Beige Book
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
August 1984
TABLE OF CONTENTS
SUMMARY.....................................* ............
First District - Boston ................................
Second District - New York...... .........................
Third District - Philadelphia............................
Fourth District - Cleveland .............................
Fifth District - Richmond ...............................
Sixth District - Atlanta ................................
Seventh District - Chicago ..............................
Eighth District - St. Iouis .............................
Ninth District - Minneapolis ............................
Tenth District - Kansas City ...........................
i
I-1
II-1
III-1
IV-1
V-1
VI-1
VII-1
VIII-1
IX-1
X-1
Eleventh District - Dallas ..............................
XI-1
Twelfth District - San Francisco......................
XII-1
SUMMARY*
Overview
Economic activity is continuing to expand
industries,
but
providing much
at
very
different
rates.
Consumer
of the strength, particularly
where vigorous activity is
in most regions and
spending
is
in the automotive
still
sector,
leading to supply constraints and buoying a
Construction activity has been mixed,
variety of supplying industries.
with most regions showing continued strength in nonresidential building,
but various degrees of slowing on the residential side.
Foreign competi-
tion and slower housing construction are seen to be restraining activity
among producers of building materials.
Foreign competition is also being
blamed for lagging demand in the textile and apparel, furniture, lumber,
and primary metals
levels,
and
generally
component.
appears
price
strong,
Deposit
Inventories
industries.
increases
with
the
behavior
remain
to have slowed, which has
their issuance of CD's.
moderate.
exception
has
are generally near desired
of
been mixed,
the
Loan
residential
but,
on
remains
demand
mortgage
balance,
caused some institutions
growth
to increase
On the agricultural front, crop conditions appear
generally improved, although trouble spots remain.
Manufacturing and Industry
Manufacturing activity is continuing to expand in most areas,
but more slowly in several, and with actual declines in some industries.
*Prepared at the Federal Reserve Bank of Richmond.
Apart
from
industries
factors,
seasonal
are operating
the
automobile
at high and
and
industry
increasing
rates.
related
Atlanta
finds
suppliers of the auto industry bringing long idle capacity back on line
and struggling to keep up with demand.
also
capacity
near
Richmond, and high
construction
equipment
and
Chicago,
San
of activity are
reported
for the
to
electronic
Cleveland
In contrast,
districts.
Atlanta,
according
levels
The paper-related industries are
and
equipment
San
Foreign competition
industries
in
several
declining
increased steel imports.
is also reported to be restricting
textile, apparel, and lumber industries.
and
chemicals,
report
Francisco
activity in the steel industry due in part to
Francisco,
activity in the
Producers of building materials
are facing weaker markets as housing activity softens, although Boston and
Dallas find significant continuing strength in that sector.
Consumer Spending
Retail
indications
sales
are
of weakness
still
generally
in some areas.
strong,
although
Boston and
Both
there
San
are
Francisco
reported that sales accelerated in July, but Cleveland found some weakening in general merchandise sales, and Minneapolis reported spotty results
in rural areas dependent on agriculture.
Retail inventories have declined
slightly overall and seem to be generally at comfortable levels.
bile sales remain robust across the country.
biles,
apparel was
Francisco
Districts,
doing
and
Automo-
In lines other than automo-
in
the
Philadelphia, Richmond,
and San
strength
was
also
sales
of home
well
reported
in
entertainment electronics goods, furniture, and appliances.
Atlanta, Minneapolis, and Richmond all reported mixed results at
tourist and vacation sites in their districts.
Some areas appeared to be
meeting expectations, while others were having disappointing peak seasons.
Construction
Most districts report some degree of slowing in the residential
sector, although Chicago found surprising stability, and in the St. Louis
District
backlogs
construction.
rates appear
of
Where
orders
activity
are
is
continuing
slowing,
to be a principal factor.
to
support
recent
Also,
single-family
increases
in mortgage
several comments suggest
that both borrowers and lenders are becoming disillusioned with adjustable
rate mortgages.
with
Nonresidential construction is apparently holding up well,
increased
building
reported
in
several
districts.
San
Francisco
reports that several metropolitan areas in the Twelfth District are "on
the
brink
of
expected soon
a
boom,"
in
and
an
increase
downtown Chicago.
in
commercial
New York, however,
construction
reports
is
rising
vacancy rates in office buildings in lower Manhattan and Long Island.
Finance
With
the
exception
of
residential
mortgages,
continuing to make substantial year-over-year gains.
loan
Business
demand
is
and con-
sumer loans are still rising strongly in most areas, although some banks
in the Boston District reported a leveling off of loan demand, and Kansas
City found loans flat to up slightly.
Atlanta, Cleveland
and
San
Francisco
Deposit growth has slowed in the
Districts,
but
the Dallas, Minneapolis, and Philadelphia Districts.
remains
steady
in
Agriculture
Crop
conditions have
improved
in recent
weeks, although
con-
ditions remain poor in areas along the Gulf Coast, in central and southwest Texas, and in parts of California and New York.
Kansas City reports
generally good wheat, corn, milo, and soybean crops, with only isolated
and relatively mild weather problems.
Despite improvement
in the near-
term outlook, however, debt levels and falling land values continue
plague farmers.
to
FIRST DISTRICT - BOSTON
Economic activity in the First District continues to expand.
Retail respondents report sales increases both over year-ago levels and
over plan.
Manufacturers also report significant gains over the year.
The
recovery among manufacturers has been uneven, however; for some firms
business is excellent, but for capital goods producers supplying specific
traditional industries, the recovery has been slower than normal.
