Beige Book
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
May 1984
TABLE OF CONTENTS
SUMMARY
i
................................................
First District - Boston ......................................
I-1
Second District - New York ...................................
H-1
Third District - Philadelphia ..................................
l-1
Fourth District - Cleveland ...................................
IV-1
Fifth District - Richmond
Sixth District - Atlanta
V-1
..................................
VI-1
....................................
VII-1
Seventh District - Chicago ....................................
....
Eighth District - St. Louis ..............................
VIII-i
Ninth District - Minneapolis ..................................
IX-1
Tenth District - Kansas City .................................
X-l
Eleventh District - Dallas ....................................
XI-1
Twelfth District - San Francisco ........
......................
XII-1
SUMMARY*
The overall economic picture in the nation is fairly bright, according to
reports from the twelve Federal Reserve Districts, although a few industries
are still weak.
Retail sales in many Districts bounced back in April from a
March slump and are expected to continue their growth. Auto sales are very
strong, with near-capacity production levels at many auto plants.
Other
manufacturing industries are also doing well, especially paper products and
consumer durables.
Residential construction remains strong, although some
signs of slowing have appeared in recent weeks. Bankers in the Eastern and
Southern parts of the nation report increases in both business and consumer
loans, while borrowing in other areas has remained flat.
Probably the
weakest sector in the economy at this time is agriculture.
AGRICULTURE
The agricultural sector has suffered
combination of factors.
in recent months due to a
Plantings in the Southeast and Midwest have been
delayed by heavy rains, while Dallas and Minneapolis report that overly dry
conditions have held down winter wheat production.
Both Dallas and San
Francisco, however, say cotton growers are having a good year.
Pork farmers in the Atlanta District have been reducing inventories in
response to higher feed prices, but that cutback might be near an end. Dairy
farmers in the northern Midwest continue to experience financial problems,
and they do not expect much help from the new Federal diversion program.
Contacts in Kansas City say this year's calf crop is about average. Poultry
farmers in the Richmond District continue to be troubled by avian influenza
outbreaks.
*Prepared at the Federal Reserve Bank of Philadelphia
Both Chicago and Kansas City report a further drop in farmland
values.
Kansas City also says farm credit problems are as bad this year as
they were last year, and that farm asset liquidation is likely to increase
unless debt is reduced.
MINING/ENERGY
Business activity in the mining and energy sector appears to be mixed
in April.
Both production and prices are up in the coal industry in the
Midwest.
Cleveland attributes some of the strength to utilities' stockpiling
coal against the possibility of a strike by the United Mine Workers in
September.
San Francisco reports, however, that the coal companies in the
West have been laying off workers.
The oil industry remains weak.
The increase in drilling apparently
stems from lower costs and more favorable leasing terms rather than from
growth in demand.
Dallas says these factors have accounted for a 38
percent increase in the number of offshore rigs since the first of the year.
CONSTRUCTION/REAL ESTATE
The underlying upward trend in the residential construction industry
persists, according to most Districts, despite a recent slowdown and anxiety
about the future course of interest rates.
New York and Cleveland report
brisk sales of homes, but indicate that buyers and builders are very conscious
of mortgage rates. In most other Districts, residential sales slowed in recent
weeks, the result of a combination of bad weather and higher mortgage
rates. Higher rates have given a further boost to adjustable rate mortgages
(ARMs). Kansas City reports that over 80 percent of new mortgage loans in
that District are ARMs.
Nonresidential construction remains generally strong despite concern
about overbuilding.
In New York and Chicago the demand for office space
continues to grow. The market for industrial space, however, is mixed.
MANUFACTURING
The nation's industrial sector is continuing along a path of expansion.
Although capital goods industries are weak in some Districts, the overall
picture is bright in virtually all areas.
strongest
at this time,
The paper industry is probably the
followed by consumer
fabricated metals, and electronics.
durables, primary and
San Francisco indicates rapid gains in
the production of missiles and space vehicles, and Cleveland and Chicago
both report that many motor vehicle manufacturing plants are operating at
capacity. Manufacturers' stock levels are generally stable, and there are no
reported
mixed.
plans for significant inventory-building.
Industrial prices are
The only real weakness in manufacturing is in exports.
Boston
reports, however, that there has been a pickup in sales of foreign subsidiaries
of domestic firms.
RETAIL/CONSUMER SPENDING
About half of the District report that retail sales have made a brisk
comeback in April after a sluggish March.
The strongest gains were posted
in Philadelphia, where sales are running as much as 35 percent ahead of the
same time last year; about half of that gain was due to the later Easter
holiday this year.
In other Districts reporting rebounds, gains range from 8
percent to 26 percent. Even in those areas which have not seen an increase
in sales, retailers believe the underlying strength in consumer spending is
still present. Consumer durables appear to be leading the surge in spending,
bolstered by the strength of the housing market. Nondurables, however, are
also doing quite well.
Retail inventories in most Districts have increased
relative to sales, but merchants are not concerned and are not planning any
special moves to cut back.
At least part of the inventory buildup is
intentional and being undertaken in response to continued strength in
demand.
Auto sales are also reported to be vigorous.
Foreign cars and larger
domestic autos seem to be leading the pack, although Atlanta reports
healthy sales of compact vehicles as well.
Some shortages of the more
popular domestic models are reported, and delivery times for foreign cars
are being stretched out.
Recent increases in consumer loan rates in some
parts of the country do not appear to have dampened the demand for cars.
BANKING AND FINANCE
Virtually all Districts in the Eastern and Southern parts of the nation
report strong growth in loan demand this month. Business loans remain brisk
in those areas, with both large and small companies borrowing for a variety
of reasons.
Consumer borrowing is also up, especially loans for autos.
Deposit flows, however, are weak at many financial institutions, and loans
are being made with borrowed funds.
Districts in the Western part of the
country say there has been little or no loan growth in March and April.
FIRST DISTRICT - BOSTON
Business activity in the First District continues to expand.
Retailers report satisfactory sales, and manufacturers are seeing a pickup
in orders.
While the expansion is widespread, it is not uniform - some
sectors continue to outpace others.
A few supply problems have
materialized, but price increases are quite moderate.
Demand for bank
loans is strong and increasing.
Retail
Retailers in the First District reported sales growth on or better
than plan in recent months, although unseasonable weather combined with a
later-than-usual Easter to shift March sales into April.
All retailers
contacted expect steady sales growth to continue through the year.
Supply
problems have caused inventories to be higher or lower than desired levels
in some cases, but the deviations were not considered serious.
rising very little because of strong price competition.
Prices are
1984 capital
spending by retailers contacted this month will probably mirror 1983.
Merchants expected low sales in March because of Easter's late
arrival, but sales fell below even modest plans because of consistently bad
weather in New England.
However, April sales rebounded to bring
year-to-date sales back to plan or better.
Reported increases for April
ranged from 8 to 15 percent on a comparable stores basis.
Aside from items
the stores were actively promoting or downgrading, no specific products
were noticeably stronger or weaker than average, except that one chain sold
more lumber and building materials than they expected.
Two retailers have lower inventories than desired because some of
their suppliers are not providing promised merchandise.
In contrast, one
department store's high inventory levels were attributed to excessive
ordering by divisions faced with shipping delays.
These problems are not
serious; none of the merchants contacted planned any significant changes in
inventory practices.
Most retail respondents this month reported capital spending plans
for 1984 similar to last year.
New store openings and remodeling and
expansion of existing stores reflect continued confidence in steady
regional growth.
Manufacturing
Business is very good, according to most of the manufacturers
contacted.
Representatives of the metal working industry tend to be less
positive than other manufacturers, but they also report that business has
improved over the past several months.
The strength is widespread,
although appliances and other housing-related products and electronics are
unusually strong and capital goods for the farm and construction equipment
industries are unusually weak.
In general, orders for capital equipment
are picking up, but the rate of recovery is varied.
