Beige Book
CONFIDENTIAL (FR)
CURRENT ECONOMIC COMMENT BY DISTRICT
Prepared for the
Federal Open Market Committee
by the Staff
December 15, 1982
TABLE OF CONTENTS
SUMMARY page i
First District - Boston page I-1
Second District - New York page II-1
Third District - Philadelphia page III-1
Fourth District - Cleveland page IV-1
Fifth District - Richmond page V-1
Sixth District - Atlanta page VI-1
Seventh District - Chicago page VII-1
Eighth District - St. Louis page VIII-1
Ninth District - Minneapolis page IX-1
Tenth District - Kansas City page X-1
Eleventh District - Dallas page XI-1
Twelfth District - San Francisco page XII-1
SUMMARY*
[Asterisk: Prepared at the Federal Reserve Bank of New York.]
Overview:
Economic activity in most Districts showed some signs
of improvement except in the manufacturing sector.
Weakness in
manufacturing remained pervasive with some further layoffs reported and,
for the most part, little or no upturn in new orders.
Consumer spending
strengthened in November but several Districts noted sluggish
early-December sales.
Housing sales and starts registered gains in most
regions although the oversupply of office space kept nonresidential
construction generally slow.
In several agricultural areas a further
decline in farm income and land values overshadowed the few bright spots
that appeared.
Commercial bank lending was essentially flat in most
reporting Districts.
The general outlook ranges from a slight upturn
during the next six months to little pickup until late 1983.
Consumer Spending
Since the last report, consumer expenditures posted some gains
on both a month-to-month and year-over-year basis, helped in part by
promotional activity.
Nonetheless, no real exuberance was displayed.
Auto sales picked up in several areas in response to lower finance
charges but these lower rates are scheduled to end soon.
With regard to
the overall outlook for retail sales during the holiday season, the most
optimistic report was from Boston ("solid but unspectacular").
Several
Districts experienced good consumer buying immediately after Thanksgiving
but sluggish sales thereafter.
One factor cited was the trend in recent
years of a shift in sales to the end of the holiday season.
Inventories
were generally in line though one District reported that inventories
overall were high.
The San Francisco and Atlanta Banks noted relatively
strong tourist demand at areas in Hawaii, Oregon and Florida.
Manufacturing and Mining Activity
The manufacturing and mining sectors continued to languish
throughout the nation.
Although a few Districts observed scattered signs
of improvement, most reported that shipments and new orders remained
stagnant or declined further in a broad range of industries.
San Francisco, Minneapolis, and Chicago reported that timber mills, iron
mines, and producers of steel, industrial equipment, and castings were
operating at half capacity or less.
In Cleveland, manufacturers of steel
mill and other industrial equipment were hurt by the cancellation of
customers' capital expansion plans.
Boston and New York expressed some
concern for future bankruptcies in manufacturing if sales did not turn up
soon.
areas.
Even the business of high technology firms slackened in some
In many industries, widespread cost-cutting measures continued,
including layoffs, shorter workweeks, and longer-than-usual Christmas
shutdowns.
Despite the pervasive sense of sluggishness, however, a few
bright spots emerged.
In Richmond, sales of textile firms increased
significantly, and in St. Louis, food processors noted a slight
improvement.
Several Districts indicated that suppliers of building
materials and selected home furnishings were beginning to feel a pickup
from the increased activity in the residential construction sector.
Defense contractors were still doing well.
Construction and Real Estate
The housing market improved in many parts of the country.
Districts even experienced substantial gains.
A few
St. Louis, for example,
reported that new home sales were greater this November than in any other
November in recent years.
In Kansas City, increased activity reduced new
home inventories to an all-time low, and led to a significant increase in
housing starts.
These improvements in the residential real estate market
were largely attributed to the decline in interest rates and to stable or
lower home prices.
The office market, however, continued weak in most
areas of the country due to a glut of existing office space from
overbuilding and decreased demand.
Chicago and San Francisco were
especially hard hit, whereas New York and Richmond reported modest
strengthening in some areas of their Districts.
These latter two
Districts, along with Dallas, also noted a slight pick-up in industrial
construction activity.
Agriculture
In general the agricultural sector continued to experience low
net income resulting from depressed prices and little or no decline in
overall costs.
Grain, corn, and soybean farmers saw only a small chance
of profit from the 1982 crops and Dallas beef producers were preparing
cattle for slaughter rather than for breeding because of unfavorable
economic conditions.
Some farmers, however, were doing well.
For
example, prices were up and the cost of feed held steady or declined for
Minneapolis and St. Louis hog producers, and good crop yields were
expected to bring a profitable year for Atlanta cotton growers.
downtrend in the price of farmland continued in areas such as the
The
Richmond District where, in addition, farm business failures were still
above normal.
In the Northwest the timber industry remained depressed
due to low domestic and foreign demand.
Finance
Commercial bank lending was essentially flat in most reporting
districts.
In Minneapolis and Philadelphia corporate lending was down as
businesses turned to the bond market, but consumer borrowing
strengthened.
In Kansas City, however, the reverse occurred: corporate
loans increased while consumer loans were flat.
Deposit flows improved
somewhat at most commercial banks and at some thrift institutions.
Outlook
In many Districts, a number of signs pointed to somewhat
brighter prospects for consumer spending and construction.
Retailers
were cautiously optimistic that recent gains would continue into the new
year.
While the outlook for commercial construction remained weak,
homebuilders were hopeful that their modest pickup would accelerate.
As
for manufacturing, there was no consensus on how soon the advances in
retail and construction activity would result in increased production.
Several Districts did note that orders of a few firms were beginning to
improve.
But manufacturers in many Districts saw little chance of a
general upturn before the second half of 1983 or even early 1984, and
many have turned more pessimistic because the recovery has been so slow
in coming.
Inventories in manufacturing are lean in most regions and
when business activity does turn up, production should rise quickly to
meet the higher demand.
FIRST DISTRICT - BOSTON
Economic conditions in the First District are much the same as they
were last month.
Retailers continue to experience relatively good sales
growth and look forward to a "solid" Christmas season.
are generally satisfactory.
Retail inventories
Among the manufacturers contacted, most of
whom produce capital goods, orders are flat to down and no recovery is
expected until the second half of 1983 or later.
Firms are using
combinations of wage freezes, reduced hours, plant shutdowns and layoffs to
bring down costs.
Among the few positive developments was a report that
sales of hardware for new and remodelled homes have picked up.
Also
suggestive of a recovery in housing was a report by a banking director that
his bank did more mortgage business in the month of October than in any
previous month.
Retail
Most retailers contacted in the First District reported
"high
single digit" sales growth in November compared to a weak November last
year.
Those with branches or associated stores elsewhere in the nation
said sales were much stronger in New England than in the Midwest or Sunbelt
regions.
goods.
In some local stores durables seem to be selling better than soft
The merchants expect solid but unspectacular Christmas sales.
One of the area's major department stores experienced a sales
increase of 9.2 percent over November 1981.
This growth was attributed to
the strength of the New England economy and the store's moderate - upper
income customer base.
A discount chain with 9.6 percent sales growth in
New England encountered sales declines in their Midwest and Southeast
stores.
The growth in New England was especially strong in hard goods;
kerosene heaters were very popular.
Both chains claimed that unseasonably
warm weather had reduced sales of cold weather-related goods.
On the whole, inventories were reported to be at satisfactory
levels.
The two department store chains had "excessive" inventories last
year; this year they are keeping stocks tighter but flexible.
A mail order
outdoor specialty firm and a pet store chain have increased inventories
well above last year to improve customer service and encourage impulse
holiday buying.
Several of the merchants contacted said that sales results so far
are consistent with the trend over the last few years for Christmas sales
to occur closer and closer to the end of the month.
They also expressed
concern that heroic promotional efforts would be required once the
snowballing effect of holiday purchasing ends.
Manufacturing
For most of the manufacturers contacted, order rates are unchanged
or declining.
The Redbook group includes firms in such high technology
industries as computers, telecommunications equipment and control
instruments, as well as manufacturers of machine tools and specialized
industrial machinery.
Neither the high tech firms nor firms from more
traditional capital goods industries expect a significant pickup in their
own operations until the second half of 1983 or the early part of 1984.
However, one machine tool maker said that if present conditions persist for
another six months, many firms will go out of business and the capacity of
the domestic machine tool industry will be permanently reduced.
This
sentiment was repeated by a bearings manufacturer, who also pointed out
that while book prices for bearings are rising, large buyers are
negotiating discounts of 20-30 percent.