Modest
inventory imbalances seem to have developed in both the retail and
manufacturing sectors; in some cases, inventories are too large, in others,
too small.
Price increases for materials and components are still
described as moderate.
Mortgage lending, which had been very strong, is
reported to be falling, and loan demand at some commercial banks has
levelled off.
Retail
Retail sales in the First District continued to exceed plan in June
and July.
Among those contacted, sales increases for June ranged from 2 to
29 percent above June last year.
July is somewhat stronger.
The small 2
percent increase was attributed to administrative changes; and the
respondent expects a strong pickup in the fall.
Sales increases for both
an upscale merchant and a discount department store were comfortably into
double digits.
Several stores reported that sales of home, camp, garden
and patio goods were especially strong.
promotional efforts.
games.
Strength elsewhere reflected
One product area reported to be weak is computer
I-2
Two contacts mentioned inventory problems.
One store has been
marking down and promoting since the start of the year, but inventories,
while declining, remain considerably higher than desired.
opposite problem -
Another has the
slow shipments by suppliers have reduced inventories
enough to harm customer service noticeably and reduce sales.
Retail prices are rising only slowly.
One merchant attributed a
modest 4 percent annual average price increase to three factors:
market
competition, no jumps in prices from suppliers, and their own ability to
keep costs down.
Manufacturing
All manufacturing contacts report business is up over year ago
levels; but the strength of the recovery is uneven.
Some firms are
enjoying record sales and earnings while others have seen only modest
improvements since the recession.
The diversity in performance is
particularly pronounced in the capital goods sector and is ascribed to the
For
fact that some major industries are doing very little investing.
capital goods producers heavily dependent on sales to the farm equipment,
chemicals, oil drilling and mining industries, the recovery has been
disappointing.
On the other hand, for producers less focused on these
industries the recovery has been more vigorous than expected.
The
electronics industry, in particular, is said to be booming and exerting a
strong demand for investment goods.
Outside the capital goods sector, the
I-3
demand for automotive and some housing-related products remains strong.
Sales of chemicals are reported to have improved.
Respondents, even those
experiencing large sales gains, are trying to hold down employment and, in
most cases, are limiting hiring to small numbers of production people in
scattered product lines.
Several respondents reported mild inventory imbalances.
Inventories are higher than desired for some, a little lower than desired
for others.
In contrast to some past reports, when respondents stressed
their commitment to holding down inventories, statements this month suggest
that customer service has risen as a priority.
Price increases for materials and components are said to be
modest.
Supplies are adequate.
Concerns about inflation center around
next year's wage settlements in key industries.
Also, one executive noted
that foreign competition has held down the prices charged by U.S.
producers; were the dollar to decline relative to foreign currencies,
prices would rise not only for imports but also for many domestically
produced goods.
Foreign markets are reported to have improved, at least for
subsidiary operations.
Business in Canada and Asia seems to be quite good;
Europe is mixed and South America has stabilized at a depressed level.
Financial
Mortgage lending by thrifts in the First District had been running
at a record pace until very recently.
However, loan volume is now reported
I-4
to be drying up.
rates.
This decline is attributed to high and stable interest
Earlier, interest rate increases were thought to have stimulated
demand as borrowers sought to avoid still higher rates later.
Among thrift
institutions, ARMs account for more than two-thirds of mortgage loans.
Commercial banks are less active in ARMs.
Reports from commercial bank contacts on recent lending experience
are mixed, with some reporting continued vigorous growth and others seeing
a levelling off.
Although
expand
future
YORK
the
economy
Second
District's
through June and early July,
slowing
commercial
higher
SECOND DISTRICT - NEW
appeared.
and
Consumer
residential
interest
rates
on
real
some
office
space
concern
on
among
line.
In
were
estate
loans
some
production
all
and
But
strong.
have
to
begun
to
and rising vacancy rates have
commercial
the
indications of
spending,
construction
discourage some marginal homebuyers,
caused
a few
continued
developers
agricultural
bringing
sector,
new
weather
conditions have made the outlook discouraging.
Consumer Spending
Retail sales in the Second District continued to exceed
expectations
of local merchants during the month of June,
posted increases
levels
of between
were generally
two months.
though
10 and 20 percent over year-earlier
lower than those recorded for the previous
For July, estimates of sales increases varied widely
among informants.
One retailer in New Jersey reported only a five
percent increase in sales over last year, while another chain with
mostly suburban outlets reported a gain of twenty-eight percent.
By mid-July retailers' inventories had generally fallen to planned
levels, stores having reduced the somewhat excessive
and June.
stocks of May
II-2
Business
Activity
The
quickened
expansion
somewhat
purchasing
managers
particularly in
lower
in
in
the
recent
District's
weeks.
reported
an
A
business
higher
improvement
activity
percentage
in
new
of
orders,
the Rochester area, and the percentage reporting
orders declined.
Inventories generally
remained unchanged
from the satisfactory levels of a month earlier.
Employment
District's
jobs
in
New
registered
most
heavily
concentrated
in
of
the
among
industry categories
wholesale
Additional employment
reported June increase
most
7.5 million for the first
The improvement occurred across all
was
in
June, and the number of nonfarm
York State climbed above
trade establishments.
the
were
labor market areas in
time.
but
gains
and retail
data suggest
New York State unemployment
that
from
6.7 to 7.1 percent was probably a statistical aberration as was
New York City's increase from 7 to 10 percent.