Several capital goods
manufacturers report that demand is behind schedule for this stage of the
recovery; customers may have ambitious investment plans, but they seem
unwilling to make large cash commitments.
In contrast, a few firms report
unexpectedly strong demand with very tight delivery dates; these firms are
uncertain whether to gear up to accommodate what may be panic buying. Sales
in Canada, the Far East and Europe are increasing, but because of the
strong dollar, the pickup is more pronounced for sales of overseas
subsidiaries than for exports.
Manufacturers are operating with lower inventory-to-sales ratios
than in the past.
Use of computerized inventory management techniques and,
in some cases, simply more attention to inventories have made it possible
to reduce inventory ratios without impairing customer service.
Several
respondents commented that because of lower inventory ratios, their need to
borrow working capital was substantially below normal for this point in a
recovery.
None of the firms contacted has seen evidence of widespread price
increases.
Pulp prices are said to be rising, but no other products were
singled out.
Semiconductors are in extremely short supply; but the problem
is lead times not price increases.
Wage increases are also reported to be
moderate; several respondents expect increases in 1984 of about 5 percent.
Commercial Banking
Banking respondents report vigorous growth in loan demand.
expansion is broad-based.
installment loan demand.
The
Smaller banks are seeing strong real estate and
At larger banks, business loan demand is
increasing, with medium-sized and New England-based firms providing much of
the strength.
To a substantial degree, banks are financing the increased
demand with purchased funds rather than deposit growth.
II-1
SECOND DISTRICT-NEW YORK
Introduction
The slowdown in the national economic recovery suggested by
the leading indicators and unemployment
reports
from the Second
activity
continued
District.
Several
to
District
expand
for
in
purchasing
rates was not reflected
March
and April.
in
Business
most
sectors
throughout
managers
report
very
the
favorable
conditions and the unemployment rate in New York reached a four-year
low.
The demand for homes is
very strong and builders expect to be
busy until the end of the year.
Nonresidential construction is also
strong with especially tight space availability in some parts of the
District. Consumer spending did slow in March, and despite a sharp
recovery in April, several retailers report excess inventories.
On
the
of
financial
side,
consumer loans:
banks
have
begun offering
two new
types
variable rate installment loans and equity access
accounts.
Consumer Spending
Retail sales in the Second District were weak in March but
rebounded in April.
sales
lower
in
March
Two retailers located in New Jersey registered
than
reported very small increases.
last
In
year,
and
contrast,
several
store
chains
consumer spending rose
sharply in April throughout the District, to amounts ranging from 11
to 26 percent higher than those of last year.
Bad weather in March,
II-2
good weather in April, and an Easter holiday three weeks later than
last year were common explanations for this pattern.
The
increase
in
April
sales
was
not
enough
to
prevent
excess inventory build-up for a number of retailers in the course of
the past few months.
Several stores have accumulated merchandise 20
or 30 percent over last year's levels.
While much of the inventory
growth was intentional, levels at some stores were up to 10 percent
higher
than
planned.
Some
retailers
plan
to
reduce
stocks
by
cutting back or cancelling orders, but others expect increased sales
to absorb excess inventory.
Business Activity
The business
its
pace in recent
expansion in
weeks.
the
Purchasing
Second
District maintained
managers
in
upstate
areas
reported quite favorable economic conditions, and the percentage of
managers in the Buffalo area citing increases of new orders reached
the
highest
level
in
six
years.
Downstate,
improved
economic
conditions made possible a New York City budget proposal calling for
substantially higher levels of public employment.
Further employment gains were registered in many areas of
the District.
increased
March nonagricultural employment in New York State
broadly
to
a
record
level
for
that
month,
and
the
unemployment rate fell below 7.0% for the first time in four years.
The greatest improvements were in the construction, trade, service,
II-3
and financial industries.
Manufacturing employment also rose as a
pickup in business capital outlays led to increased employment in
the electrical and nonelectrical machinery industries.
Among major new construction projects in the District, two
of the largest were the groundbreaking for a new 300-room hotel and
convention center in the Albany area, and a planned office building
and hotel near Giants Stadium in New Jersey.
Other large expansions
include an additional building at IBM's Kingston, New York complex,
increased
space
at
a
dairy
plant,
and
the
enlargement
of
its
headquarters building by a microwave firm.
Construction and Real Estate
Residential construction activity was brisk throughout the
District despite occasional interruptions due to unseasonably wet
weather.
Demand is very strong and builders anticipate being booked
through November.
Because of anxiety over the future
course of
interest rates, New York and New Jersey builders are considering
issuing "builders bonds" to finance mortgages themselves, in order
to assure a stable flow of funds next year.
Nonresidential real estate activity also picked up a bit in
recent months.
The strength in the Manhattan office market, which
has recently been confined to older buildings, is extending to new,
higher-priced office space.
Demand is also up in New Jersey and
II-4
lower Connecticut, but remains fairly slow in the northern suburbs
of New York.
rate hikes,
On Long Island, despite fears of large electricity
the industrial market was especially tight.
of available industrial space
fell
The amount
by nearly 25 percent in
the six
months ending in March.
New office buildings are planned or starting both in New
York
City and
in
suburban
areas.
Construction
of
retail space,
especially "strip centers" along major roads is up on Long Island.
Financial Developments
Small Second District banks are offering two relatively new
consumer financial
instruments, variable-rate
loans and equity access
accounts.
consumer
Most banks
installment
surveyed now offer
variable-rate consumer loans.
Monthly payments are generally fixed
for
and
the
term
of
the
loan,
quarterly
rate
incorporated by changing the number of payments.
adjustments
are
The response to
these loans has been quite good; the banks reported that up to 80
percent of consumer loans are now of the variable rate variety.
Equity
access
accounts
accessed like lines of credit.
banks
and
demand
for
these
are
mortgage
loans
that
can
be
They are are being offered by fewer
accounts appears
to
be
fairly weak.
III-1
THIRD DISTRICT - PHILADELPHIA
Most Third District contacts report steady growth in the local economy during the
past six weeks. The one exception is the real estate and home construction industry, which has
experienced a recent slowdown in activity.
In other industries, manufacturers report solid
increases in activity since early March and, after an anticipated let up in March, retailers are
enjoying handsome sales gains in April. Additionally, local bankers report very steady growth in
both commercial and retail loan volume.
The outlook varies across industries. Manufacturers and retailers forecast continued
growth, but at a slightly slower pace than during the recent quarter.
Area bankers are
confident that they will continue to see healthy loan growth during the next six months. On the
other hand, real estate and construction executives express the concern that if mortgage rates
continue to rise, their industry will experience a significant and sustained slump in activity.
MANUFACTURING
The Third District manufacturers responding to the most recent Business Outlook
Survey report solid increases in activity during the past two months.
Over 50 percent of the
respondents indicate a pickup in activity, while only five percent report a decline.
New orders
and shipments continue to make significant, steady advances, and unfilled orders and delivery
times are also up. Contrary to national figures, survey results indicate that local manufacturing
inventories have been unchanged for the past six months.
Also, April employment has made
only slight gains over March levels.
The effect of the economic expansion is being felt in industrial prices at area firms
according to the survey. In April, 51 percent of the respondents report paying higher prices for
raw materials and 23 percent indicate that they are being paid more for their output. Looking
ahead, the April price outlook marks the 12th consecutive month in which more than threequarters of the respondents have forecast higher input prices. This month, 80 percent of those
III-2
polled predict increased input costs by October, and 54 percent anticipate receiving higher
prices for their final products.
The overall outlook for manufacturing during the next six months is positive, though
to a slightly lesser degree than in past months. Two-thirds of the executives surveyed foresee
continued expansion in manufacturing activity until at least October.
Additionally, a large
portion of respondents (47 percent) once again forecast a pickup in capital expenditures over the
next two quarters.
RETAIL
Following an anticipated mediocre performance in March, retail sales in the Third
District have been very healthy in April.