All the firms contacted are trying
to bring inventories and employment levels into line with current orders
with combinations of layoffs, wage freezes, reductions in hours, and
Chirstmas shutdowns.
The high tech firms, which fared relatively well
earlier in the recession, seem to be relying more on wage adjustments and
Christinas shutdowns.
While reports from the manufacturing sector were generally
discouraging, there were a few positive developments.
Orders were up for
hardware used in building and remodelling residential housing.
also up for machinery to make circuit boards.
Orders were
Products which save money,
for example, energy efficient lighting, and which increase productivity,
for example, office automation equipment, continue to sell well.
The
defense business is strong.
Professors Eckstein, Samuelson, and Houthakker were available for
comment this month.
All agree that the economy is still weak and that the
recovery is not yet assured.
will begin soon.
They all predict that some sort of recovery
However, they differ in their assessment of the
probability of recovery and what the Fed should do to help the economy turn
the corner.
Eckstein was the most pessimistic of the three.
He believes that
before it is over the slide in business fixed investment will be the worst
since 1931.
His confidence in a consumer-led recovery has diminished
because he foresees no growth this quarter and little growth next quarter
in real disposable income.
His pessimism about next quarter is partially
attributable to scheduled increases in excise taxes and the social security
tax base and the proposed hike in gasoline taxes to finance public works.
He also feels the inventory-sales ratio is too high for this stage of the
business cycle.
Given his uncertainty about the recover)', Eckstein strongly urges
the Fed to do everything in its power to bring interest rates down at least
to the point where the prime rate is 9 percent.
When asked about the
current search for a reliable aggregate he exclaimed
"aggregates,
shroagregatesI" He'd like Congress to help out by accelerating the 1983 tax
cut, but he doesn't think it is politically feasible.
Samuelson believes that the economy will probably turn the corner
if the Fed continues its "slight departure from narrow monetarism to ease
nominal and real interest rates."
In his opinion, such a policy would not
regenerate inflationary expectations or damage the Fed's credibility.
However, because he thinks that further increases in the 1983 deficit would
rekindle such expectations, he is opposed to short-term temporary jobs
programs at this time.
Houthakker believes that, in light of recent improvements in
housing and autos and the continued improvement in inflation, the economy
will not deteriorate further and a recovery will take place in early 1983.
He urges the Fed not to "pump up" the money supply to accelerate this
process.
If it did, renewed inflation would push interest rates back up,
plunging the economy back into a recession.
He thinks that setting of
growth targets for business loans is a promising idea that merits further
consideration.
He is encouraged by Secretary Regan's proposal for a new
international monetary conference.
He favors less flexibility in exchange
rates and believes that many of our economic problems in the 1970s are
attributable to the breakdown of the Bretton Woods agreement.
SECOND DISTRICT—NEW YORK
In recent weeks the Second District economy showed a few signs
of improvement, but the manufacturing sector remained depressed.
Promotions sparked early holiday shopping in the District and resulted in
a further strengthening of retail sales.
Declining mortgage rates
produced a modest rise in home sales, and builders were cautiously
optimistic about further growth.
Recent developments in the
nonresidential real estate market were mixed, but some improvement did
occur on balance.
In manufacturing, however, business leaders saw no
pickup and reported increasing pessimism about the short-run outlook.
Consumer Spending
Promotional efforts spurred early holiday shopping in the
District, and pushed year-over-year gains in November above those of
earlier months.
This strength was expected to continue through the
holiday season.
The eastern region in general met or exceeded sales
plans for those national retailers contacted, while sales in much of the
rest of the country continued to lag behind.
Apparel, cosmetics,
housewares, and consumer electronics were all reported moving well.
Seasonal increases in employment matched year ago levels for most stores,
and inventories were generally in line with planned sales.
Retailers who
had experienced a poor fall season expected business to be difficult
again in 1983, but those with better sales in September and October
looked forward to further gains in the new year.
Construction and Real Estate Activity
The residential construction market showed additional signs of
life during November though the rise in new home sales was modest.
Moderately priced homes geared to first-time homebuyers sold well.
The
existing home market also experienced a pickup in sales activity.
Declining mortgage rates were cited as a major factor in the sale of both
new and existing homes.
As a result of the renewed interest on the part
of actual and potential buyers, builder optimism increased though some
expressed concern that interest rates might rise again because of high
credit demand.
The nonresidential real estate market also improved but demand
for space continued weak in many areas of the District.
Activity and
planning by office developers increased in midtown New York City even as
the downtown market remained soft.
suburbs:
The pattern was also mixed in the
leasing activity was up in New Jersey and new construction
occurred in Westchester and Long Island, while in Connecticut the slow
pace of previous months persisted.
Industrial construction remained
depressed throughout the District, although some pickup was reported on
Long Island.
Business Activity
The manufacturing sector continued to be very weak except for
the relatively healthy high technology and defense industries.
Overall
sales remained poor in industries ranging from metal fabricating to
furniture.
production.
Many companies were finding it difficult to maintain steady
At a few concerns, however, orders were bolstered by a
unique product line or the closure of a competitor.
Cost-cutting
measures continued, including layoffs and the spreading out
of pay increases over longer periods of time.
were expected to be longer than usual.
Shutdowns for Christmas
Scattered recalls of workers
occurred only in response to specific orders and therefore were viewed as
temporary.
Although the recent drop in interest rates eased liquidity
problems somewhat, several companies were thought to be bordering on
insolvency and in need of buyers to bail them out.
The nonmanufacturing
sector still has not suffered a severe downturn, with some expansion
continuing in the financial and service industries.
Outlook
The outlook for retailing and construction brightened, but our
manufacturing contacts reported a deepening pessimism about the future.
When the rate of deterioration slowed in September, these same contacts
expressed a "glimmer of hope" that an upturn would begin within a couple
of months.
Since then, the recovery has proven elusive and that glimmer
has disappeared.
If demand should pick up, however, companies will be
able to increase production quickly since inventories, except for cars,
have been reduced to very low levels.
One of our respondents cited a
lack of a coherent policy at the national level as the source of the
pervasive gloom.
Financial Panel
This month we have comments from Donald Maude (Merrill Lynch),
Donald Riefler (Morgan Guaranty Trust), and Francis Schott (Equitable
Life Assurance Society):*
[Asterisk: Their views of course are personal, not institutional.]
Maude:
A sustained economic recovery cannot get under way
unless interest rates are brought down further.
However, the Fed is
running out of leeway for bringing down these rates by pushing down the
funds rate and the discount rate.
The credibility issue is growing and
will become more real once the markets see signs of economic recovery.
To bring rates down in a credible fashion, the Fed should quantify
publicly to the markets the magnitude of precautionary balance building
that has bloated M-l over the past year, go back to shift adjusting other
checkable deposits and come up with 1983 M-l targets more realistic with
trend changes in velocity and M-2 targets that net out the bloating of
interest-crediting to those components earning market rates of interest.
Riefler:
There is a real danger that the specter of higher
interest costs that may be incurred by banks in competing for deposits in
new DIDC authorized accounts will slow banks' willingness to reduce
lending rates.
This in turn may delay the rebound in consumer spending
that would be normal at this stage of the business cycle.
Schott:
Signs of revival in housing and automobiles and
improved cash flow at thrifts and life insurance companies raise the
question whether the Fed has done enough to stimulate recovery.
evaluation period may be appropriate.
An
Nevertheless the number and extent
of trouble situations domestically and internationally suggest that the
indirect assistance of a further easing of credit conditions may well be
advisable.
THIRD DISTRICT - PHILADELPHIA
Indications from the Third District are mixed in December.
Activity in the
industrial sector declined fractionally from November levels and manufacturing prices
reflect that slump.
Retailers say spending has risen slightly since the last Redbook but
Christmas sales are still slow.
are healthy.
Loan activity is mixed at area banks, but deposit flows
Most Third District business contacts are projecting some improvement in
economic conditions over the next six months. Manufacturing executives are looking for
increased activity by June but remain cautious nonetheless.
Department store sales are
expected to show modest gains, although the 1982 holiday season will be below average.
Bankers are forecasting some gains for commercial and consumer lending in the first half
of 1982.
MANUFACTURING
Third District manufacturing activity has resumed its downward slide in
December,
according
to respondents
to the most recent Business Outlook Survey.
Specifically, shipments are down at over one-third of area plants and new orders fared
only slightly better.
Although there has been further tightening of industrial stock levels
recently, there are some signs that inventory run-down has abated somewhat. Setbacks
for labor, on the other hand, continue with no apparent moderation.