Although New York money center banks
offered
higher rates on unregulated consumer
New
six-month
earlier,
York City
compared
banks.
was
deposits
with
this run-up in
yields
any significant
loss
in the District.
deposits
than the
a rate war has broken out recently among these
national average,
large
typically have
up
54
By July
133
basis
basis
25
the
points
average
from
points nationally.
at money center banks,
of consumer deposits
yield
five
on
weeks
Even with
there has not been
at small
institutions
II-3
Constructionand Real Estate
strength of
The
diminish in most parts of
the housing market is beginning
the District.
for
and
lower-
middle-priced
Higher mortgage rates
among first-time buyers
have been depressing traffic, especially
and
to
houses.
Homebuilders
have
experienced little adverse impact at present, but the outlook for
construction
spring deliveries
for
is
increasingly
Concerns about interest rates and growing
space
also
are
markets.
beginning
to
inventories of vacant
commercial
affect
uncertain.
real
estate
In lower Manhattan both supply and vacancy rates are
increasing rapidly due to the completion of seven million square
feet of office space.
On Long Island too,
a sizable amount of
space is available or under construction.
Agriculture
The agricultural
by weather conditions.
picture has been adversely
Excessive
affected
rainfall and unusually
cool
weather delayed spring planting in much of the District, and lower
vegetable and other crop production is
likely this year.
Diary
farmers report that milk prices have been relatively flat, while
costs
continue
to
rise.
Some
increased demand for processed
dairy products has occurred, however.
III-1
THIRD DISTRICT - PHILADELPHIA
Conditions in the Third District economy are mixed, according to business
contacts. Bankers report a surge in savings deposits, and loan demand and retail sales continue
strong, though not as strong as in the past few months.
On the other side, however,
manufacturers report a fractional decline in activity, and real estate contacts see slippage in
traffic and sales since June.
Even though current conditions are mixed, forecasts from most sectors are
optimistic.
Contacts expect growth to continue, though at a somewhat slower pace for the
remainder of the year. Realtors expect weak activity until interest rates stabilize, which, they
indicate, may happen by year-end.
MANUFACTURING
Respondents to this month's Business Outlook Survey report a fractional dip in
manufacturing activity, the first in 19 months. While 14 percent of survey respondents indicate
an increase in activity, 26 percent cite a decline. Even after adjusting for seasonal factors that
tend to restrain activity in July, this month's results show no growth from June levels. New
orders have fallen, and shipments, inventory levels, and payroll sizes have shown no
improvement since June. This performance represents a continuation of a general slowing trend
which began in April. Manufacturers' outlook for the rest of the year is bright, however, as they
anticipate continued economic expansion.
Industrial price increases are more widespread in July than in the last few
months. Forty-six percent of respondents are paying higher prices in July than in June and 22
percent are receiving more for their output this month compared to June.
both inputs and outputs are expected over the rest of the year.
Higher prices for
III-2
RETAIL
Retail sales in the Third District are healthy, but exhibit less pep than they did
during the spring and early summer holiday sales. June sales rose about 15 percent over yearago levels, but July sales are about the same as a year ago.
Retailers are not concerned,
however, since July 1983 was an exceptionally strong month, and since July is traditionally a
slack time when the industry "cleans out" the summer merchandise and takes physical
inventories. In general, inventories are a little higher than usual for July, but they are in line
with sales expectations for the coming months. Apparel continues to be a strong seller due to
summer sale promotions. Retailers expect to do wellthe rest of the year, predicting growth of
8 or 9 percent on a year-over-year basis.
FINANCE
Loan demand remains strong as Third District bankers report continued growth in
both commercial and consumer lending. Commercial loan activity is increasing but at a slightly
slower rate than in past months, probably due to the "annual summer slowdown." C&I loans for
July are up about 9 percent over June and are running approximately 20 percent over July
1983. Consumer loans are on the rise in all product areas, especially credit cards. The only soft
spot in loan demand is mortgage activity, which has turned down as interest rates have crept up.
Loan demand is expected to remain strong throughout the rest of the year,
according to local bankers. Bankers look for increases of 10 percent or higher in C&I loans and
8- to 10-percent growth in consumer lending by the end of this year.
The prime rate, currently at 13 percent at all area banks, was raised from 12.5
percent on June 25.
Third District bank economists anticipate slight increases in the prime
through the end of the year, to 13.5 or 14 percent, and they also look for the federal funds rate
to inch up to 12 percent.
III-3
Third District bankers report that retail time and savings deposits are up about 10
percent from this time last year.
Time deposits especially are growing, in part because of
increases in personal income, and also because of the high cost of holding demand deposits and
the relatively low rates being paid on money market deposit accounts.
REAL ESTATE
Real estate sales activity in the Third District has dropped off slightly since June,
and is well below May levels, while traffic has slowed over 50 percent since June. Realtors
explain that July is traditionally a slow month for the industry, and cite, in addition, the "high
and rising" mortgage rates as a deterrent to buyers.
available for 14.5 to 15 percent.
Thirty-year fixed-rate mortgages are
Adjustable rate mortgages, negotiable after one year, are
going for as low as 11.9 percent. Real estate contacts observe that about half of their sales
now are being financed by adjustable rate mortgages.
Realtors are looking for greater stability in interest rates by year-end 1984. They
expect stable rates to boost the currently sluggish sales, which, in their view, are due to
interest rate uncertainty.
IV-1
FOURTH DISTRICT - CLEVELAND
Summary.
Economic activity in this District continues to improve, with some signs
of slower growth and no indications of accelerating inflation.
conditions continue to improve.
Auto sales remain strong but general
merchandisers report slower growth of sales.
activity is slowing.
Growth in manufacturing
Inventories are growing slowly.
more signs of weakening.
