers are facing grim prospects for profitability in 1980.
But hog prices have improved in recent weeks and some price
improvement is expected during the remainder of this year.
The hog and pig
inventory on June 1 was the largest on record, and producers are cutting back
on production.
A reduction in breeding stock along with lower farrowings
should help reduce pork supplies and bolster prices towards the end of the year.
Farm machinery and equipment sales throughout most of the Tenth District improved somewhat during May, with slightly more improvement expected
during June.
The improvement is apparently due mainly to various manufacturers'
programs including cash rebates, waivers of finance charges for up to 1 year,
and agreements to finance purchases at some percentage rate below the prime
lending rate.
Area bankers report that they are receiving little demand for
machinery loans.
Loan demand in the Tenth District is generally weak.
High lending
rates and a weakening economy appear to have resulted in a general decline in
the demand for commercial and industrial loans as well as consumer loans.
The demand for real estate loans, while still generally weak, has been strengthening in some parts of the District.
Some bankers also report that some cus-
tomers are experiencing economic difficulties and several bankers feel that
some of their local auto dealers are facing bankruptcy.
In the past month, the prime rate in the District has declined from
the 17 to 18 per cent range to the 12 to 13 per cent range.
terms generally remain unchanged.
either flat or growing slightly.
Nonprice lending
Most bankers report that their deposits are
For the first time in many months, demand
deposit growth appears to be in line with the growth of other deposit liabilities.
However, no deposit category is showing any exceptional strength.
ELEVENTH DISTRICT—DALLAS
The economy
of the Eleventh
District continues
to slide
recession, although the rate of decline appears to have slowed
into
recently.
Department store and new car sales continue to weaken but have posted slim
gains in some cities according to survey respondents.
New home sales have
picked up slightly with the decline in mortgage rates, and many potential
buyers are reported to be waiting for mortgage rates to decline further.
Increased
savings
inflows
have been
reported
Liquidity positions of S&L's have improved.
mercial banks remain soft.
for both banks and
S&L's.
Loan demands at S&L's and com-
Manufacturing output continues to decline, and
farm incomes are being squeezed by falling commodity
prices and
rising
costs.
Sales at department stores in the Eleventh District continue to
trend down but at a slower rate of decline than a month ago.
Sales have
firmed somewhat in Houston and Austin but remain lackluster in other major
cities.
Customers continue to buy selectively.
Apparel sales are holding
up well, while purchases of furniture and large appliances show signs of
slight improvement.
stepping
Retailers report inventories are not excessive and are
up promotions
and
price
discounts, at the expense
of
reduced
profit margins, to hold and expand market shares.
Unit sales of new cars and trucks remain well below the level a
year ago but quickened in June from the May level.
Recent sales have been
helped by an increased availability of funds at GMAC and Ford Motor Credit
Company.
The number of auto loans are also up a bit at a number of Dis-
trict banks.
Bankers report many inquiries for terms on auto loans, but
most are reluctant to borrow at the prevailing 14.5-percent annual
rate.
The decline in interest rates has reduced inventory costs for dealers, but
weak sales forced the bankruptcy of a major Dallas Ford dealer last month.
The outlook for residential construction has improved slightly.
Inventories of unsold new homes are not excessive.
Sales of both new and
used homes have picked up slightly in the last two months with the decline
in mortgage rates and increased availability of municipal bond funding 1n
the District.
sales.
Corporate relocations to this area also continue to boltter
However, the revival In home sales 1s not yet significant, as some
home purchases are being delayed as many potential buyers anticipate further declines in mortgage rates.
Prices are reported to be firm, with sub-
stantial discounts generally not available.
Liquidity positions of most S&L's in the District are much improved with a net inflow of savings deposits and the low rate of forward
commitments on mortgage loans.
Mortgage demands are not as
«
pected as many potential home buyers are waiting for further declines in
rates.
Although some survey respondents anticipate further significant re-
ductions in mortgage rates, most indicated the 9.25-percent rat® an 30month CD's could prevent mortgage rates from falling below 12 percent in
months to come.
Except for oil and gas and interim construction financing, loan
demands at commercial
banks remain soft.
Most business borrowers have
taken a conservative stance with respect to borrowing until the severity of
the recession is known.
Although auto loans have firmed slightly, demand
for consumer instalment loans at District banks is off a third from a year
ago.
Moreover, the rate of liquidation of instalment credit exceeds the
rate at which new loans are being extended, and applications for credit
cards remain flat.
Most respondents expect the current weakness in loan
demand will lead to further reductions in interest rates.
Total production in manufacturing continues to sag.
Such indus-
tries as lumber and wood, aluminum, tires, and rubber that supply the auto
and housing industries have trimmed their workweeks, increased layoffs, and
have scaled utilization rates down to as much as 50 percent of capacity.
Production of major chemicals is down somewhat, but firm demand in export
markets has prevented inventory buildup.
Refinery runs are reduced to less
than three-quarters of capacity due to sagging demand.
Onshore
storage
facilities are full, and crude oil cargoes are stacking up in the Gulf of
Mexico.
The decline in total output in the District is being offset some-
what by increased production by suppliers to oil and gas, highway construction, and public utility companies.
Manufacturers supplying these indus-
tries report large backlogs of unfilled orders and high rates of capacity
utilization and are proceeding with plant and equipment plans.
Several
steel and oil field equipment manufacturers are benefitting from increased
exports to Mexico's expanding oil industry.