Reports of reduced
payrolls and shortened working hours are as prevalent now as they were in November.
Survey
participants
remain
recovery over the next six months.
optimistic
in their projections of
industrial
Local manufacturers' outlooks have, in fact,
brightened a little in December, in spite of the continuing slump.
Respondents are
expecting a strong push in new orders that will rebuild backlogs and allow employers to
expand both payrolls and the average workweek by June. Fractional additions to
inventories are forecast, as well.
There are few plans for increases in plant and
equipment expenditures, however.
Industrial prices also show further softening in December. Prices of finished
goods have been cut again and input costs have not changed from their November
levels.
Prices are expected to start climbing again between now and June, coincident
with the projected rebound in activity.
RETAIL
December sales at Third District department stores are building slowly as the
holiday buying season ends its second week, but area sales volume is still fairly soft
overall, according to retail contacts. Current dollar sales are ranging only 3 percent to 4
percent ahead of last year; real gains are slim at best. Sales of Christmas related items,
while pretty much in line with merchants' expectations, are considerably below past
holiday experiences.
Ten days of unseasonably warm weather following Thanksgiving put
a damper on holiday shopping spirit and thus kept the lid on spending. In addition, local
store officials say the Philadelphia retail market has become exceptionally tough over
the last two years as economic conditions deteriorated.
Seasonal sales are heavily
dependent on promotions and price discounting, often at the expense of full price sales.
As a result, merchants are starting their big holiday pushes earlier and more forcefully.
Recently, one local retailer extended an 18-hour "one-day-only" sale to three days in an
effort to encourage spending.
Retailers predict that sales growth will remain slow but steady throughout
the holiday season.
Contacts believe that shoppers are watching their dollars closely
though, and that the usual late season surge may be relatively minor. An extra shopping
day on the retail calendar this year will help a little, but sales gains for the season and
the year as a whole should remain in the 3 percent to 4 percent range. Projections for
1983 show more of the same for retail sales. Next June's current dollar sales volume will
be 4 percent to 6 percent ahead on a year-over-year basis, according to merchants'
forecasts.
The pickup in sales, though small, has helped bring inventories more in line.
Stock levels are lean but generally in "good shape" and comparable to levels of a year
ago.
Industry representatives say they will keep stocks in check until the sales outlook
improves.
FINANCE
Third District banking contacts report mixed loan activity in December.
Commercial loan demand, as expected, has softened even more since the last Redbook.
Chiefly responsible is the move toward the corporate bond market.
Distress borrowing
has faded somewhat, as well.
As a result, overall C&I loan volume is now running only
barely above last December.
On the other hand, lower interest rates have made retail
loans more attractive.
Activity in consumer loans has increased since November, but,
for the most part, volume still trails year-ago levels.
One contact noted that some
consumer loan dollars were being diverted away from automobile loans to new leasing
arrangements because customers have been unwilling to make large auto downpayments.
Forecasts of loan activity over the next six months are mixed but point to
some improvement. Bankers agree that further retail loan growth is likely, especially if
rates drop further.
Projections for commercial lending range from flat activity, if
economic recovery stalls, to a modest upswing if business conditions improve.
Third District bankers are quoting a prime rate of 11.50 percent, down from
12 percent a month ago.
The slide in the prime has slowed recently and caused many
local seers to revise their outlooks for interest rates. A trough for the prime of around
11 percent is forecast for early 1983 and any movement in the next six months is likely
to be "slow and modest."
Deposit flows are very strong again this month.
Demand deposits have
improved since November and are now running 3 percent to 4 percent ahead of a year
ago. Time deposits gained strength as well, with unexpectedly robust growth in the 7 to
31-day time deposits leading the way.
One reason cited for this burst of activity is that
dollars intended for the new money market deposit accounts are being held in the 7 to
31-day accounts temporarily, until MMDAs are offered on December 14th. Bankers have
high hopes for the MMDA, and expect to attract a significant amount of deposits away
from the money market funds.
FOURTH DISTRICT - CLEVELAND
Summary.
remain dismal.
are sluggish.
industry.
Economic conditions and the outlook in the Fourth District
Unemployment is high and rising.
Early December retail sales
Little near-term improvement is seen for the automobile
The steel industry is in desperate condition.
Survey results and
leading indicators point to further contraction of manufacturing.
construction is showing only a little improvement.
House
On the bright side,
scattered indicators of disinflation continue.
Labor Market Conditions.
Unemployment continues high and rising.
The
November unemployment rate was 14.2 percent (sa) in Ohio and 12.1 percent in
Pennsylvania.
The District's eleven major SMSA's unemployment rates (nsa) in
October ranged from 8.9 percent in Columbus to 19.7 percent in Youngstown, and
averaged 3.2 percentage points above the national rate.
The unemployment rate
has reached 21 percent in Lorain County, adjacent to Cleveland, as
shipbuilding, automobile and steel industries have stagnated.
The United Mine
Workers union reports only AO percent of active members in Ohio are working.
Consumer Spending.
Two major department store chains in the midwest
report Christmas season sales are moderate to sluggish so far, perhaps because
of unusually warm weather.
above the year-ago level.
Both expect real sales this season about 1 percent
One chain reports inventories are somewhat high and
expects it will take a record amount of price promotions to achieve their
forecast; the other says inventories are smaller than usual and promotions
won't be as aggressive as last year.
Both expect sales volume to be
concentrated closer to Christmas than in previous years because of a secular
trend in that direction and because unseasonably warm weather has delayed
sales of apparel.
One chain expects real PCE to rise 4% (saar) this quarter
from last and, assuming a continuation of automobile purchase incentives, to
rise 2 1/2% in the first quarter.
Automobiles.
Automobile inventory adjustment appears near completion
but a near-term sales reduction is expected by industry economists.
November
sales were better than expected by one major producer, who believes some of
the sales were borrowed from next quarter.
The firm projects import and
domestic sales at 7.4 million units (saar) next quarter, unless all domestic
producers were to give sales incentives on 1983 models, in which case sales
might reach 8.0 million.
and 1983 models.
Current sales are divided about evenly between 1982
Inventory will still be a little too high at yearend.
The
firm sees no change in inventory next quarter, and industry production will be
only slightly above fourth quarter levels.
Employee recalls to produce certain
models will be offset by temporary layoffs from other model production
facilities, so there will be little net increase in employment next quarter.
Another major automobile producer expects December sales will drop
about 8 percent from November, partly because fewer of the popular 1982 models
are left.
First quarter sales will be down slightly from this quarter, as
sales incentives terminate at year-end.
Production will rise somewhat next
quarter to build inventories for second quarter sales, but seasonally
adjusted, inventories will be flat.
Some employees will be called back next
quarter.
Manufacturing.
Manufacturing activity continues to contract, although
less rapidly than earlier in the year.
A survey of purchasing managers
reveals further reductions in inventories of raw materials, supplies, and
finished goods.
A record percentage of firms are purchasing production
materials on a hand-to-mouth basis.
The survey shows new orders, production,
and employment continue to decline.
A diversified producer of parts for cars,
trucks, and materials handling equipment reports his orders are weak because
many customers are cancelling capital expansion plans.
trucks are the lowest since 1967.
1983:IVQ.
Orders for heavy
He expects no upturn in his business before
A producer of consumable equipment for the mining industry sees no
sign of an upturn in orders.
This bank's survey of Fourth District
manufacturers shows December declines in new orders, shipments, backlogs,
inventories, and employment, although the declines are expected to be somewhat
smaller than in November.
Indexes of leading indicators point to further
decline in Pittsburgh but a bottoming in Cleveland.
An index of leading
indicators for the Pittsburgh area registered its 17th consecutive monthly
decline in October, while the index for the Cleveland area has been advancing
erratically and in September stood 2.5 percent above its April low.
Steel.
The steel industry is in severe distress.
A major steel
producer reports further declines in shipments, inventories, orders and
employment.
Fourth quarter shipments are expected to be less than 13 million
tons for the industry, 29 percent below the depressed year-ago level, and
orders received so far give no indication of first quarter improvement.
Another major producer describes the market as "unbelievably weak," and
expects further drops in shipments and employment.
The firm is operating at
20 percent of capacity, with only one of twelve blast furnaces in operation,
and is no longer certain of survival.
The firm projects industry losses
larger this quarter than last because shipments and transaction prices are
lower.
Steel mills are reducing inventories to generate cash as working
capital continues to erode.
Several firms plan to liquidate inventories, draw
down lines of credit, and sell off assets to delay bankruptcy while waiting
for economic recovery.