Labor market
Housing markets show
Business and consumer loan demand, except for home
mortgages, remains strong.
District Labor Market Conditions.
Labor market conditions in the District continue to improve and use of
overtime is declining.
Unemployment fell and employment rose in Ohio in
June, reducing the unemployment rate to 9.0% (s.a.) from 10.2% in May.
Manufacturing employment in Ohio continues to increase slowly but average
weekly hours worked by production workers have fallen from 42.8 (n.s.a.) in
December to 42.2 in June.
Price Pressures.
Contacts generally report little upward pressure on prices.
A survey of
purchasing managers suggests the rise in commodity prices has slowed sharply
in the last three months.
Some contacts report wanting to raise their own
prices to restore historical profit margins but are unable to make increases
stick, even though sales are rising.
Several contacts report producers of corrugated paper containers are at
capacity and raising prices.
A producer of television bulbs reports no
price increases despite strong sales because of world-wide overcapacity in
glass.
A producer of railroad ties reports difficulty obtaining raw wood
IV-2
because it is being diverted to the pulp and paper industry, yet wood prices
are not rising.
Prices of steel remain weak.
There has been some easing of
shortages of chips and microprocessors.
Retail Sales.
District retail sales reports for July were mixed.
Auto dealers
continue to report strong sales gains with some sales lost because of a lack
of inventory.
Preliminary sales figures for general merchandisers indicate
some weakening in sales.
Most reported that July gains were below
expectations because a dip in soft goods removed some of the strength seen
in first and second quarter gains.
One analyst, however, believes the July
slowing was due in part to the large June increase.
He expects sales to
remain soft in August and turn up in September.
Manufacturing.
Growth of manufacturing activity shows some signs of slowing.
This
Bank's survey of District manufacturers indicates they expect business
conditions in July will be little changed from June.
Producers of
components for durable goods report orders are generally strong except for
some weakening in orders from producers of appliances and other consumer
durables.
slowing.
Orders from the industrial sector are strong with no sign of
Orders from producers of plastics-making machinery and
construction equipment are particularly strong.
Orders from heavy truck
producers are being received at a high but slowing rate but orders from
producers of agricultural machinery remain weak.
Producers of components
for refrigeration equipment, autos and trucks report production is at
capacity.
Production of chlorine for the plastics industry is at capacity.
A major steel producer reports orders for steel have been falling
because of seasonal automobile model changeovers and inventory reductions of
IV-3
flat-rolled products, especially by steel service centers.
Another steel
producer reports that the decline in new orders experienced since March
appears to have ended in June.
Competition from imports remains a key
concern of the industry.
Inventories.
Contacts generally report strong efforts to keep inventories leaner than
usual.
Purchasing managers report general vendor performance continuing to
deteriorate but inventories continue to grow very slowly.
One contact sees
producers building inventories of materials and supplies later than normal
in this recovery.
Some general merchandisers report some involuntary
inventory accumulation in July, but auto dealers are unable to build
inventory.
Housing.
The outlook for housing is gloomier than a month ago as housing markets
exhibit more signs of easing.
One market participant described the current
market as a "buyers' market without buyers."
Realtors are experiencing a significant deceleration in the volume of
contracts being closed, which is expected to worsen.
Adjustable rate
mortgages (ARMs) have been sustaining greater-than-typical activity for
recent levels of interest rates, but recent negative publicity about the
"payment shock" of ARMs is reducing consumers' acceptance.
Builders have
become extremely cautious and are reducing inventories of unsold homes and
undertaking new business by order only.
Mortgage loan activity at banks is slipping; two large banks report
activity is 50 percent below last year's pace.
Bankers say consumers
increasingly are demanding interest rate and payment caps on ARMS.
IV-4
Partially offsetting the effect of higher mortgage rates is the revival of
mortgage revenue bonds under the recent deficit reduction legislation.
Commercial Banking.
Loan demand has been strong at Fourth District banks in recent weeks.
The business loans category registered the largest rise in outstandings
during the past month.
Bankers expect business loan demand to remain at its
current, fairly strong level.
Banks report sizeable gains in consumer loans
and expect demand for auto and credit card loans to remain quite good in the
next few months.
Retail deposit growth at Fourth District banks has been relatively flat
during the past month.
Banks appear to be financing loans by issuing large
CDs and reducing their holdings of securities.
Fifth District - Richmond
Overview
On balance, activity in the Fifth District is continuing to expand,
rapidly in
signs
some areas
of moderation
in
and
sectors.
some
competition remains strong.
Nonetheless,
industries
as
there are
pipelines
fill
also emerging
up
and
import
Drawing strength from construction, trade, and
seasonal services, total employment is reaching record levels in parts of the
District.
Residential and commercial construction continue robust, although
there is evidence of slower speculative building of residential units, and
the major
gains
in
total
residential
activity
appear
production is running very strong in the District.
records as a result of import volumes.
to be
past.
Coal
Ports activity is setting
Tourist activity is a mixed bag as
some areas are having disappointing peak seasons.
The quarterly survey of
agricultural credit conditions revealed that the financial health of District
farmers has improved somewhat of late.
Manufacturing
Overall,
the manufacturing
sector
is
continuing
to make healthy
gains in employment and output, but there is significant disparity within the
sector.
The
strength
is
almost
entirely
in
durable
goods
and
building
materials, and largely in the capital and industrial goods portions.
Even within the nondurables, however, there is significant variety.