Retailers report sales increases of 25 percent to 35
percent over April '83; they attribute about half of that gain to the late Easter holiday. Despite
the reported declines in national retail sales for the months of February and March, contacts
here have not sensed a reduction in either consumer confidence or willingness to spend. In fact,
credit sales as a percent of total sales continue to rise. Inventories at local department stores
are reported to be slightly on the heavy side, but retailers say they have no plans as yet to
undertake markdowns.
Merchants report that they promoted heavily during the Easter selling
season, but that current promotions are normal for this time of year.
Looking ahead, retailers foresee some easing in sales growth, but still forecast 5-15
percent increases over a year ago through September.
FINANCIAL
Bank contacts in the Third District report healthy growth in both commercial and
retail loans since early March.
C&I loan activity is maintaining the 10 percent to 15 percent
rate of increase over 1983 levels which began in February. Contacts report that both large and
small companies are borrowing money for capital expenditures, inventory financing, and working
capital. Retail loan volume also has posted healthy advances during the past six weeks, and
III-3
consumer loans outstanding now exceed last year's levels by 10 to 20 percent.
Loan officers
remark that the growth is attributable to automobile loans and credit card borrowing.
While most bankers foresee continued strength in loan growth for the remainder of
1984, some have cautioned that higher interest rates could discourage borrowing later in the
year.
On the retail side, local contacts unanimously forecast generally robust activity for at
least the next two quarters.
The prime rate at Philadelphia banks is currently 12 percent, up from 11 percent six
weeks ago. Bank economists are forecasting gradual upward movement in both short-term and
long-term rates through the end of this year. They predict that continued GNP growth in the
second quarter (3 percent to 4 percent), an increasing rate of inflation (5 percent to 7 percent),
government borrowing demands, and a firm Fed policy will push rates gradually higher. Some
local economists feel, however, that the FOMC will attempt to keep the federal funds rate at or
below the 11 percent level for the remainder of this year. They believe that if second quarter
growth appears to be within the 3-4 percent range and there are no unexpected jumps in the
monetary aggregates in the near future, the Fed will be able to achieve that goal.
REAL ESTATE/CONSTRUCTION
Third District realtors and residential builders have begun to feel some effects of
rising mortgage interest rates, which have climbed by 50 to 125 basis points over the last two
months.
Local rates for 30-year, 3-point fixed-rate conventional mortgages currently range
from 13-1/2 to 14 percent.
Although real estate sales firms report that sales have remained
strong through early April, (15 to 20 percent higher than those of a year ago) some are now
seeing a slowdown in activity.
Local builders, however, report a more dramatic drop in sales
over the last several weeks, which they say are now running 30 to 40 percent behind last April's
strong pace.
Both realtors and builders attribute the recent easing of activity exclusively to
buyer nervousness over rising mortgage interest rates.
III-4
New housing starts also have slowed considerably as local builders express caution
over the dangers of speculative construction during a period of rising interest rates. Builders
also are concerned about the possible increase in the rate of buyer cancellations of contracts on
houses already under construction.
slim.
As a result, inventories of uncommitted homes are very
As for the future, industry contacts feel that if mortgage rates reach the "magic" level,
somewhere between 14 percent and 15 percent, the industry will enter a sustained slump.
IV-1
Fourth District - Cleveland
Summary.
Economic activity in the Fourth District continues to increase, but
labor market conditions remain weaker than in the nation.
Retail sales
improved in April from March, but gains for the March-April period are
smaller than for the previous two months.
Output and prices in
manufacturing continue to rise, and some primary metals and automotive
production lines are operating at capacity.
remain strong.
Housing construction and sales
Strike-hedge demand for coal is rising.
Business loan
demand remains strong at commercial banks.
District Labor Market Conditions.
Despite steady recovery, labor market conditions in this District remain
weaker than in the nation.
A banker estimates the unemployment rate for
eastern Kentucky to be 16%.
Ohio's unemployment rate in March was 3.1
percentage points below its year-earlier level but was still 2.4 percentage
points above the national rate.
Nevertheless, the average workweek in Ohio
manufacturing increased 0.2 hours to 42.6 hours (n.s.a.)
in March, after two
months of declines, and the average workweek in automobile manufacturing
increased to 46.2 hours, the highest since December 1978.
Unemployment rates in eleven major metropolitan areas in this District
in February ranged from 7.6% in Columbus to 13.3% in Pittsburgh.
An index
of leading indicators for the Pittsburgh area has risen strongly in the last
few months following a slowdown last autumn, suggesting substantial
employment gains in the months ahead.
IV-2
Retail Sales.
Retail sales recovered briskly in April from the previous month's
slump.
General merchandisers contacted, however, report less than 10%
year-over-year gain for the March-April period as compared with increases of
about 11% to 12% in the previous two months.
Much of the April strength was
concentrated in soft goods, especially apparel.
quite strong in April.
New cars sales remained
Both domestic and import dealers report solid,
across-the-board sales strength, which is expected to persist through the
remainder of the quarter.
Shortages were reported for some larger size
models, and the waiting period for some import models has lengthened to
about eight weeks.
Manufacturing.
Output and prices continue to rise.
This Bank's survey of Fourth
District manufacturers indicates that firms expected shipments to rise in
April but at a slower pace than in March.
A survey of northeastern Ohio
purchasing managers indicates production and new orders rose again in
April.
Two-thirds of the respondents report prices paid are higher than a
month ago, and none report lower prices.
A survey of Cincinnati area
purchasing managers indicates vendor performance is continuing to
deteriorate while prices paid are rising.
A major auto producer reports
difficulty adding to production schedules that are at capacity for mid- and
standard-size cars.
Primary Metals.
Demand for sheet steel and aluminum remains strong.
A major steel
producer reports that production is at capacity for sheet steel, which is
used primarily in automobiles.
The firm suggests demand for sheet steel may
not increase further because automobile production has peaked and steel
IV-3
imports are readily available.
Area steel producers report growing demand
from the capital goods sector.
A major aluminum producer's fabricating facilities have been operating
at capacity for a year.
The firm is allocating supplies of aluminum sheet
among customers for June and July deliveries because demand exceeds
production capacity.
The firm's smelters have been operating at capacity
since autumn; however, some high cost smelters are closed and won't reopen
unless aluminum prices increase by about two-thirds.
World market prices of
ingot aluminum have declined in the last three months despite apparent tight
supplies, a phenomenon the firm cannot explain.
World supplies of bauxite
and alumina are reported to be ample.
Housing.
House construction and sales remain strong but are sensitive to interest
rates.
Builders of single-family homes report that construction activity
during the first quarter of 1984 was up from a year ago, and barring a
further rise in interest rates, construction in 1984 would match or possibly
exceed last year's total.
The "move-up" market remains strong and demand by
first-time buyers is being bolstered by expectations that interest rates
will edge up steadily as the year matures.
Realtors, who reported record
earnings in 1983, are currently experiencing a strong sales pace; even if
interest rates rise slightly, they expect a fairly good housing market for
the balance of 1984.
Lenders recently experienced a decline in mortgage applications.
Applications for fixed-rate mortgages fell, but are being partially replaced
by applications for adjustable rate mortgages (ARMs).
Lenders say ARMs will
keep the market buoyant until initial ARM rates reach the 13% - 13 1/2%
range, which lenders now consider the "tolerance" rate.
IV-4
Coal.
Coal prices are rising and demand and shipments are increasing in
eastern Kentucky.
Utilities are reported to be increasing stockpiles as a
hedge against a strike when the United Mine Workers' contract expires on
September 30.
Commercial Banking.
Loan demand remained strong at Fourth District banks in recent weeks.
Business lending led the way and is expected to remain strong throughout the
year.
Consumer loans also increased, particularly auto loans.
Bankers
expect the pace of consumer lending to taper off somewhat, but expect
overall loan demand to remain quite strong in the months ahead.