Survival of some producers is contingent on economic
recovery and strengthening of steel demand by mid-1983.
stocks of oil country pipe are still high.
Another firm reports
Steel producers have sharply
reduced capital expenditure plans, hurting steel mill equipment producers, who
see no upturn in their sales before 1984.
Construction.
A major builder of houses forecasts national housing
starts of 1.3 million units in 1983, up from about 1.1 million this year.
However, builders see a slower recovery in this District, where there are
scattered reports of mild increases in house construction.
In the Cleveland
area, bankruptcies among contractors and building-material suppliers in 1982
are up 36 percent from last year, and will account for one-third of total
corporate bankruptcies.
Prices.
Scattered indicators of disinflation continue.
Retailers in
Cleveland are offering unusually extensive pre-Christmas price reductions.
Some Teamster Union locals in Cleveland have been bidding against each other
with wage concessions to obtain employment, but steelworker union local
presidents recently rejected concession adjustments to the current labor
contract.
Industrial vendors are reported to be offering deep discounts to
obtain orders.
A survey of purchasing managers reveals more price declines
than increases, while a survey of manufacturers predicts prices they pay will
not change from November to December.
FIFTH DISTRICT - RICHMOND
Overview
Recent economic and business activity in Fifth District could best
be described as flat.
On balance, manufacturing activity showed little change
over the past month, although within the sector substantial differences
persist among industries.
Shipments and new orders were essentially flat,
overall, and manufacturer's inventories were down slightly, as was employment.
Retailing showed much the same pattern with total sales, relative sales of
big ticket items, and inventories all holding at month earlier levels.
There
appear to be significant differences among areas and among product categories,
however.
According to some reports, housing sales and construction have been
picking up, perhaps substantially.
Expectations are more positive than in re-
cent weeks as most respondents anticipate improvement in their business activity in the near term.
Manufacturing
Manufacturing activity across the district held its own over the past
month, although for a number of industries current operating levels are quite
low.
Survey responses suggest little, if any, net change in the level of ship-
ments, new orders, or order backlogs.
some interesting developments.
This aggregate stability, however, masks
Chief among them is an apparent sharp rebtmnd
in the textile industry where several respondents report gains in shipments and
orders.
Another is the at least temporary arrest of the decline in activity
among building materials and furniture manufacturers.
Also, there is no dis-
cernible concentration, but only isolated reports of further declines in activity over the past month.
On the other hand, there is no evidence of any improvement on the manufacturing employment front.
In fact, responses suggest further declines in
employment since the last survey.
Inventories were brought down somewhat, and
most respondents are now comfortable with current levels.
Consumer Spending
By all accounts the consumption sector has been a mixed bag in recent
weeks.
Reports vary widely from sector to sector and from locality to locality.
It appears that consumer activity is picking up, but that it remains very
spotty.
where.
Consumer durables other than autos continue to languish nearly everyAuto sales are showing marked improvement in some areas, but continue
generally weak.
General merchandise lines are experiencing typical holiday
buoyancy in some localities, continued softness in others.
Housing and Construction
There is growing evidence that the housing sector is in a modest upswing that began some 2-3 months ago.
Permits and construction activity seem
to be up generally, although this is not true everywhere.
Also, sales activity
is reported to be improving in many areas, significantly in some.
Commercial
and industrial activity is very strong in some areas and reports of improved
conditions in markets for this property are becoming more widespread.
The Financial Sector
Financial institutions are generally preoccupied with the coming of
the MMDA.
Promotion has been moderately heavy but short on the specific terms
to be offered on the accounts.
Bankers seem to be expecting relatively little
new money to be available to individual banks as a result of this account.
Most bankers contacted expect only very modest inroads against MMFs in the
near term.
initally.
They see perhaps 5-10% of MMF assets as potentially available
Further, they expect most of the growth in MMDA in the early stages
to be at the expense of savings accounts.
Most District institutions have been
holding back on announcing pricing arrangements.
Some advertising of specifics
has been designed to capture new deposits at the outset and offers initial
yields in the 12-15% range and 2-3 points above the 91 day T-Bill rate beyond
that.
It is too early to tell what will happen beyond the first month or two
of the new deposit instrument.
Agriculture
Fifth District farm credit conditions in the third quarter of 1982
were marked by declining interest rates, continued sluggishness in farm loan
demand, slow farm loan repayment rates, and an increase in requests for loan
renewals and extensions.
Fund availability again improved, and liquidity
pressures on rural banks eased.
The downturn in farmland values continued,
further eroding farmers' equity positions.
Moreover, the proportion of District
farmers that went out of business, filed for bankruptcy, or liquidated part
of their assets in the past six months was said to be much larger than normal.
SIXTH DISTRICT -
ATLANTA
Late fall economic conditions in the Southeast show mixed signs. Construction
continues to improve, generating optimism among construction-related manufacturers.
The labor market appears to be stabilizing, and job growth in some sectors is accelerating.
Optimism prevails in the travel industry. However, the profit potential for most farmers
remains clouded and consumer spending has yet to show a pre-Christmas surge.
Employment and Industry.
an
end
to
the
deteriorating
labor
Latest available statistics on employment imply
market
conditions
reported
previously,
but
unemployment continues to rise, and reports from industry representatives on capital
spending plans indicate that the outlook for increased hiring is inauspicious.
October
figures indicate that declining construction employment finally may have reached bottom.
Rates of decline are decelerating in several construction-related manufacturing sectors,
such as lumber, wood, stone, clay, and glass.
manufacturers
Bankruptcies
among
lumber-related
are reportedly on the wane, although some smaller firms may have
trouble surviving until the seasonal spring upturn in housing.
Except in government
and trade the rate of growth in other nonmanufacturing sectors accelerated in October.
Job attrition continued in most manufacturing sectors, and for the first time since
World War II the District's unemployment rate reached 10.5 percent.
Our survey of firms and trade associations reveals moderate optimism among
producers of construction-related goods, such as lumber and carpets, and among makers
of structural steel. The latter expect government spending on defense and infrastructure
to stimulate demand.
However, chemical manufacturers do not share this optimism.
Even in industries with capital spending plans, job creation is likely to be minimal
because the impetus is cost-cutting efficiency rather than growth-related expansion.
Consumer Spending.
activity
compared
to
the
District retailers report generally higher promotional
same period
last
year.
They
regard
immediate
post-
Thanksgiving consumer buying to have been good, as expected, but the subsequent lull
is lasting longer than usual.
Consumers are delaying holiday purchases in hopes of
deep discounts in the last few weeks before Christmas.
continue to show improvement in some areas.
exercise
equipment,
small
appliances,
Big-ticket home furnishings
Purchases of personal computers, tools,
and
cosmetics
generally
remain
strong.
Unseasonably warm weather has caused winter apparel to move slowly, but luxury wear
has noticeably improved.
In contrast to 1981, retailers are comfortable with inventory
levels and are not likely to reduce prices more.
narrow further.
Thus, profit margins are unlikely to
However, sales volume and profits will depend upon the strength of
last-minute buying.
Southeastern auto sales slightly outpaced the nation's rise of 31 percent in
November.
Cut-rate loans are successfully stimulating sales and helping to reduce car
inventories.
Nevertheless, the short-term sales outlook is not bright because consumers
remain troubled by rising unemployment and high real interest rates.
Construction and Finance.
For the near future, realtors and thrift officials
feel that the post-election November 15 drop in the FHA/VA rates may have "propped
a stick" in the mortgage "window," which the pre-election slide in mortgage rates
opened.
Confidence in the future of housing is slowly returning as concern diminishes
that political engineering occasioned earlier drops in mortgage rates.
building permits show the greatest degree of recovery.
Single-family
Other construction sectors are
faring less well, and industry representatives expect slack demand and overbuilding to
keep nonresidential contract construction sluggish well into 1983.
Thrifts have been slow to accrue benefits from the housing recovery, but
total loans closed by S&L's have finally begun to improve.
Industry spokesmen attribute
the delayed recovery of thrifts vis-a-vis other construction indicators
to increased
competition from seller financing and mortgage companies and to a longer "wait and
see" period by home buyers.
Tourism.
Optimism, predicated upon national economic recovery, discounted
airfares, and the popularity of
representatives in our survey.
EPCOT,
is widespread
among
the
tourist
industry
Preliminary, partial data and reports from those polled
indicate that out-of-state travel in the upper-price brackets (air travel and lodgings)
has already begun to rise. November attendance at EPCOT remains ahead of projections
reportedly because Florida residents and out-of-state retirees are flocking to the new
attraction.