The paper industry has been operating at near capacity
for some
time, so
V-2
gains have been restricted.
hand, may be giving
The textile and apparel industry, on the other
ground as
inventory building
appears to
course and import competition continues to intensify.
have run its
There are also scat-
tered reports of some slack developing in the furniture industry.
rate,
these reports probably
reflect
slower
If accu-
inventory accumulation -rather
than weakening final sales.
Housing and Construction
Construction activity continues generally buoyant
Commercial and industrial construction is showing strength at nearly
trict.
every
stage along
sustain
the pipeline,
the industry
and
the projects
for a good while.
holding on to recent gains in most areas.
house
around the Dis-
sales have slowed
now in progress
Residential
should
construction is
also
There are reports, however, that
in recent weeks and that speculative building has
dipped as builders have grown more cautious.
The overall impression of the
residential sector is, nonetheless, one of vigor.
Consumption
Nearly all available information points to further gains in consumer
spending activity in recent weeks.
Sales are rising nearly across the board,
from apparel
and general merchandise
automobiles.
Gains
in
consumer
lines to
installment
furniture,
credit
appliances,
outstanding
are
and
still
quite substantial.
Despite the appearance
of great
confidence and enthusiasm on the
part of consumers, some areas which rely heavily on tourism have found summer
V-3
business disappointing thus far.
across the District, however.
areas suggests that perhaps
from home,
recession
at
the expense
and concern over
businesses
in
the more
Such disappointment is by no means uniform
In fact, analysis of the experience of various
tourists and vacationers are venturing farther
of the
areas
gasoline
remote
favored during
prices
areas
recent
and supplies.
seem much
more
periods
of
Tourist-related
pleased
with
their
experience this season.
Agriculture
Good weather conditions throughout the Fifth District have brought
optimism to farmers and agribusiness establishments this summer.
Barring a
collapse of farm commodity price levels as harvest time approaches this fall,
farm cash receipt
levels
levels of last year.
should rebound sharply
from the drought affected
Problems do remain in the agricultural sector, however,
with uncertainty surrounding the future of tobacco farmers, weakness in some
livestock prices, and higher interest rates dampening the optimism arising
from the summer's abundant rainfall.
A
survey
of Fifth District bankers
has
indicated
that
financial
stress, as measured by foreclosures and/or liquidations of farm assets are
well within "normal" levels, indicating
that strength is returning to
the
agricultural economy.
Banking and Finance
With consumer and business lending both expanding at recent rates,
and
with
deposit
inflows
having
slowed
somewhat,
liquidity
positions
of
V-4
District
financial
been
reduced
there is
no indication that institutions in
general,
institutions
have
significantly.
or even a
Still,
significant
number of individual institutions are under any liquidity pressures.
The Outlook and Prices
For the most part, businessmen
remain
quite
optimistic.
They
express
and consumers
around the District
concern
such
over
things
as
the
government deficit, the trade deficit, and the LDC debt problem, but have not
let it affect their behavior.
Some businesses are facing what they perceive to be more pressing
problems.
Foreign competition is among them.
Such industries as textiles
and apparel and furniture are facing very weak markets for their exports and
very strong foreign competition in domestic markets.
They are concerned that
if costs were to rise, margins would deteriorate since price increases would
be nearly impossible.
Costs are already reported to be putting significant
pressure on margins of producers of a wide range of industrial products and
goods, but price increases are apparently not tenable in the current market
environment.
Thus,
while
the
outlook
is
producers are very concerned about profits.
for
relatively
stable
prices,
VI-1
SIXTH DISTRICT - ATLANTA
The Sixth District economy slowed somewhat in midsummer, but areas of
strength continue to dominate the weaker sectors.
Slowing housing construction
throughout the region has led to a softening of activity in concomitant industries.
Foreign imports are pressuring apparel and textile producers, and the bankruptcy of a
Florida-based airline has added to unemployment rolls. In contrast, consumer spending
has been strong and bank loans to consumers have grown briskly.
inadequate inventories to meet strong demand.
Auto dealers report
Tourism is outpacing that of last
summer, and increasing rainfall has brightened the production outlook for most crops.
Employment and Industry.
the last reporting period.
Labor market conditions have been mixed since
In June, jobless rates rose incrementally in two District
states and remained unchanged in two others.
Only Louisiana posted a significant
decline, from 9.1 percent in May to 8.6 percent in June.
The state's petrochemical
industry is gaining strength and some plants are approaching full capacity utilization
rates. Auto parts plants continued to recall workers to accommodate orders generated
by surging new car sales.
A large auto glass facility in Tennessee recently fired up
its third production furnace, which had been idle four years.
Tire-producing plants
continue to be hard pressed to meet demand of auto manufacturers.
Contacts at apparel and textile firms throughout the region are expressing
increasing concern over rising imports. Imports reached the highest level on record in
May, and industry spokesmen see little hope of a downturn in the near term in spite
of efforts to make domestic plants more competitive. Aluminum production is decreasing
in Tennessee and spokesmen state that further capacity cutbacks could occur. Inventories
of aluminum are building due in part to a slackening of demand from the housing
industry.
Lumber mills also report increasing inventory accumulations in response to
VI-2
the housing slowdown.
Florida's impressive recovery suffered a setback with the
bankruptcy of a major Miami-based airline and the resulting addition of 1,200 people
to the state's unemployment rolls.
Consumer Spending.
District retailers posted healthy sales increases in the
first days of July, but they failed to match the strong double-digit increases of June.
Regional department store sales continue to outpace comparable sales nationally.
Electronic
items such as
personal
computers
and telephones
were
top sellers.
Representatives from District automobile dealers confirmed that the 1984 auto sales
recovery has continued well into July.