Net deposit inflows have been relatively flat with the lack of growth
partly attributed to the April 15th tax deadline.
Loans have been financed
to a large extent with borrowed and purchased funds, and from the sale of
government securities.
in the next two months.
Bankers expect deposit growth to pick up moderately
FIFTH DISTRICT - RICHMOND
Overview
Although there are some indications that the rate of expansion of
the District economy has slowed, activity continues to increase.
Also, at
least a portion of the perceived slowing is attributed to recent weather
conditions.
Construction and agriculture, especially, have been hampered.
On
other fronts, industrial activity, retail sales, and mining remain robust, as
do the underlying trends in commercial and residential construction.
District
coal production also continues to run well ahead of year earlier levels.
In
general, loan demand is also growing, but financial institutions appear
capable of absorbing significant additional loan growth, especially if deposit
forecasts come close to the mark.
Manufacturing
After allowance for seasonal factors, manufacturing activity
appears to be still expanding generally.
Shipments, orders, and order
backlogs all showed further growth over the past several weeks, although the
improvement was more narrowly based than in the previous few months.
Manufacturing employment also seems to have gained, and the length of the
average work week may have risen sharply.
Our information indicates little
change in manufacturers' inventories over the past month or so, only some very
modest accumulation in raw materials.
Most of our respondents still find
current stocks at comfortable levels, although a few report them excessive.
There is some sentiment for expanding inventories if sales continue to rise,
but little expectation of a significant accumulation in the near future.
In general, current plant and equipment capacity is considered about
right.
There is occasional mention, however, of plants or industries facing
possible short-term constraints.
In particular, the paper industry and some
of its customers, such as the gypsum wall board industry, may be near capacity.
Isolated plants in the textile, furniture, automobile, and printing
industries are also cited as examples.
Consumer Spending
Sales of general merchandise lines have made further headway in
recent weeks despite some purportedly seasonal weakness in apparel and related
products.
It is generally felt that subsequent periods will make up for this
weakness.
Automobiles may also have gone through a lull, but continued
improvement is widely expected.
Other consumer durables such as furniture and
appliances continue to do quite well, perhaps even gaining a larger share of
total sales.
Retailers do report some inventory accumulation recently, but are
generally comfortable with current stocks, as they are with the present number
and size of outlets.
Also, employment by retailers appears to have expanded
over the past four to six weeks.
Housing and Construction
Adverse weather conditions have undoubtedly resulted in lost production in the construction sector since mid-March, and measured activity will
certainly reflect this.
Underlying trends in the industry remain strongly
positive, however, and widely-held expectations are that the recovery will
continue when weather permits.
Both commercial and residential construction
appear very strong if gauged by projects in various stages:
plans,
V-3
announcements, permits, starts, in progress, etc.
points to continued strength in the industry.
Nearly all the evidence
In addition, house sales are
still quite strong.
Banking and Finance
Loan demand at District financial institutions has grown somewhat
more rapidly in recent weeks than earlier in the year, particularly on the
business side.
Nonetheless, consumer installment and residential mortgage
activity remain strong.
Financial institutions have the capacity to
accommodate further loan growth, and many project that deposit growth will
outstrip the expansion of loan demand in coming months.
Agriculture
Unseasonably wet weather during March and April has delayed farmers'
plantings, possibly causing a shift from corn to soybeans for some.
Avian
influenza, which inflicted heavy losses on Virginia's poultry industry in the
Shenandoah Valley last winter is continuing to plague turkey growers with
sporadic outbreaks, resulting in sizeable economic losses.
On the input side,
farm production expenses are expected to increase only 2-4 percent in the
current year, which, coupled with stronger expected product prices, is causing
some optimism concerning farmers' profit positions this year.
The Outlook
The outlook around the District certainly remains positive, but is
somewhat less ebullient than in recent months.
There is no sense of an
impending contraction, but more observers seem to see less and less capacity
and opportunity for further growth.
VI-1
SIXTH DISTRICT - ATLANTA
The pace of economic growth is slowing in the Southeast.
Labor markets
continue to strengthen largely because of ongoing expansion in the industrial sector.
However,
most manufacturers,
fearful that the recovery
is near its peak,
initiating plant expansions and are monitoring inventories carefully.
spending has decelerated,
but retailers
are
are not
Growth in consumer
satisfied with current inventory levels.
Rising interest rates contributed to a decline in residential construction in the early
spring, but commercial building remains on the rise.
has slackened.
Consumer and mortgage lending
Even the growth rate of business lending, which was strong throughout
the first quarter, fell in April.
adjustable-rate mortgages.
Southeastern thrifts are avoiding sharply discounted
Conditions in the travel industry are healthy despite rapid
expansion of lodging facilities and the lingering effects of intense airfare competition
last year.
Pork supplies should not fall as drastically in the Southeast as in the nation,
and the outlook for profitability in this segment of the agricultural sector is positive.
Employment and Industry.
seasonally
adjusted
The unemployment
basis in five District
states.
construction are boosting employment in Florida.
was the lowest in nearly a decade.
growth rates of recent months.
increased.
rate in March fell on a
Defense contracts,
tourism,
and
Florida's 5.5 percent jobless rate
Manufacturing is sustaining much of the employment
Steel and aluminum production in Alabama recently
The forest products industry is operating near capacity, according to a trade
association spokesman.
Recent unfavorable weather conditions have hampered some
timber harvesting, causing mills to struggle to meet surging demand.
However, lumber
industry representatives are concerned about the effect of rising interest rates on
demand for wood products.
Strong backlogs reported by contacts with oil surveying
crews and seismic operations in Louisiana portend renewed drilling activity.
VI-2
Contacts in most industries stress that greater utilization of present facilities
is a top priority; plant expansions are infrequent at this time. Many producers, fearing
that the recent surge in economic growth cannot be sustained, are maintaining a close
watch over inventories.
The strong dollar and slow recovery abroad are retarding the
growth of manufactured exports from Miami to Latin America and of grain and coal
exports from New Orleans and thereby limiting the recovery of foreign trade activity
in the District.
Port officials throughout the region foresee a continuation of slow
export growth.
Consumer Spending.
District retailers report a slowdown in March-April
sales growth from the year-over-year advance recorded in the January-February period.
Easter holiday sales were below merchants' expectations, but they were above 1983
levels.
Electronics, home furnishings, cosmetics, shoes, and sportswear were among
the top selling items this Easter.
Retailers also report that there have been no
significant increases in suppliers' prices and inventories generally are at desired levels.
The monthly growth rate of car sales in the region remained strong in the first four
months of 1984 but, in contrast to the 1983 pattern, has fallen below the national rate.
Compact and medium-sized models are showing particularly healthy sales growth here.
Construction.
Contacts in major District cities report decreases in single-
and multifamily building permits from March to April following increases from February
to March.
Orlando, with 26 and 52 percent decreases in single- and multifamily building
permits, respectively, experienced the greatest slowdown from March to April.
respondents attribute the decline to rising interest rates and rainy April weather.
Most
The
Federal National Mortgage Corporation is discouraging sharply discounted adjustable-rate
mortgages (ARMs), and some private mortgage insurers have become reluctant to insure
such ARMs.
As financial institutions respond to this trend, higher income requirements
for ARMs may be shrinking the pool of potential home buyers.
VI-3
Nonresidential construction, measured in square feet, increased 57 percent
from February to March, surpassing the national rise of 39 percent.
concern in Atlanta's office market.
Overbuilding is a
Fears of further materials price rises and interest
rate escalation have caused builders in Orlando to decrease speculative building and
purchase forward commitments
to guarantee current rates.
Population growth and
corporate relocations are also fostering development, but increased building costs and
rising interest rates have spurred builders in some areas to rush projects in progress
in case the boom should end soon.
Financial Services.
quarter.
Loan demand at banks has been strong through the first
Business and real estate lending has grown most rapidly, although business
lending slowed somewhat in early April.
Consumer lending softened in the March-April
period.