Total
employment
is declining
slowly.
Employment in the con-
struction and retail trade industries is up from a month ago, although the
gains are far below the increase for the same period one year ago.
Newspa-
pers report no decline in the number of jobs advertised, but the number of
lines purchased in their want-ad sections are reduced.
An estimated 5.8
percent of the labor force is currently unemployed in Texas.
Despite
a
bountiful
wheat
harvest,
farm
incomes
are
being
squeezed hard by declining prices and rising costs of fuel, fertilizer, and
machinery.
Loan carry-overs remain a problem in many areas, although most
farmers have paid off last year's loans.
readily available.
Funds for agricultural loans are
Production of crops and livestock in the District will
be adversely affected if the current heat wave persists.
TWELFTH DISTRICT - SAN FRANCISCO
Business prospects remain fixed in the Far West.
The aerospace-
producing centers of California and Washington show signs of health, but
other areas have been hurt by the recession and (especially) by the three
major eruptions of Mount St. Helens.
Losses of timber and crops, plus
clean-up costs, may approach $3 billion in areas affected by the fallout of
volcanic ash in Washington, Oregon, Idaho, and parts of Montana.
Short-term
damage to agriculture and to the health of residents living in the path of
the ash showers has been less than originally forecast.
But questions remain
about the eruptions' long-term impact, especially on the regions' "clean
environment" appeal to tourists and to the previously booming electronics
industry.
On the agricultural front, lingering cool weather has delayed the
almond harvest and the cotton and fruit crops in California's Central Valley,
while ash showers have put a crimp in Washington's alfalfa and apple crops,
in addition to damaging harvesting machinery and irrigation pumps located
in ash-silted rivers.
Housing activity remains quite weak throughout the
District, although some recovery is anticipated for late summer or early fall
if mortgage rates continue to decline.
In the retailing sector, southern California and the Seattle-Tacoma
area are outperforming most other regions of the nation.
In Los Angeles-
San Diego, sales are 12.6 percent above year-ago levels, despite a
substantial decline in big-ticket purchases.
Major regional shopping malls
around Puget Sound reported business "like the old days" toward the end of
May, with furniture sales outpacing other big-ticket items.
Otherwise,
retail sales remained generally flat in the West.
Credit-card usage has
declined considerably, while cash sales are increasing.
Concern of consumers
about the length and depth of the recession has been reflected in cautious
spending habits.
Variety discount stores, along with hardware and do-it-
yourself lumber outlets, have been the strongest retail performers.
Housing activity remains sluggish, although the recent downturn in
mortgage rates has stimulated listings and sales in the last month.
However,
housing-starts activity is only one-third to one-half of year-ago levels.
Markets for both lower-priced homes and expensive homes appear fairly active,
but markets remain weak for medium-priced housing.
Home prices have risen 7 percent to date this year in southern
California, while increasing at a lesser rate in Washington and Utah.
Analysts believe many potential home buyers are waiting for a further drop
in interest rates to around 10 percent before purchasing.
Inventories of
unsold new homes are moderate to low in most areas, and builders reportedly
are cautiously optimistic about a rebound in home-buying activity.
The timber industry of the Pacific Northwest, already buffeted by the
recession and the weak home-building market nationwide, was dealt another
blow by the volcanic eruptions.
About 128 lumber operations in the path of
the ash fallout reported cutbacks due to ash and flooding.
had indicated very heavy losses to the timber industry.
Initial reports
But perhaps 90
percent of the 44,000 acres of fallen timber can be salvaged, provided that
roads and bridges are restored to allow access to the devastated woodland
and that log-cutting machinery and tree-hauling vehicles are not damaged
by the ash.
California is anticipating a banner tourist year, based on a busy
spring season.
But tourism and restaurant sales are suffering in the
Pacific Northwest as a result of the volcanic eruptions, the recession, and
poor spring weather.
Some Northwest resort areas report a 20 percent to
50 percent falloff in business, with some convention bookings canceled
heading into the busy summer season.
Public and private agencies, however,
have leaped into action to resuscitate the tourist industry and to dispel
the region's image of being covered by volcanic ash.
In the agricultural sector, unseasonably cool weather has reduced
cotton production 10 percent to 20 percent in California's agricultural
heartland and has also delayed fruit production and diminished the almond
harvest.
Because of a delay in the ripening of fruits and some vegetables,
a glut could result if most of the major harvests reach market at the same
time, pushing down prices at the retail level.
In Washington, about 15 percent to 20 percent of the state's winterwheat crop was flattened by the ash storms.
The ash also has caused excessive
apple "drops" in the prime apple-producing Yakima Valley, with growers
expecting a 20 percent decline to 20 million bushels this year.
Washington's
alfalfa crop was hit heavily by the ash fallout, but southern Idaho's
alfalfa crop ia the best in 10 years.
Meanwhile, many bond buyers, weary
about investing in the securities of communities affected by the eruptions,
have raised interest rates 1/4 to 1/2 percent above normal levels on such
issues.
A major southern California bank reported a sharp falloff in commercial
and consumer loans in the spring period.
However, it also reported a slight
turnaround in savings deposit inflows in early June.
Cite this document
Federal Reserve (1980, July 8). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19800709
@misc{wtfs_beige_book_19800709,
author = {Federal Reserve},
title = {Beige Book},
year = {1980},
month = {Jul},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19800709},
note = {Retrieved via When the Fed Speaks corpus}
}