District car dealers reported strong June/July
sales despite widespread domestic car shortages and concerns for rising interest rates.
Inventories of full- and intermediate-sized models are especially low, but dealers forecast
moderate to strong sales for the remainder of 1984.
Construction. Southeastern home builders report a continued slowing in home
construction.
Mortgage loan applications have dropped in most states, and realtors
observe increasing inventories of homes.
Building materials suppliers also report
continuing declines in sales and falling lumber prices.
Mississippi posted the only
significant growth in residential building permits issued among District states, while
Georgia and Tennessee led the southeastern decline with 9-and 10-percent decreases,
respectively.
By the end of August, recent federal legislation will provide bond-funded
mortgage loans in District states as much as 4 percent below market rates. This should
aid construction of low- and moderate-priced housing in certain areas. Even so, builders
expect a continuing decline in residential construction in major southeastern cities,
where purchasers may have difficulty in qualifying for these subsidized loans.
VI-3
Commercial construction in Atlanta, Orlando, and Tampa continues its strong
pace.
Hotel construction is very active in the Orlando area despite concerns of
overbuilding in the face of attendance declines at local tourist attractions.
Financial Services.
All major types of bank loans increased in June, and
preliminary data show growth continuing through mid-July.
Consumer lending doubled
its growth rate over May; and business credit likewise showed considerable strength.
Although loans at regional savings and loan associations are running ahead of the level
in May of 1983, mortgage originations have slowed sharply over the last two months.
Bank deposits have registered little growth since May, and thrifts in the
region have also posted slow or negative deposit growth.
Tourism.
All southeastern visitor centers are experiencing growth in the
number of registrations when compared to last year.
traffic figures also indicate increased travel activity.
southeastern cities.
Lodging tax receipts and air
Air traffic is up in almost all
Neighboring states are continuing to benefit from increased tourist
travel to the New Orleans World's Fair although, total fair attendance lags well behind
expected levels.
Agriculture.
Increased rainfall in recent weeks has improved crop conditions
in much of the Sixth District, but spots in Mississippi and Alabama remain seriously
dry.
The extended dry period
in June reduced corn yields in Georgia and Alabama,
but adequate moisture during the balance of the growing season will restore the
production of most other crops.
Farmers Home Administration (FmHA) delinquency rates continue to climb
in the District.
The present rate is a record high 42 percent, representing 21,000
southeastern farmers.
Farmers in Georgia and Mississippi are experiencing the most
difficulty, accounting for 10,000, or nearly half of total delinquencies.
VII-1
SEVENTH DISTRICT--CHICAGO
Summary.
Business conditions continue to improve in the Seventh
District, but the extent of the recovery has been less satisfactory than
in the nation generally.
is at the highest level
Confidence of executives and consumers, overall,
in several years.
The strongest improvement has
been in motor vehicles, where the outlook is clouded by complicated laborMost producers of mechanical
management negotiations now in progress.
capital goods report gains over last year's severely depressed conditions,
but the revival is far from satisfactory, especially in farm equipment.
port markets remain weak.
Ex-
Attempts to cut labor costs against union op-
position have led to new confrontations, and threatened closings of additional
factories and stores.
Some electric utilities are under severe financial
stress, mainly because of problems with nuclear plants.
tinue at good levels, especially durables.
Retail sales con-
Price inflation remains moderate.
Except for some types of motor vehicles, there are no significant supply restraints.
Paper and paperboard producers are operating near capacity.
Housing activity, increasingly, is restricted by high interest rates and
availability of credit.
strengthened.
Nonresidential building prospects, in contrast, have
Both residential and nonresidential construction activity are
far below levels of the late 1970s.
Crop conditions generally are favorable,
but many farmers are burdened by debts incurred in earlier years and are holding back on commitments.
Farmland values have declined further.
District Versus Nation.
Attitudes expressed at gatherings of financial
and business executives in the Seventh District seldom reflect the felicitous
aura of most evaluations from New York and Washington.
returned to the Midwest.
Prosperity has not
The best evidence is found in employment data.
The
rise in payroll employment since late 1982 has been only half as great in the
VII-2
five-state area as in the nation.
Manufacturing employment has increased
somewhat faster here than in the US. in this period (largely because of motor
vehicles), but remains 20 percent below the levels of five years ago.
Non-
manufacturing employment has increased only slightly here and remains below
the levels of 1979, in contrast to substantial gains in the U.S.
Comparisons
of changes in income and retail sales with the nation reflect these trends.
Reasons for District Problems.
Reasons for the weaker situation in
this region relative to the nation are varied and complex.
sight.
No relief is in
Most important has been the limited recovery in capital goods--in-
cluding machine tools and equipment for construction, agriculture, mining,
and railroads.
Second, aside from weak domestic markets, durable goods
producers have been especially hard hit by declines in exports and by increases in imports.
Third, continued financial stress seriously depresses ag-
riculture and businesses that serve farmers.
Fourth, construction activity
Fifth, many District financial institutions,
remains far below earlier peaks.
public utilities, state and local governments, and hospitals have been forced
to curtail employment.
Finally, most areas in the region have seen slow growth
or declines in population, which both reflect and contribute to the problems
described above.
Labor Negotiations.
Labor-management negotiations over adjustments
in labor costs have led to confrontations, sometimes bitter, in a variety of
industries, including food retailing, machine tools, meatpacking, and state/
local government.
Some unions have voted heavily against proposals to cut
wages and tighten work rules, even with the understanding that their facilities
will close.
In many cases, the main issue is a lower starting wage with freedom
to use more part-time workers.