Deposits, especially demand deposits, at large commercial banks declined in
March.
Contacts believe withdrawals for income tax payments caused the shrinkage.
Savings and loan associations in Louisiana and Mississippi registered large increases in
mortgage
commitments,
somewhat in April.
but higher
mortgage
interest rates
dampened
this
activity
A poll of southeastern savings and loan associations revealed little
usage of deep-discount (5-7 percent range) adjustable-rate mortgages.
steps such as raising minimum income requirements
S&Ls have taken
to protect themselves from the
heightened risk of such loans.
Regional interstate banking is gaining legislative momentum in the Southeast.
Georgia has enacted a law permitting interstate banking, and Florida, South Carolina,
and North Carolina have bills at varying stages of the legislative process.
Meanwhile,
banks outside the Southeast are taking advantage of a provision in federal banking
statutes
allowing
out-of-state
banks
to operate
consumer loan
and
deposit-taking
facilities provided they refrain from offering either business loans or checking accounts.
Over 30 institutions have applied to operate these consumer banks in Florida and Georgia.
VI-4
Tourism.
Most sectors of the tourism
beginning of the spring season.
industry
posted increases
at
the
Visitor center registrations were generally up in March,
although the rate of growth in Florida was a narrow 2 percent, a reflection of both a
deceleration in visitor growth and a later Easter.
Respondents report that convention
business is healthy, especially in Nashville and Orlando.
Lodging tax revenues showed
a double-digit percent increase over year-earlier levels in every state. Hotel occupancy
rates, however, have softened from last year because of the large number of new rooms
available.
The 1984 World's Fair in New Orleans should help hotels in Louisiana,
Mississippi, and Alabama.
spring.
Reservations managers report strong bookings through the
Advance ticket sales to the Fair had been below expectations but have spurted
in recent weeks.
Air traffic continued to rise in most smaller cities in March, but the Atlanta
and Miami airports reported a drop in passenger volume of 2 percent and 3 percent,
respectively.
These declines reflect the elimination of sharply discounted fares, which
inflated air travel a year ago.
Cruise ship bookings are still slow but on the rise.
Anticipating growth, several lines have launched new luxury ships from Florida ports.
Agriculture.
In response to rising feed costs, pork farmers began to reduce
inventories last year by marketing hogs earlier and breeding fewer sows.
A recent
survey suggests that reductions are continuing and this summer's farrowings at the
national level will be the lowest since 1975.
However, partial data for the Southeast
imply that inventories here will remain at approximately 90 percent of 1983 levels. If
normal crops are produced in 1984, feeding costs should decline in the fourth quarter
and hog prices should rise, prompting an increase in production that will reach the
consumer next year.
pork producers.
Declining costs and rising revenues should improve the profits of
The pork industry generates over $800 million in annual farm revenue
in the Sixth District.
VII-1
SEVENTH DISTRICT--CHICAGO
Summary.
The business improvement in the Seventh District continues,
but the uptrend in retail sales slowed in the early spring and housing
activity ebbed, allowing for seasonal trends.
Employment has increased
further, but gains are still concentrated in manufacturing.
Despite sharply
higher profits, cost reduction programs are still being pressed vigorously.
Output of motor vehicles, paper products, gypsum board, and household appliances
is high, often at or near full capacity.
ing new life, both private and public.
Nonresidential construction is showDemand for most mechanical capital
equipment has improved, but only moderately.
Two major public utilities have
serious financial problems, with no resolution in sight.
Although leadtimes
on deliveries of goods have stretched out further and price increases are more
frequent, most items continue to be readily available.
Inventory building is
underway on a broad front, but appears to be voluntary and in line with plans.
Despite evidence of slower growth, most District executives anticipate further
gains in a highly competitive environment.
Pressures to restrict imports are
building, supported by business and labor groups.
Farmland values declined
again in the first quarter.
Cost-Cutting.
Various companies whose sales and profits have increased
sharply since the low point of the recession continue to press cost-cutting
programs--eliminating marginal and replacing better-paid employees, consolidating functions, selling or closing less profitable operations, etc.
expansions such efforts often were relaxed.
In past
New hirings require special
approval, and early retirements are encouraged.
Staff reductions through at-
trition are difficult because, reflecting slack labor demand, quit rates are a
small fraction of the postwar average, and the lowest since the 1930s.
Also
VII-2
cutting staff are banks, insurance companies, and other financial service companies facing intense competition.
The medical field--hospitals, laboratories,
and medical supply firms--has been laying off workers, after expanding rapidly
for many years, because of pressures for "cost containment."
Business Climate.
Interested groups are much concerned about publicity
given to recent studies indicating that Midwest states are "inhospitable" to
business.
Problems cited include high wages and benefits, restrictive work
rules, energy costs, taxes, unemployment insurance and workers' compensation,
government regulation, and lack of special incentives to locate, expand, or
remain in the region.
Some charge that evaluation methods of the surveys are
unfair and inaccurate, but there is general recognition that unfavorable "scores"
have foundation in fact.
Job Markets.
Increases in manufacturing employment in the District since
the low point in late 1982 compare favorably with increases in the nation, mainly
because of callbacks in the motor industry.
ever, has increased less than in the nation.
Nonmanufacturing employment, howFor both manufacturing and non-
manufacturing the District experience compares unfavorably with the nation relative to the 1981 peak or to earlier years.
Nevertheless, many factories are
working long hours--seven-day weeks, heavy daily overtime, and extra shifts.
Major food chains in the District have cut compensation of union workers substantially despite existing contracts.
Executives say these moves were neces-
sitated by growing competition from food discounters.
Cuts in labor costs
have been reflected in lower food prices.
Retail Sales.
least of soft goods.
Merchants were somewhat disappointed by April sales, at
However, it is not believed that the underlying strength
of the upturn has deteriorated.
been "phenomenal".
Sales of appliances, led by microwaves, have
Other hard goods also have done well.
Inventories, overall,
VII-3
are now slightly higher than had been budgeted, especially when goods on order
are included, but not a cause of concern.
General merchandise prices, up 2 per-
cent in 1983, are expected to rise 3 percent this year.
Capital Equipment.
variations by category.
Orders for capital equipment are rising, but with wide
Farm equipment remains very weak.
equipment has improved, but not heavy types.
Light construction
Freight car orders are somewhat
higher, but only specialized types, including piggy-back flatcars, auto carriers,
and some bulk carriers.
Machine tool orders have exceeded shipments this year,
but the industry remains in "dire straits" because of sharply reduced cash flow.
The paper industry is starting a new wave of expansion.
There is no activity in
new chemical plants, oil refineries, electric utilities, ore processing, cement,
and gypsum board.
sheet mill.
A leading steel producer may build a large, modern cold-rolled
Output of heavy trucks and trailers is at full capacity, and this is
expected to continue into the second half.
Traffic handled has increased sharply,
and the trucking fleet aged and deteriorated in the past several years of low
investment.
Housing.
For the first quarter, housing permits were one-third above 1983,
and four times the pitiful level of 1982, but less than half that of early 1977
or 1978.
Sales of new and used homes slowed in the past month, except in partic-
ularly "hot" markets.
The housing slowdown is attributed to a reduction in the
overhang of deferred purchases, and concern over the soundness of ARMs that involve artificially low starting rates.
Nonresidential Construction.
The uptrend in office building construction
has gathered strength, but mainly in the Chicago area.
Additional large build-
ings are getting underway. (Factory work is up, from almost zero, but still very
low.) Leasing activity is up substantially and rents have firmed, belying "expert"
forecasts early last year that the overhang of space would take several years to
VII-4
absorb.
Highway construction projects are moving forward at a very rapid pace,
after lagging earlier in the year.
Steel.
Shipments of steel are expected to continue to rise through the
year with a less than seasonal decline in the summer.
Demand is strong for
lighter steels to be used in vehicles, appliances, and housing, with output at
virtual capacity.