Nonetheless, several sources maintain that EPCOT's effect elsewhere in
Florida is negligible or negative.
Business and convention travel shows mixed signs.
Contacts report that Atlanta appears to be improving while South Florida, Alabama,
and Louisiana remain weak.
Respondents in Georgia, Tennessee, and Alabama blame
rainy weather rather than economic conditions for the more than seasonal decline in
local tourism.
Agriculture.
yields in 1982.
Southeastern
cotton farmers are experiencing
extraordinary
The most recent USDA projections estimate five of the six District
states will enjoy record yields; Georgia should surpass its previous record by 20 percent.
Yield is likely to determine profitability for most cotton producers, but some Mississippi
farmers are facing losses of both their crop and income as a result of an apparent
business failure.
A large cotton company, already in receipt of substantial cotton, is
unable to pay farmers or to return the cotton for which warehouse receipts are now
held by a creditor of the company.
Most grain farmers face only a small chance of profit from the 1982 crop,
notwithstanding a recent 5 percent rise in prices.
At present, widespread flooding in
the Mississippi valley has done little injury to crops, but potential damage is of concern,
and extension personnel in Mississippi report other weather-related damage.
Recent
aberrations in temperature and a surfeit of rain have adulterated the quality of the
remaining soybean harvest.
One estimate suggests a possible loss of 10 million bushels,
valued at approximately $52 million.
Large supplies have thwarted efforts to sell low-
quality beans.
Finance.
A survey of a cross-section of District banks and savings and loans
regarding "bridge" and Money Market Deposit Accounts (MMDA's) indicates a substantial
response to the new instruments.
Although few institutions in the District are offering
rates as high (21-22%) as those in Atlanta, the premiums are enough above current
money market funds to attract considerable corporate and personal interest throughout
the District.
Insurance, which the MMDA's provide, is another factor of particular
attractiveness to retired and large personal account holders.
Except in institutions
offering low rates, early indications are that most of the funds are being attracted
from money market mutuals.
The probability of continued substantial shifts between
money market mutuals and the new accounts appears high.
Such shifts may create
either liquidity problems or an atmosphere of potential problems.
In such a climate
even more funds would be transferred out of money market mutuals.
Panel of Economists.
weaknesses of their respective
In response to our request to assess the strengths and
economies in 1983, most members
economists cite construction as a probable leading sector.
of
our panel of
Several respondents are
pessimistic regarding nonresidential construction though. Reflecting in part the economic
heterogeneity of the District, little consensus exists otherwise regarding either strengths
or weaknesses.
Construction-related
opinion of many panelists.
manufacturing seems likely to improve, in the
Chemicals, textiles, oil, gas, exports, and agriculture were
each cited by a few respondents as potentially weak sectors.
SEVENTH DISTRICT—CHICAGO
Summary.
The sorry state of economic conditions in the Seventh District
reported in earlier Redbooks has not improved.
Employment, output, and new
orders in the manufacturing sector continued to decline in November.
plant shutdowns over the holidays commonly will be extended.
Normal
The
retrenchment in capital goods is unprecedented in the postwar era.
The
industrial base of the equipment and automotive industries is contracting as
more plants are closed.
Retail sales continue sluggish, with the Christmas
season disappointing so far.
Residential construction should improve
significantly in 1983 if interest rates stay down.
new office space is causing rents to decline.
The heavy oversupply of
Widespread price cutting in
wholesale markets frequently means sales below cost.
No sign of improvement
from depressed levels is noted in the agricultural sector.
Business demand
for short-term funds is down sharply.
Business Sentiment. Chronic hard times are taking a toll in reduced
long-term confidence for both managers and workers.
Morale has been
depressed by abortive improvements in demand, which were assessed,
erroneously, as heralding solid revival.
In the past month, District
analysts in retailing, paperboard, and cement have noted the evaporation of
what had appeared to be promising signs.
The Chicago Purchasing Management
Association summarized the views of its members on December 7:
recovery has not materialized.
Lower Break-Even Points.
"The expected
All key indicators remain strongly negative."
Some companies are confident that they can
maintain profitability at sharply reduced levels of operation.
Breakeven
points have been drastically lowered by large, permanent cuts in personnel,
closing of marginal facilities, sales of unprofitable divisions, scaling down
operations by purchasing more parts and services, elimination of less
essential functions, and stringent cost control.
Such restructuring could
bring rapid increases in profits if and when revenues rise significantly.
Consumer Purchases.
General merchandise retailers have been unhappy
with Christmas sales after a promising start in November.
Part, but not all,
of the shortfall is attributed to unseasonably warm weather in some weeks,
including early December.
Virtually all product lines are slow.
One large
chain has increased sales of household durables by heavy promotions.
The
largest airline reports passenger traffic up substantially since August, but
this reflects bargain fares and free bonus flights.
Employment Losses.
Payroll employment in the five Seventh District
states in the fall was 8 percent below the same period of prosperous 1978,
while employment in the U.S. was one percent higher.
Many manufacturing
employment in the District was down 25 percent in this comparison.
of course, has the largest decline.
Michigan,
Wisconsin, specializing in capital
equipment, has the smallest decline in the District, but its situation has
deteriorated very rapidly in the past 12 months.
Many manufacturing jobs are
gone forever as plants have been closed.
Jobless Funds.
State jobless pay funds have been strained as
unemployment has remained at high rates for extended periods.
The Illinois
and Michigan funds each have debts of almost $2 billion to the federal
Treasury.
Debts of Iowa and Wisconsin are growing.
Indiana, despite its
severe unemployment problem, has no such debt because of legal restrictions.
Proposals to raise employer contributions to jobless funds are opposed as
likely to encourage additional migration of industry.
Labor Negotiations.
The Caterpillar strike that began October 1 has
affected many smaller companies that supply components.
Management insists
that substantial labor contract concessions must be made to reduce an
estimated 40 percent cost advantage held by foreign competitors.
The
Chrysler dispute apparently is being resolved, with the UAW winning its key
demand for an immediate wage hike.
With the year drawing to a close, it
appears that, by-and-large, organized labor is winning its fight to prevent
"take-aways of hard-won gains".
(The rank-and-file has been more adamant
against concessions than union leaders.)
Unfortunately, the failure to
cut unit production costs substantially in major hard goods industries
implies a further erosion of the region's industrial base as producers step
up efforts to seek foreign sources for components or finished goods.
Inventories.
Although most businesses are still attempting to cut
inventories, holdings remain excessive in lines where sales have been even
weaker than expected, e.g. apparel, paperboard, and some motor vehicles.
Nevertheless, inventories will have to rise in some sectors, including
residential building, if demand increases only moderately.
A major producer
of diesel engines that are mainly used in heavy trucks has recalled some
workers.
Demand for trucks has not improved, but engine production had been
below usage and inventories had been exhausted.
Capital Goods.
Prospects for business equipment in the Seventh District
are even worse than in earlier months.
Conditions vary by company and line
but, overall, no earlier post-war recession was nearly so bad.
Bookings are
off 10 to 65 percent from reduced levels of a year ago at various companies.
One diversified equipment producer is operating at 50 percent of capacity,
while another is at 25 percent.
percent of capacity.
Castings production also is at about 25
Foreign demand, which had been relatively good for some
products, has ebbed in recent months.
Among the worst lines are equipment
for railroads, trucking, agriculture, construction, mining, and metalworking.
Capital goods firms have drastically cut corporate staff, including those in
design and development, to an extent that could harm competitive positions in
future years.
Motor Vehicles.
The spurt in auto sales in November, aided by favorable
credit terms, is not regarded as a clear indication of an improvement in
demand. Some auto dealers dislike temporary incentive programs, because sales
almost invariably decline afterwards.
Instead, they would prefer lower
prices.
Steel.
Steel demand remained very depressed in December.
Bookings are
beginning to show up for January, but probably because of the desire of
customers to have inventories at rock bottom for year-end financial
statements.
Steel companies have learned that customers' normal holiday
shutdowns will comnonly be extended into January, perhaps into February.
Construction.
While residential building is expected to increase
significantly in the new year, nonresidential construction is almost certain
to be down.
Capital expenditure programs are being cancelled or stretched
out by manufacturers and public utilities.
The glut of new office space in
the Chicago area has caused rents to drop by 11 percent in the past year.
large office leasing firm has filed for bankruptcy because of its liability
on blocks of space contracted for at rates above the current market level.
A
EIGHTH DISTRICT - ST. LOUIS
Consumer spending increased during November and early December in
the Eighth District, an indication that the economy is about to move out of
the business trough.