A strike is expected in coal mining in October
VII-3
and utilities are increasing coal stocks.
By far the most important negotia-
tions, directly involving 500,000 workers, began in the auto industry on July
23.
Unions want higher wages now and in subsequent years, larger pensions,
job guarantees, and a reversal of concessions agreed to in early 1982.
Man-
agements wish to hold down such claims and also limit health benefits.
Com-
panies are making record profits; the UAW has a record strike fund.
Managements
threaten to increase foreign sourcing of components if a satisfactory agreement is not reached.
Detroit sources describe both sides as outwardly optimistic
on a settlement, but "negotiations will be the most complicated and difficult
in their 47-year history."
The outcome will be anxiously awaited throughout
industry because the auto agreement usually has set the tone for subsequent
negotiations in farm and construction equipment, rubber, and steel.
Housing.
Residential construction has held up surprisingly well so
far, but a decline appears to be imminent.
In the first half of 1984, housing
permits in the five-state region were up 25 percent from 1983, and double the
1982 level.
However, permits were less than half as great as in 1977 or 1978.
Nationally, permits this year have about equalled the strong performance of
1977-78.
Current effective mortgage rates approaching 15 percent are barring
many potential buyers, especially second-time buyers.
Recent levels of housing
But high default rates on
activity have been aided by extensive use of ARMs.
ARMs, double that on fixed rate loans according to a major insurer, have caused
lenders and borrowers to re-examine this device.
Private mortgage insurers head-
quartered in this region (which depends heavily on private insurance) wish to
raise their rates on ARMs by 40-50%.
Nonresidential Construction.
High financing charges do not appear to
be slowing the recovery in nonresidential building.
One analyst lists 27 large,
new commercial buildings planned for the Chicago area, mainly downtown.
Sub-
VII-4
stantial office vacancies still exist, but leasing volume has increased and large
blocks of prime space (50-100,000 square feet) are relatively scarce.
large, new building will open in downtown Chicago in 1985.
ing contracts also have increased from a very low base.
Only one
Manufacturing build-
Store construction has
strengthened, but is concentrated in individual buildings or small shopping
centers.
Dodge nonresidential construction contracts (in square feet) in the
first half of 1984 were double the level of 1982 in the five-state area.
ever, they were only half as great as in 1978.
How-
For the nation, first half
volume was within 10 percent of 1978.
Agriculture.
District farmland values continue to edge downward, re-
flecting low farm sector earnings of recent years and lackluster earnings prospects for the near future.
Our latest survey of agricultural bankers indicates
that District farmland values declined 1 percent in the second quarter and 7.5
percent in the year ending July 1. District farmland values are down about 20
percent from the 1981 peak and are near the levels of late 1978.
Declines in
the Midwest have been greater than in most other regions.
Electric Power.
The decision, announced July 16, to halt construction
of a long-delayed nuclear power plant in Michigan has far-reaching consequences.
Over 6,000 construction workers and technicians apparently will be dismissed.
If the utility cannot raise rates sufficiently to offset an apparent $4 billion
write-off, it may be forced into bankruptcy.
This could threaten both its
ability to supply adequate electric power and to purchase natural gas reserves
needed for the winter.
Ironically, its sales of power are up strongly this year
to residential, commercial, and, especially, industrial customers for the first
time in five years.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Favorable economic trends continued during July in the Eighth
District.
Consumer spending, factory production, commercial investment
and total employment continued to grow. The outlook is for further, but
more moderate, expansion for the remainder of the year. Agricultural
crops over a broad area have had near-ideal growing weather.
Consumer Spending
Department store sales in the District continued above year-ago
levels in the first three weeks of July.
goods.
Clothing moved better than hard
Merchants are optimistic about the upcoming Christmas season and
are stocking their shelves based on this anticipation. Restaurant
business is reported to be good.
New automobile sales at seven dealers in the District averaged 13
percent above year-ago levels in the first 20 days of July.
Both trucks
and used cars also moved well.
Industrial Production
New orders at a number of District factories decreased slightly
in July, but production and shipments continued to rise because of large
backlogs of orders.
Capital goods spending has improved, but the demand
has come in spurts.
A major automobile manufacturer announced that it
would add another shift in the early fall to produce a luxury car.
Orders at both metal fabricators and basic metal producers were weak, in
VIII-2
part reflecting foreign competition. Although the outlook is generally
for prices to rise only moderately faster in the second half of 1984 than
in the first half, a few firms began buying selected supplies in
anticipation of price increases.
On the other hand, a major chemical
company noted it was becoming harder to make price increases stick.
The strike at the lead mines, which began at the end of March,
continues.
Prices of lead are now up about 25 percent from before the
strike, but industry spokesmen believe prices will fall quickly if the
strike is settled soon.
Housing and Construction
Realtors are experiencing a rise in the average length of time a
house is on the market, and new single-family housing starts have run
below year-ago levels since May.
On the other hand, builders in both
St. Louis and Memphis have started considerably more apartments than at
this time a year ago.
Construction activity remains strong, reflecting
both the building of apartments and the large volume of back orders for
single-family dwellings.
A recent survey found that 65 percent of the
new mortgages in the region around St. Louis were on the adjustable rate
basis, and that rates on new mortgages ranged widely from 11-1/2 to 15
percent.
Employment
Total employment in the District continued to rise in July, and
early indications are that the unemployment rate drifted slightly lower.
VIII-3
Both retail and wholesale firms added to their staffs, and employment in
the services industries continued to expand.