Inventories are building, on a voluntary basis, but remain
low by past standards.
Structurals are improving, but demand for heavy plates
used in capital goods remains weak.
Agriculture.
Our survey of agricultural bankers indicates that farmland
values in the District declined nearly 3 percent in the first quarter, ranging
from virtually no change in Indiana and Michigan to an unusually large decline
of 6 percent in Iowa.
Overall, farmland values were 5 percent below the year-
ago level and 18 percent below the 1981 peak.
Weakness in farmland values
partly reflects asset adjustments by a small number of farmers.
The major cause
of forced sales has been debt-financed investments in the boom of the late 1970s,
at high prices and high interest rates.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Economic activity in the Eighth District continued to increase
in March and April, but the pace of the expansion slowed.
Retail sales
were moderately strong, but year-over-year comparisons were less
favorable than during the winter.
Industrial production rose
moderately, construction remained vigorous, and employment increased.
Farmers have been hampered by wet weather, but expectations of large
plantings have stimulated seed, fertilizer and implement sales.
Outlook
Employers generally are optimistic about the near term
outlook.
In a recent survey of St. Louis area business firms, 32
percent planned to hire more workers in the second quarter of 1984,
while only 7 percent planned staff reductions in the quarter.
In a
similar survey taken a year ago, 23 percent of the employers said they
planned to hire more workers and 8 percent expected to trim their
staffs.
Consumer Spending
Department store sales in the District continued to be above
year ago levels in March and April.
At six stores, sales during the
two months averaged 5 percent above the same two months in 1983.
Clothing items moved well, but appliance sales slowed.
Inventories
are higher than in January, but retailers do not judge them burdensome.
Auto sales have been strong.
Several dealers report that
March and April sales were 16 percent or more above year ago levels.
VIII-2
Dealers claim that sales would have been larger if popular models
had been available.
Sales of used cars and trucks also have been
vigorous.
Rainy weather in March and April adversely affected home
sales in the District; they were about the same as in the comparable
months a year ago.
Industry spokesmen, however, expect total home
sales for 1984 to be at least 10 percent higher than in 1983.
This
year's growth in the sales of multifamily homes has been offset by a
decline in single family home sales.
Prices of homes are rising,
but not out-of-line with general inflation.
Construction costs have
increased with a recent 5 percent wage boost, rising land prices and
higher material costs.
Builders and realtors expressed concern over
increases in the mortgage interest rate: if it rises much more,
sales are expected to decline greatly.
Manufacturing
Industrial activity in the District continued to expand
moderately during March and April.
Expenditures for capital
equipment were strong, but most of the outlays were for replacement
and modernization rather than for increased capacity.
Inventories
are higher than last fall, but with sales also up, they are generally
still within the desired range.
A few firms, however, reduced their
production growth rates in order to prevent an unwanted buildup of
inventories.
A large firm in Arkansas cut back its operations
significantly and laid off 450 workers because of slower sales.
VIII-3
Employment
Total employment in the District rose slightly in March and
April with gains recorded in the manufacturing, construction and
service industries.
This increase, however, about matched the
growth in the labor force, and the unemployment rate was little
changed.
Respondents indicate that summer jobs will be somewhat
more plentiful this year than last.
Agriculture
Farmers plan to plant substantially more acres this year
than last, when the PIK program caused a marked reduction in crops.
As a result, implement, seed and fertilizer sales have been much
improved.
The amount of land planted in April, nevertheless, was
negligible because the ground was too wet to work.
This delay will
not become critical, however, for another two weeks or so.
Finance
Banking data indicate little net change in credit and
deposits in March and only a moderate expansion in the first three
weeks of April.
Commercial and industrial loans increased $120
million at 12 relatively large District banks from the end of
February to late April.
Real estate loans rose only $10 million,
while consumer installment credit was up $50 million.
Time deposits
climbed by $70 million, while demand deposits expanded by nearly
300 million.
IX-1
NINTH DISTRICT - MINNEAPOLIS
The Ninth District's growth prospects, while still good, have moderated
somewhat over the past few months.
Consumer spending has been slowed a
bit by bad weather and a slack farm economy.
tinued its usual seasonal
improvement.
Employment,
however,
has con-
Also, though the agricultural sector
is still suffering from a general malaise, some scattered signs of improvement
have appeared.
Resource-related industries have improved as well, with the
production of taconite, coal, oil, and wood products all firming.
Meanwhile,
loans and deposits haven't appreciably changed.
Consumer Spending
Primarily due to bad weather and a slack farm economy,
general
merchandise has been at a
trict.
One large
district retailer
only 5 percent
greater than
stores
that
reports
"disappointing."
local
stores
little
its
its
February
the dis-
lower rate than usual in
reports that its
sales
spending for
last
and March
March.
sales
sales this
A chain
in
March were
of department
the Twin Cities
were
While bad weather has kept some rural residents shopping in
rather
than
in
urban malls,
rural
shopping throughout
trict has been restrained by the generally slack farm economy.
the dis-
Reflecting
this, Bank directors report spotty sales figures in Montana, South Dakota, and
parts of Minnesota outside of the Minneapolis-St. Paul area.
However, accord-
ing to the limited data available, consumer spending improved throughout the
district in April, thanks to better weather and Easter sales.
IX-2
Regional auto sales
previous months.
have continued to show the strength
both
auto and truck
sales
were up
report
good to strong sales
in
One large automaker reports
substantially from comparable
levels and that current inventories are low.
tors
in
Large domestic automakers report that monthly vehicle sales
increased 50 percent between February and April.
that
evident
1983
Corroborating this, Bank direc-
the cities within Montana,
the Dakotas,
and western Wisconsin.
While home buying increased in the first quarter of 1984, March sales
failed to match the very high level of March 1983.
In the Twin Cities, both
unit and dollar sales were between 10 and 20 percent below year-ago levels in
March, whereas in January and February sales had been between 10 and 20 percent above year-ago levels.
sales
Scattered reports
remained good in other parts
indicate, though, that home
of the district, including Fargo, North
Dakota, and western Wisconsin.
Employment
Labor market
conditions have continued to improve.
The seasonally
unadjusted unemployment rate in Minnesota fell from 7.9 percent in January to
7.1
percent
growth
despite an increase
in March,
has been particularly
robust
in
the
in the labor
force.
Twin Cities area,
now
unemployment
claims in Minnesota were 28 percent lower this March than last.
In Minneap-
olis,
the jobs
during
the help wanted advertising
level last February.
trict.
lost
the
Also,
which has
initial
regained
recession.
Employment
index for February was more than double its
Improvement was also noted in
other parts of the dis-
The unemployment rate in west central Wisconsin fell from 10.7 percent
IX-3
in
January to 10.1 percent
North
Dakota,
area
also
in
February.
fell between
The unemployment rate in the Fargo,
those months,
from 5.1 percent
to 4.6
Meanwhile, the unemployment rate in the Upper Peninsula of Michigan
percent.
but the recently announced construction
remained over 20 percent,
of a large
paper mill should help in the future.
Agriculture
The generally gloomy agriculture picture described in
our last report
Dairy farmers are still having problems
has brightened only a little lately.
in Minnesota and western Wisconsin, and the federal dairy diversion program is
Farm auctions and loan delinquencies are preva-
not expected to help much.
lent.
Cropland values continue to fall in South Dakota.
are below normal
wheat harvest.
taken
from the
hurting the prospects
Farm equipment sales continue to be slow.
recent
scattered reports
in
parts of Montana,
in
1 percent
rise in
Minnesota's
land prices,
of increased
Moisture conditions
for the winter
Some comfort can be
farm price index,
from
and from the continuing strength
livestock markets.