Respondents noted marked increases in purchases of
homes and automobiles, and other retail sales began showing signs of life.
At the same time, however, industrial production and employment changed
little from their depressed levels.
Just as a recovery appeared to be developing, the District's
economy was dealt a blow by the weather.
Heavy rains over much of the area
in late November and early December, accompanied by several tornadoes, and
followed by flooding of the Mississippi River and many of its tributaries,
caused widespread damage.
Estimates of the direct loss of wealth are
running into the hundreds of millions of dollars.
Moreover, operations of
many businesses were severely interrupted, and the cleanup will place a
further burden on the economy.
Automobile sales have strengthened.
Ford dealers in the St. Louis
sales district reported that passenger car sales in November were up 26
percent from last November and that truck sales jumped 71 percent.
One
large dealer said that his used car sales in the month were comparable to
previous peaks.
Two dealers in the Memphis area reported a moderate
improvement in sales, and dealers in Arkansas have been encouraged by the
lifting of the 10 percent usury ceiling which should facilitate credit
sales.
New home sales in the St. Louis area during November were greater
than in any other November in recent years, according to the St. Louis
Homebuilders Association.
Home prices have declined slightly since the
spring of 1981, and have fallen strikingly in real terms.
This decline has
been even sharper because prices have been effectively reduced through
"creative financing" offered by sellers to consummate deals.
Sales at major stores in the District (Sears, J.C. Penney, May
Company, and Woolworth) were, on the average, 6.'t percent higher this
November than during November 1981, an increase of nearly 3 percent after
adjusting for merchandise price Increases.
Early December sales were
running at a similar pace above those of last year.
Five smaller retailers
reported gains of 9 percent since October in year-over-year nominal sales.
Consumer demand has probably strengthened more than the sales data alone
indicate as managers made fewer price concessions this year than last.
A
shoe chain reported an 11 percent increase in sales from November 1981 to
November 1982.
Orders, production and shipments at most District manufacturing
firms were slightly lower in November and early December than in the early
fall.
Companies producing business equipment, chemicals, metals and wood
products were particularly depressed.
On the other hand, a supplier to
firms producing consumer durables noted the first improvement in orders and
production in many months.
Businesses producing food, defense goods and
boxes noted a slight improvement in activity.
Employment declined at many
industrial firms; a chemical company retired over 1,200 workers.
smaller businesses, however, employment continued to increase.
At many
Deposits changed little at District savings and loan associations
in Ifovember and early December.
Several associations continued to report a
moderate net outflow of funds, but others gained funds by bidding
aggressively for them.
Mast associations still report the current rate of
earnings on assets to be slightly less than the cost of obtaining funds,
but the negative yield spread has narrowed.
The agricultural situation appears to be near a trough.
Favorable
selling prices and low feed costs are generating profits for livestock
raisers, particularly those engaged in hog production.
Prices of grain are
holding at current levels, largely supported by government programs.
Carry-over stocks of grain, however, are estimated at near 50 percent of
annual u s a g e — t h e highest level since 1960.
Many farmers are in severe
financial difficulty, reflecting large debts at the beginning of the crop
year, high interest rates, and low selling prices for crops.
Scattered farm groups in Illinois, Missouri and Tennessee
reportedly have adopted militant tactics to discourage creditors from
foreclosing on farm debt.
Their activities include blocking entrances to
farms, bullying bidders at auctions, and hiding farm equipment.
Although
the number of actual cases is small, the incidents have received
publicity.
A few creditors reportedly have agreed to delay foreclosure
and negotiate further.
NINTH DISTRICT - MINNEAPOLIS
After many months of waiting, the Ninth District economy has finally
begun showing a fev definite signs of recovery.
In response to lower interest
rates, district home and auto sales increased in November.
General merchan-
dise sales improved also, and orders of some manufacturers increased.
positive
signs
are
admittedly
economy remained depressed.
tenuous,
however,
and
much
of
the
These
district
The district had less excess capacity in manufac-
turing than the nation, but orders continued to decline at many local manufacturers.
Although most district
farmers were able to complete the fall har-
vest, poor prices continued to trouble them.
mained weak, and most district
Lending at district banks re-
financial institutions were slow to formulate
plans for the new Money Market Deposit Accounts (MMDAs).
Consumer Spending
Home and auto sales have picked up in the Ninth District.
Redbook
report
indicated
that,
in
October,
reduced
mortgage
rates
Our last
had
creased the number of people looking at homes—but not the number buying.
November, home sales actually picked up.
of Realtors, home
In
According to the Minneapolis Board
sales in Minneapolis and its suburbs increased 20 percent
between October and November, a period
cline.
in-
during which home sales normally de-
Also, regional sales managers for domestic auto manufacturers indicate
that in November
district car sales improved.
company's 10.9 percent
50 percent.
One says that last month his
finance rate helped reduce inventories of 1982 models
A director reports that, thanks to the pickup in car sales, most
Montana car dealers
showed a profit in November, for the first time in many
months.
General merchandise
polis-St.
October
Paul
and
normal.
retailers
November,
Two Minnea-
report that their sales increased modestly
but
They attribute
sales have also improved somewhat.
that
this to
post-Thanksgiving
changed
shopping
was
between
slower
than
shopping habits; consumers are now
delaying purchases until retailers cut prices just before Christmas.
Thus,
these retailers are planning pre-Christmas sales and expect this December to
be better than last year's.
Directors, however, report that many retailers
outside the Twin Cities hope to just match last year's holiday sales.
glum
outlook
in
many
parts
of
the
district
is
directly
due
to
the
This
long-
depressed iron mining and farming industries.
Industrial Activity
The pickup
manufacturers.
in consumer
spending has started to carry over to a few
Reflecting the recent improvement in retail sales, new orders
of microwave ovens increased markedly at one manufacturer.
a large meat packing
company
A spokesperson for
in southern Minnesota, which recently opened a
new plant, reports that business has been better lately than expected.
firm plans to hire additional people.
This
Due to the upturn in home sales, orders
increased at a large manufacturer of windows and doors and another of ceiling
tiles.
Most
doldrums.
district manufacturing
concerns, however, have remained in the
Eleven of the 23 largest manufacturers headquartered
trict report third quarter
sales below those a year ago.
in the dis-
Particularly hard
hit have been producers of industrial equipment.
and
material handling
equipment
reports that
A firm making construction
its order backlog
shrank
from
$150 million at the beginning of the year to $50 million in early December.
A
representative for a company producing industrial controls and painting equipment indicates that an anticipated pickup in nev orders has not yet materialized.
In fact, new orders have declined, leaving its current inventories at
higher
than
desired
levels.
other high technology
Growth rates have slowed even at computer and
firms, where sales are generally
increasing, according
to a Minneapolis security analyst who follows this industry group.
Capacity utilization data can provide some insight on the performance
of
the
manufacturing
sector.
These
data aren't
available
at the
district
level, but we can infer some information from differences in the structure of
manufacturing
between
Approximately
U5
percent
industries—machinery
industries
the
and
nationally.
district
of
and
district
food
nation and
from anecdotal
manufacturing
processing—compared
evidence.
is concentrated
to
30 percent
in two
in
these
Moreover, within the machinery group, computer manu-
facturing is about three times more important to the district than to the nation.
According to our recent conversations with industry spokespeople, the
district's capacity utilization rates are currently well above the nation's in
both
the
machinery
and
food
processing
industries.
In
machinery
manufac-
turing, where the national utilization rate is 67 percent, the district rate
is higher;
our
contacts
indicate
that most
lately have been operating at near capacity.
district
computer
manufacturers
Conversations with representa-
tives of large district food processors indicate that their capacity utilization
rates are also above the nation's
for the
industry.
The
district's
80 percent capacity utilization rate
remaining
manufacturing
industries are
a
diverse group, and for them, capacity utilization rates may not be too different than the national rates, at least not on average.
structural
Therefore, based on the
differences between the district and nation and on the anecdotal
evidence, the district's current
capacity utilization rate for manufacturing
is almost surely above the nation's 68 percent.
This
metal mining.
same
approach
may be used
Iron mining accounts
to examine
capacity utilization
in
for 75 percent of metal mining locally,
compared to 20 percent nationally, and copper mining accounts for much of the
rest of Ninth District metal mining.
district
eleven
iron mining was
mines
were
around
producing.
In September, capacity utilization for
10 percent, when
Utilization
is
only
two or three out of
somewhat
higher
now
because
several additional iron ore mines resumed partial operation in October.
two more Minnesota
so,
an
industry
iron mines plan to resume operation in early 1983.
official
reportedly
expects
capacity
utilization
in
And
Even
iron
mining next year to average only 55 percent.
Current capacity utilization in district copper mining is also very
low.
down
being
The one mine in the Upper Peninsula of Michigan was indefinitely
in early
October.
produced, because
shut
And, in Montana, only a small amount of copper is
the
state's
one
large
mine was
closed
permanently
earlier this year.
Based on the local mining industry's heavy concentration
in iron and copper
(especially
iron) and on the extremely low output levels
for both metals, it is virtually certain that the district's capacity utilization rate in metal mining
is well below the nation's Uo percent rate.
More-
over, it seems likely that this situation will continue well into 1983.
Agricultural Conditions
Although
recent
remained depressed.
weather
conditions
were
been
percent
sota.
good
for
harvesting,
of the corn
But
and
prices
for corn and
levels a year ago; and
as
South
spot in district agriculture:
also.
troubling.
down
St. Paul cash prices
bright
a year
28, the
USDA reports, 81
In November,
in Minne-
Minneapolis
soybeans were, respectively, U and 9 percent below
in November were
from
of November
remain
cattle
percent
has
Recently, however, the weather
and 97 percent of the soybeans were harvested
agricultural
cash prices
agriculture
Our last Redbook report said farmers were concerned that
wet weather would interfere with the harvest.
has
favorable,
earlier.
5 and 1 percent,
Dairy
for feeder and
respectively.
slaughter
Hogs
remain
a
in late November their price was up 25
farms
have been
doing
relatively
veil
According to an industry analyst, however, the federal government's as-
sessment of 50 cents per hundredweight of milk produced has put a "good dent"
in dairy farmers' income.
This assessment began December 1.
Financial Developments
Bank lending has remained weak.
In November loans at district banks
and S&Ls were essentially unchanged from their lackluster October level.
of
the
reason
for this
creased their use
sluggishness
of the primary
is that
district
corporations
securities markets, and in some
they have been using these funds to reduce bank debt.
have
Part
in-
instances,
Sluggish loan demand may explain the response of local firms to the
new MMDAs:
most have not been aggressively promoting them.
tion, according to our telephone
Another explana-
survey of district banks and S&Ls, is that
they are waiting for the DIDC's directive on the Super NOW account.
also frustrated with the short
They are
implementation period for the new MMDAs.
In
fact, most of the banks and S&Ls say they haven't decided yet about the new
MMDAs or are "waiting to see what the competition will do."
TENTH DISTRICT—KANSAS CITY
Overview.
Business activity in the Tenth District appears to be
generally flat, except for slight improvement in the housing sector.
Soft
retail sales have brought higher than desired retail inventories, but manufacturers' inventories are generally satisfactory.
Housing starts are up
slightly, as is demand for mortgage funds and commitments.
Both deposit
growth and commercial and industrial loan demand are up slightly at commercial
banks.
Tenth District farmers continue to experience financial stress because
of poor income prospects.
Retail Trade.
Most retailers in the Tenth District report only moderate
gains in sales in the first 11 months of 1982 compared to the first 11 months
of 1981.
Sales improved slightly in November although durable goods sales
remained weak.
Merchandise costs have not risen recently but slow sales have
put downward pressure on profit margins.
Inventories are currently higher
than desired for most retailers primarily because of slow sales.
Most
retailers anticipate that gains in sales during the remainder of the
Christmas season will eliminate excess inventories and improve profit margins.
Purchasing Agents.
Most purchasing agents contacted report modest
declines or no change in input prices over the last year, and only minor price
increases over the past three months.
While purchasing agents expect no major
price increases soon, a few expect input prices in 1983 to be about 6 percent
higher than in 1982.
Most firms contacted are having no difficulties getting
materials, but some purchasing agents express concern about possible difficulties in 1983.
They feel that if the economic upturn begins, suppliers may
be caught understocked, and if it does not begin, more suppliers may close.
Nearly all firms report satisfactory inventory levels.
While most firms are
trimming inventories in response to general economic conditions and the need
for improved efficiency, others have stopped trimming and are trying to
maintain inventories at minimal levels.
Housing and Housing Finance.
The decline in interest rates has brought
a significant rise in housing starts since October 1 in the Tenth District
that could result in starts for 1982 exceeding those in 1981 by 25 percent.
Respondents see this increase continuing, if interest rates stay at current
levels.
Sales of new homes have also increased recently.
The slack demand in
1982 has resulted in new home prices similar to those in 1981, but respondents
expect prices to move up in the spring.
time lows.
Inventories of new homes are at all-
Material prices are reported to be at approximately the same level
as in 1981, although some respondents report recent increases in lumber prices.
Respondents are expecting a general increase in prices beginning in the spring
of 1983.
Officers at Tenth District Savings and Loan Associations generally report
little or no change in savings inflows compared to a year ago, but they expect
increased activity in the near future.
The introduction of money market deposit
accounts is the primary source of their optimism.
Most officers report recent
improvement in the demand for mortgage funds and mortgage commitments, but a
minority report continuing slack demand.
Additional increases are expected,
assuming continued declines in interest rates, but with no significant
additional activity before spring.
Loans are being made at interest rates of
12 1/2 to 14 5/8 percent, and further slight declines are expected.
Banking.
Tenth District banks report little recent growth in loan demand.
Consumer, agricultural, and real estate lending remain flat.
About half the
banks surveyed note increases in commercial and industrial loans, which is only
partly seasonal.
Most bankers report that loan quality has stabilized.
The
prime rate is 11 1/2 to 12 percent, down from 12 to 12 1/2 percent last month.
Deposit growth is up slightly at Tenth District banks.
Nearly all banks report
growth in demand deposits, some of which is seasonal, and in large CD's.
NOW
accounts, small time deposits, and savings deposits have grown slightly, while
money market and small savers certificates have remained constant.
All banks
surveyed plan to offer the new money market deposit account (MMDA).
Very few
are offering bridge accounts, however, and no significant movement of funds in
anticipation of the new MMDA is reported.
Agriculture.
The harvesting of crops throughout the Tenth District is
virtually complete, with little damage from frost or recent heavy rainfall.
Winter wheat conditions range from poor in Oklahoma to fair elsewhere in the
Tenth District.
occurring.
District.
As a result, little pasturing of cattle on winter wheat is
Grain storage capacity continues to be adequate throughout the
Despite considerable use of temporary storage facilities, the quality
of stored grain is not expected to be adversely affected.
Without a reduction
in grain stocks, however, next year's storage capacity may be inadequate.
District bankers report that some local areas are receiving slightly higher
cash prices for their crops, resulting in an increasing number of farmers
selling grain.
Paydowns are being made by farmers on their agricultural pro-
duction loans but at a slower than normal rate.
Tenth District farmers continue
to experience financial stress because of poor income prospects.
Rural nonfarm
businesses in the District are also experiencing nearly as much financial stress
as a result of the depressed economy as are farmers.
ELEVENTH DISTRICT—DALLAS
The
District
economy
shows
some
signs
continuing weakness in the durable goods sector.
is unusually active for this time of year.
projects
has
Unemployment
lately
seems
to
slowed
declines
have
stabilized.
of
reviving
despite
Residential construction
A surge in smaller commercial
in
nonresidential
Auto
sales
construction.
are
up
sharply.
Drilling activity continues to accelerate, but steel and other oil related
industries remain sluggish.
Residential
construction
continues
to gain momentum.
sales and starts during November were roughly
sales and starts.
rates have abrogated
The
of
beginning
proceeding
signs
even with October's strong
Home construction usually falls this time of year, but
falling mortgage
first
New home
increasing
to escalate.
swiftly,
costs
Apartment
although
the traditional
are appearing
and
condominium
condominium
sales
seasonal
as lumber
patterns.
prices are
construction
in the Border
is also
region are
depressed.
Commercial
construction
declines recorded in September.
warehouse
construction
rebounded
somewhat
from
the
large
Although the pace of office building and
continues
to
slow,
retail,
industrial,
government construction are picking up some of the slack.
and
The result has
been a sharp increase in the number of nonresidential projects accompanied
by a more moderate increase in the total project value.
For the year to
date the value of construction is well behind last year's record.
At worst, unemployment figures indicate that the
not weakening.
job market is
Texas' seasonally adjusted unemployment rate dropped from
8.3 percent
in October
to 7.6 percent
statistically significant.
unchanged
from
September
in November.
This
change is not
Total nonagricultural employment was virtually
to
October.