Resource-Related Industries
Signs of
industries.
operating,
are
Coal
running
improvement
have
been visible
in
several resource-related
Due to increased demand, all taconite plants in Minnesota are now
albeit
at
75 percent
production is
North Dakota.
at an average
up in
of only
of capacity
Montana,
53 percent of capacity.
in
the Upper
Two plants
Peninsula of Michigan.
but no new mines are foreseen there or in
Oil production is picking up in Montana and may be picking up
IX-4
in
North
ago.
Dakota.
Oil
Wood product
Waferboard
plants
production is
still
lease prices are higher in Montana now than a year
sales
are
are
running
high in
continuing to build throughout
constantly,
the district,
and
prices
have
the
district.
firmed.
and a large new mill is
Paper
being built
in the Upper Peninsula of Michigan.
Finance
Neither total loans
early this year.
nor total deposits appear to have changed much
Commercial and industrial loans at banks in the Ninth Dis-
trict rose a bit in February and fell a bit in March, leaving the level about
the
same.
Deposits
at
savings
and
loan
associations
in
Minnesota
fell
slightly
in February.
Deposits have been fairly stable in rural areas re-
cently.
Still, both loans and deposits were around 10 percent higher than a
year ago in the first quarter.
Variation is seen among other loan categories.
Consumer loans have
reportedly increased a bit in North Dakota and southern Minnesota.
However,
agricultural lending has been fairly flat, partly because of the higher cost
of money in rural areas where incomes are depressed.
liquid in most rural areas
exist.
Banks are keeping fairly
of Montana, where few good lending opportunities
TENTH DISTRICT -- KANSAS CITY
Overview.
The current moderate improvement in Tenth District economic
conditions is expected to continue.
Retail sales in early 1984 have been well
above a year earlier, except in rural communities.
sales growth is expected, however.
A gradual slowdown in
Prices are expected to be stable to
slightly rising, both at retail and for materials inputs.
Lead times on
materials inputs are increasing, leading to some inventory expansion.
sales are good in most district states.
New car
Housing starts are strong, but
builders expect a slight decline as the year progresses.
Demand for mortgage
funds is down somewhat at savings and loan associations, which report making
over 80 percent of new loans on an adjustable rate basis.
District commercial
banks report modest deposit growth and weak loan demand, with demand strongest
for consumer loans.
Winter wheat conditions vary widely across the District,
depending on local disease and moisture conditions.
Spring crop planting has
been delayed in much of the district by excessive rain.
Purchasing agents.
Most Tenth District purchasing agents contacted
report input price increases of 5 to 10 percent since April of last year, but
few report significant increases during the last three months.
A majority
expect further increases of 5 to 10 percent during the remainder of the year.
Nearly all respondents report increasing lead times and some problems with
availability of inputs, with little improvement expected over the course of
the year.
In general, materials inventories are at satisfactory levels after
recent expansion in response to increasing sales and worsening lead times.
Retail trade.
Most retailers report sales for the first three months of
1984 well above a year earlier, except in rural communities where there has
been little or no improvement.
Because of extremely competitive conditions,
retailers have not raised prices.
Furthermore, aside from increases to
maintain markups if costs rise, prices are expected to remain stable through
1984.
Many retailers report high inventories which they intend to trim.
A
gradual slowdown in sales growth is expected for the rest of 1984, but sales
are expected to stay above year earlier levels.
Automobile sales.
Automobile dealers in the Tenth District report
generally improved sales in 1984 relative to a year ago although some areas of
weak sales still exist, particularly in rural areas.
Missouri and New Mexico, and weakest in Colorado.
Gains were strongest in
Domestic inventories are
being expanded where possible in expectation of continued strong sales, while
very low inventories continue to suppress the sales of imports.
Most dealers
report that funds are available both for floorplanning and for customer loans.
All dealers contacted are optimistic about the outlook for sales through 1984.
Housing activity and finance.
Home builders report housing starts are
up from a year ago despite recent bad weather, but are expected to fall
slightly as the year progresses.
behind year-ago levels.
Sales of new homes are lagging slightly
New home prices are up 5-10 percent over a year ago.
Home builders report no problems in obtaining materials.
Savings inflows at
savings and loan associations are generally unchanged from last year but are
expected to increase slightly through the rest of 1984.
Increased mortgage
rates have slightly reduced the demand for mortgage funds.
Further rate
increases are expected to weaken demand the remainder of the year.
Savings
and loan associations are aggressively marketing adjustable rate mortgages
with 80-100 percent of all new loans made in this form.
Because the rates on
most ARM's are tied to an index which lags market rate changes, recent
increases in market rates have not yet resulted in significant collection
problems.
Banking.
Bankers' reports on both loan growth and deposit growth differ
widely, ranging from slightly stronger to weak.
New Mexico do conditions seem uniformly good.
Only in Colorado and Northern
Surveyed bankers report a
slight increase in loan demand during the past month.
Demand is strongest for
consumer loans, especially auto loans, and for commercial real estate loans.
A few bankers report a slight increase in residential real estate loans.
Demand for commercial, industrial, and agricultural loans is flat
Districtwide, however.
The prime rate has increased to a range of 12 to 13
1/2 percent from a range of 11 to 12 1/2 percent last month.
Most Tenth
District banks report a slight increase in deposits from last month, nearly
all due to MMDAs, IRAs, and Keogh accounts.
Conventional NOW accounts and
demand deposits increased slightly in the last month while Super-NOWs and
passbook savings accounts remained constant.
Large CDs also remained constant
Districtwide, reflecting weak loan demand and modest deposit growth.
Agriculture.
Winter wheat conditions throughout the Tenth District
range from poor, due to disease or lack of moisture, to good.
District
bankers report that farmers' sign-up for the government's revised 1984 wheat
program thus far has been high.
The planting of spring crops in all but the
southwest area of the District has been delayed by at least two weeks due to
excessive rain.
The calf crop in most of the District is above average with
calving rates as high as 95 percent in some areas.
Some yearling cattle are
being sold this spring; others will be pastured until fall.
available for farm operating loans this spring.
Ample funds are
Farm credit problems,
however, are at least equal to those of last year, with some farmers wholly or
partially liquidating assets to reduce farm debt.
Unless farmers can
substantially reduce their debt this year, farm liquidations will likely rise.
Farm real estate values continue to decline as the supply of land on the
market increases, but relatively few sales are being reported.
XI-1
ELEVENTH DISTRICT--DALLAS
The Eleventh District recovery continues strong despite the
sluggish energy sector.
Manufacturing employment increased for the second
consecutive month in March and overall production was 13 percent above its
Brisk auto and retail sales are ahead of the
low during the fall of 1982.
strong pace set last year.
Residential and commercial construction
maintained their overall strength, but, a decline in multifamily starts may
suggest further weakness in that area.
District manufacturing activity is healthy.
Manufacturing related
to construction, consumer goods, and electronics account for almost all of
the gains.
Strong consumer spending and high levels of residential and
commercial construction led to increases in the demand for nonelectrical
machinery used to
produce electrical goods and consumer durables.
The
demand for fabricated and primary metals is greater than one year ago and
this strength can also be traced to construction and consumer expenditures.
Mills for manufacturing paper products and materials for residential
construction are running at or near capacity.
Strong consumer spending is
also buoying the demand for apparel with the increases
higher employment and output.
being reflected in
The economic recovery is finally impacting
the production of chemicals and plastics.
Some firms have responded to the
strong demand by running multiple shifts.
Primary metals and chemical
XI-2
manufacturers indicate that intense domestic and foreign competition is
squeezing profits and reducing market shares.
Domestic firms hope to
counter this pressure by using their technological advantage to develop new
products and improve their competitive position.
Manufacturing firms in
the District are continuing to implement controls to maintain lower levels
of inventory without hindering their ability to meet demand.
Continuing weakness in the energy sector is mirrored in the
District's rig count which is down 12 percent from the first of the year
and is only 9 percent above year-earlier levels.
The lack of a significant
increase in drilling means the dismal picture for this sector is likely to
continue.
Despite the overall weakness, the Texas offshore rig count has
registered a 38 percent increase since January.
This can be attributed to
reduced drilling costs and recent leasing of favorable tracts offshore.
Some oil field suppliers reported reductions in inventories and spot
shortages of certain products used in drilling.
This may portend an upturn
for manufacturers and suppliers of oil field equipment later this year.
Auto sales are outpacing their increases of the previous year.
Higher interest rates have not had noticeable effects on consumer attitudes
or purchases.
Sales would have been even higher but for shortages of the
more popular models.
Increased car production is mitigating inventory
constraints, pointing to a strong 1984.
Retail sales maintain their strength.
Some respondents reported
declines in March but these were more than offset by mid-April sales and
both months were well above the same period a year ago.
Demand for durable
goods in particular is benefitting from homebuilding and continued consumer
XI-3
optimism.
Inventories are being increased because of retailers' bright
outlook for the economy and a fear of shortages.
The boom in office and commercial construction is continuing with
the exception of Houston, where the depressed energy industry has dampened
demand for office space.
Vacancy rates there have reached record levels.
Industry analysts are predicting higher vacancy rates in Dallas but, to
date, these expectations have not prevented marked increases in office
construction.
The value of new office and commercial development for the
first quarter in Dallas is 43 percent above the level for the same period
in 1983.
After leading the recovery with a stellar performance, residential
construction growth is beginning to slow.
Permits and starts of single
family homes are still increasing but the number of new multifamily units
has dropped significantly, reflecting fears of overbuilding.
In Dallas
alone, permits dropped 42 percent in March.
Total loans increased at savings and loans and the District's
large banks.
The rate of growth in real estate loans has slowed while
remaining significantly above last year's March figures.
Overbuilding in
multifamily units has induced caution among lenders.
Farmers are benefitting from increasing commodity prices.
continues to plague about one-third of the District.
Drought
Most cotton producers
are not affected by the current drought and sales should increase because
of brisk export demand and moderate growth in domestic consumption.
XII-1
TWELFTH DISTRICT -- SAN FRANCISCO
The Twelfth District economy appears to be growing at a slower rate than earlier
this year but still to be outperforming the nation.
Consumer spending strengthened
in April, with rising interest rates reported to have had no dampening effect on
durable goods sales.
Western homebuilding activity has slowed since January, but
remains far stronger relative to a year ago than nationally.
Nonresidential
construction activity continues to pick up, but there is some concern that vacancy
rates in office and commercial buildings are rising.
In the manufacturing sector,
employment and output generally continue to grow but at a slower rate, partly due to
the effects of the housing slowdown on such industries as lumber and the near full
capacity operations reached in a few industries such as aluminum and paper.
In
California, agricultural crop growing and demand conditions generally are
considerably better than a year ago, but wheat farmers in the Pacific Northwest are
experiencing another difficult year.
Loan demand at Twelfth District banks has
continued at a strong pace despite higher interest rates.
Consumer Spending
Consumer spending appears to have increased more than seasonally during April.
Major department stores in Southern California, for example, experienced an average
11 percent year-to-year gain in sales during the first half of April compared with a
10 percent rate of growth for all of March.
In other Western states, sales also
increased, although the year-to-year gain was not as large.
Sales of apparel have
been especially strong -- up 25 percent at Southern California department stores.
But furniture, appliances and other durable goods also are selling well and have not
been adversely affected by higher interest rates.
Auto dealerships have been
experiencing much larger sales gains than department stores, even in rural areas, and
sales would be even higher were it not for shortages of some larger-size vehicles.
Auto financing charges to consumers have risen only slightly due to competition
XII-2
created by captive automobile financing companies.
Except for autos, retail
inventories are reported to be somewhat heavy.
Manufacturing and Mining
Manufacturing employment continues to expand among a wide spectrum of industries
The most rapid gains
but at a slower rate overall than during the fourth quarter.
continue to occur in the electronic equipment and missiles and space vehicles
industries located in California, Oregon, Arizona and Utah.
Electronic firms have
been benefiting not only from rising defense and consumer demand but business capital
spending to enhance efficiency.
Other capital goods industries adding to their
payrolls include nonelectrical machinery, trucks and aircraft.
In Washington, the
nation's leading manufacturer of commercial transport planes has been adding workers
since October but recently reduced its sales forecast for the 1985-87 period.
The
Pacific Northwest lumber industry has been experiencing a decline in orders and
Two other Pacific
prices recently due to the slowdown in national homebuilding.
Northwest industries -- aluminum and paper -- are reported to be operating at near
full capacity, as is the California semiconductor industry.
Apart from these
industries, the manufacturing sector throughout the West generally still has ample
unused production potential.
After a period of stability in payrolls, the copper and
coal industries have been laying off workers.
Construction and Real Estate
Homebuilding activity in the West has slowed since January in response to the
rise in mortgage interest rates.
But as of March, Western starts still remained 22
percent higher than a year earlier compared with only a 3 percent year-to-year gain
nationally.
Housing sales remained strong through March, but are reported to have
dropped 10-20 percent in April.
This slowdown in sales, combined with the large
number of new homes recently completed, has resulted in an increase in the inventory
of unsold homes which suggests that Western housing starts could fall in the next few
months.
Respondents point to several factors which indicate that any such decline
XII-3
could be moderate however.
These factors include the rapid increase expected in
personal income in the West, the increased public acceptance of adjustable rate
mortgage packages -- which offer initial rates as much as 3 percentage points below
conventional fixed rate mortgages -- and the increased offerings of "buy-down"
programs by builders.
While respondents report a sharp increase in nonresidential
construction activity, they express concern that the supply of new office and
commercial space is already beginning to outstrip demand.
Firms continue to be
cautious about investing in new industrial structures, except for electronic
equipment manufacturers, especially semiconductor firms.
Agriculture
Agricultural conditions and prospects vary among the District states.
In
California, crop conditions generally are considerably more favorable than a year
ago.
Prices for most fruit and vegetable crops produced in the state are up sharply
from those of a year ago, partly as a result of the winter freeze in Florida and
Texas.
For
Planting and growing conditions are far better due to improved weather.
example, planting of cotton is in full swing under excellent weather conditons.
Tree
crops are budding early, suggesting that yields of tree fruits and grapes will be
moderate and prices higher.
In the Pacific Northwest, farmers are experiencing
another difficult year however.
is in storage.
In Idaho, over 50 percent of last year's wheat crop
Prices for the Fall wheat crop are expected to be only slightly above
the break-even point for most farmers in Washington and Idaho.
Farm property values
are declining in the Pacific Northwest and a few scattered areas of California.
Bankers estimate that around 5-7 percent of California's farmers are in extreme
financial difficulty but that the percentage is considerably higher elsewhere in the
District.
Financial Institutions
Rising interest rates over the last two months have been reflected in loan
rates, but have not yet had a significant impact on loan demand in the Twelfth
XII-4
District.
Commercial loan rates have shown the largest increase because they float
in accordance with market rates.
Consumer loan rates at the major banks in the
region generally have risen by a smaller amount -- 25 to 100 basis points on most
fixed-rate loan products.
Qualification standards, and other loan pricing terms at
most institutions, generally have remained unchanged.
mixed effects on loan demand among institutions.
The increase in rates has had
In some cases, the strengthening
economy has overcome rising rates; other institutions report weaker loan demand.
For
the District as a whole, large banks continue to report rapid growth in commercial
and consumer loans, and moderate growth in mortgage lending.
Banks anticipate
continued strength in demand for commercial loans, especially as borrowers accelerate
their takedowns of the large loan commitments used to finance merger activity.
However, institutions are concerned that further interest rate pressure could begin
to have a significant dampening impact on real estate loan demand.
Cite this document
Federal Reserve (1984, May 21). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19840522
@misc{wtfs_beige_book_19840522,
author = {Federal Reserve},
title = {Beige Book},
year = {1984},
month = {May},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19840522},
note = {Retrieved via When the Fed Speaks corpus}
}