Gains
in
government
employment
largely offset declines in durable goods manufacturing and mining.
November
financing
made
sales of new autos surged
available
Credit Corporation.
by
GMAC,
Ford
in response
Motor
Credit
to the discount
Co.,
Used car sales also declined.
auto
inventories,
reduced
dealer
models, and pushed up overall profits.
sacrifice
Chrysler
Sales suffered among import dealers due to their lack
of special financing programs.
purchases
and
some or all of
increased
The surge in
new orders
for
'83
Nevertheless, dealers have had to
their profits from financing in order to obtain
the lower rates for their customers.
Real department store sales for the District for the year to date
are about even with
last year.
While
sales
remain
slow
in Houston and
Border stores, sales in other areas of Texas are picking up.
The effects
of the peso devaluations are still felt along
in Houston.
Houston is also affected
by
the Border and
the slowdown in durable goods
Respondents in areas that report sales gains are quick
manufacturing.
to point out that
earlier than usual holiday promotions account for the increases.
Drilling
December, more
weekly
continued
to
pick
up
throughout
so than seasonal patterns would
increases
have pushed
level since May 24, 1982.
the Texas
rotary
November
dictate.
Six
rig
to
count
and
early
consecutive
its
highest
Analysts point to higher domestic crude prices
at refineries and lower labor costs as the reasons for the increase beyond
seasonal norms.
The
outlook for drilling
depends on the outcome of the
December 19th meeting of the OPEC oil ministers.
Larger future beef supplies were signaled by the number of cattle
and
calves
on
feed,
which
Unfortunately,
much
conditions
livestock
for
of
are
this
at
the
highest
increase
producers,
reflects
as heifers
rather than being added to breeding herds.
steady while
crop prices
inputs stayed constant.
Manufacturing
erode as the demand
have moved
maintaining
yet
for
unfavorable
are being
1982.
economic
placed
on
feed
Livestock prices have remained
slightly
higher.
The
cost
of
farm
Planting of winter grains is mostly complete.
production
is mixed.
Steel markets
continue
to
for concrete reinforcing products is slipping and oil
related product demand remains depressed.
are
level
electronics
production
Home computer and defense sales
and
refinery
output
is
stable.
Lumber and wood product suppliers report that business is picking up as a
result of increased housing construction.
Deposits at District member banks grew a modest 0.8 percent from
September
demand
to November
deposits.
period, while
real
as
Loans
time
by
estate,
deposit
member
growth more
banks
business, and
grew
2.0
consumer
than offset
percent
loans
at
declining
during
this
large weekly
reporting banks grew by 5.3, 2.3 and 1.5 percent.
Total deposits at federally
insured S&L's increased 0.9 percent
in October to a level which was 9.2 percent greater than the same time a
year ago.
earning
The increase was due to large gains in jumbo CD's and accounts
the
passbook
rate
or
less.
Although
total
mortgage
loans
outstanding increased a mere 0.6 percent during October, outstanding loans
for construction jumped 3.6 percent.
The latter usually falls this time of
year and is, in fact, 76.5 percent greater than a year ago.
TWELFTH DISTRICT—SAN FRANCISCO
The economy of the Twelfth District appears to have slipped more deeply
into recession.
Unemployment rates generally rose during November and the
District as a whole posts a higher unemployment rate than the national
average.
Although declines in interest rates have spurred residential
construction permit activity (substantially in some cases) the industry is
operating at such levels that little absolute stimulus has been felt as a
result.
The lumber mills in the District are suffering from the combined
impact of the continued reduced domestic and foreign demand, and costly timber
cutting obligations.
Retail sales have been disappointing thus far and
conventionally strong industries—such as aerospace and electronics—are
experiencing major layoffs.
Motor car manfacturing is sagging under the
announcement of further plant closures.
Financial institutions in the region
report deposit outflows or only weak deposit growth except in the high-yield
money-market type accounts and loan demand has been flat.
Consumer spending
Reports from major department stores and other retailers indicate
"disappointing" sales growth over last year, which was itself a weak year,
although there is some early optimism about Christmas season activity.
Several major Southern California department stores, when surveyed, indicated
that nominal sales growth was up only about 7 percent, barely matching the
inflation rate.
ago.
Penny's and Sears report sales volumes below that of a year
In the restaurant industry, the picture is much the same with nominal
sales growth of about 6 percent; even that modest growth is attributed to
stable food costs and no increase in the minimum wage allowing restaurants to
induce continued patronage with relatively low prices.
Volume is flat for one
California retail grocery chain and net income is below the level of a year
earlier.
Only tourism in Hawaii and Oregon are consistently reported as
bright spots in the consumer spending picture.
Hawaii expects to top its all-
time tourism volume record this year, helping to make the Hawaiian
unemployment rate one of the lowest in the District and considerably below the
national average.
Manufacturing and mining
There are few good reports concerning the condition of the District's
manufacturing and mining enterprises.
Aerospace and electronics report
falling orders and reduced margins on foreign sales because of the unusual
strength of the dollar.
Boeing's new equipment sales, for example, are at the
lowest annualized volume in 20 years.
Manufacturers of electronic equipment
are experiencing reduced domestic and foreign sales; so many retailers
returned merchandise to Atari, Inc., for example, that the price of its stock
experienced an unprecedented plunge in early December.
The mining of the
region's copper, silver and molybdenum remain at low levels of activity, with
10,000 of Arizona's mining employees out of work in copper mines alone.
Depressed world oil and gas prices have also affected the economies of Alaska,
California and the intermountain states, although Utah's relatively more
diversified economy has allowed it to experience "flat" growth rather than
absolute declines in overall activity.
Although declining interest rates have
helped some corporations' profit positions, many remain "locked in" to long
term financing agreements at much higher rates, causing a spotty pattern of
profit margin changes.
Automobile manufacturing in the District was dealt
another blow with Ford's announcement that it would close its Northern
California assembly plant.
Car sales, however, have picked up in the
District, primarily in response to the special interest rate concessions
offered by General Motors and Ford.
Construction and real estate
Lower interest rates have undoubtedly provided some stimulus to the
housing industry; there have been surges in activity reported throughout the
District, with permits increasing as much as 80 percent in some parts of Utah.
Homes are selling more rapidly in the low and high-priced ranges than in the
medium-price range; the base level of activity is so low, however, that recent
upsurges can hardly be called a recovery.
Commercial real estate is also
beginning to suffer as the traditional overbuilding cycle takes hold and
demand for office space weakens.
Distict architects report the lowest levels
of backorders in years, an ominous leading indicator for future activity.
Agriculture
Although early rains damaged tomato and wine and raisin grape crops in
California, in general the harvest season yielded bumper crops, leading to
depressed prices and farm incomes.
In addition, there is a growing move
toward protectionism among the Distict's farmers who feels that certain
foreign products—particularly cotton and raisins—enjoy the benefit of
government subsidies and are hurting domestic producers.
amplified by the relative weakness of foreign currencies.
The problem is
The timber products
industry is suffering a three-pronged effect of weak domestic demand (with
most mills operating at less than 40 percent capacity), weakened European and
Asian demand for stumpage, and costly public timber harvesting obligations.
It is estimated that Northwest timber producers will suffer a $2 billion loss
if they are required to comply with earlier contracts to harvest 10 billion
board feet from public lands during this period of weak demand.
Financial institutions
District financial institutions report flat loan demand and either flat
deposit in-flows or continued outflows; the latter is particularly true of the
beleaguered savings and loan industry.
Preliminary evidence from October
indicates that the outflow from maturing All Savers Certificates may be in the
$6 to $8 billion range for savings and loan associations.
Roughly 25-45
associations are disappearing through consolidation each month.
Falling
interest rates have improved spreads for some associations, and some will
report second-half profits.
However, much of the profits are due to sales of
loans or trading profits and the picture still remains bleak.
The high-
yielding money-market type accounts are the only major source of funds inflows to banks and savings and loan associations.
The largest Western banks
report continued deterioration in the financial positions of a sizeable number
of existing commercial loan customers, as well as in the condition on a major
portion of applicants for new business loans.
Until firms have seen a
significant improvement in the business fortunes and have had time to resolve
their current financial difficulties, near-term improvement in business loan
demand seems most unlikely.
Cite this document
Federal Reserve (1982, December 20). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19821221
@misc{wtfs_beige_book_19821221,
author = {Federal Reserve},
title = {Beige Book},
year = {1982},
month = {Dec},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19821221},
note = {Retrieved via When the Fed Speaks corpus}
}