Hiring for construction
continued to rise, but this is expected to reverse in August, since
housing starts have declined, and several large road projects and
commercial buildings will reach completion. There was also some hiring
in the month to fill in for vacations and other temporary needs for
help. Manufacturing employment increased only slightly, on balance,
since one major company lost a government contract and another was on
strike.
Agriculture
Weather conditions across major corn and soybean areas of the
District have been favorable during much of July, and the outlook is for
relatively large crops.
Chemical companies report an increase of
insecticide and herbicide sales.
Feed sales to farmers, however, have
been soft as a result of the decline in the numbers of hogs and cattle
since a year ago.
Farm equipment sales remain low, with many farmers
repairing old equipment or buying used equipment from those going out of
business.
Banking
Real estate loans at 12 relatively large District banks rose at a
24 percent annual rate in the first three weeks of July, while commercial
and industrial loans increased at a 12 percent rate.
Consumer
installment credit, however, changed only slightly at these banks, while
rising at smaller institutions.
IX-1
NINTH DISTRICT - MINNEAPOLIS
The
pace
of
economic
growth
in
the Ninth
District has
moderated.
Employment conditions remain healthy, in part due to heavy construction activity, and general merchandise and auto sales are still strong in the district's
diversified cities.
However, housing activity seems to have fallen off, and
the region's agricultural sector is still suffering from declining land values
and
increasing debt service
woes.
As a result, both consumer spending and
financial activities are slack in rural areas and in smaller cities and towns.
The pace of tourism, an important contributor to the Ninth District's summer
economy, appears to be varying around the region.
Employment
Employment conditions remain good in the district.
seasonally adjusted
unemployment
rate fell
then rose slightly to 6.2 percent in June.
slightly to
In Minnesota, the
6.0 percent
in May,
Analysts attribute the increase to
statistical quirks and to temporary layoffs of nonstriking hospital workers,
caused by a nurses' strike which ended in July.
In Duluth, Minnesota, fueled
in part by heavy public construction activity, employment rose to its highest
level in 18 months.
Heavy construction activity is also lifting labor demand
in parts of Montana, in South Dakota, and in North Dakota.
oil production is also increasing demand.
In North Dakota,
June job placements reached an all-
time high at the Sioux Falls, South Dakota, employment bureau.
Consumer Spending
Recent
reports
sales remain strong
in
about
the
general
diversified
merchandise
sales
larger cities,
have
been
mixed;
but are spotty in
the
IX-2
smaller cities and towns that depend on agriculture.
that
its
June
and
Minneapolis-St.
Retailers
by a
in
sales
Rochester,
Minnesota,
high level of visits
Dakota haven't
Montana,
were
good.
Its
Paul area did particularly well,
Bank director reports
North
July
in
the
being spurred
medical complex.
both Bismarck,
Directors
see similar weakness in
stores
are finding that business is
in
picked up.
downtown
exceeding their sales goals.
to the city's famed
that sales
One urban retailer says
North Dakota,
However,
and western
of this Bank's branch in
many areas of Montana.
a
Helena,
While sales in
diver-
sified Sioux Falls, South Dakota, were up sharply in the second quarter, South
Dakota's rural retailers suffered from declining sales.
District
sales
of motor vehicles--particularly
tinue to show strength across
good sales
in
the district.
with its
all models,
full-size
cars--con-
A domestic manufacturer reports
full-size car sales 9 percent
ahead of a
Its inventories are about normal for this time of year.
year ago.
Housing activity appears to have slowed somewhat.
ing permits
started to fall off in
May,
sharply in
they fell off in
June.
Twin Cities home sales rose
While
May.
Early reports indicate that sales in
July won't be better than they were a year ago either.
noted
also been
lately
in
the
Twin Cities hous-
Dakotas and
in
Montana,
Slowing activity has
where a lot of home
remodeling is being done in lieu of new home buying.
Agriculture
While crop conditions
are still
corn,
have improved throughout the district,
farmers
suffering from low land prices and high debt service burdens.
soybean,
drier weather.
sugar beet,
Because
and sunflower crop outlooks have all
northeastern
is
Montana
is
being destroyed.
still
The
benefited from
way too dry,
though,
The federal dairy diver-
both crop and livestock
income
sion program and strong
ice cream sales are expected to help the district's
IX-3
dairy producers.
But this Bank's latest survey of agricultural bankers indi-
cates that local farmland values and farm debt service woes continued in the
second quarter.
Finance
Deposits at district commercial banks, savings and loans, and credit
unions
rose at
an annual rate of 7 percent between
mid-June and mid-July.
Most of the growth occurred in Minnesota and Wisconsin.
tors
report
that
financial
activity
has been
district because of farmers' difficulties.
of the largest
insurance
agency
in
slack
in
District Bank direcrural parts
of the
One notable event is the purchase
Montana by the district's
largest bank
holding company.
Tourism
Tourism, which plays an important role in the Ninth District's summer
economy,
and
is
having a mixed season.
inquiries
and a
weather
Arrowhead
at
state tourism
fishing
region
While employment levels
in
this industry
offices are up in Minnesota this year, bad
regulation
dispute
with
(northeastern Minnesota).
Canada have hurt the state's
The Heartland
central Minnesota is doing better than last year, though.
region
of north
Wisconsin's Indian-
head region is having an excellent summer; there short, mid-week vacations are
becoming
more
popular.
While
tourist
activity
in the
Upper
Peninsula of
Michigan is good, it has not been as heavy as last year, due to unstable weather.
Bad weather and the Canadian exchange rate have hurt business in South
Dakota, particularly at Mount Rushmore, which was fogged over during parts of
June.
A mixed picture is reported in Montana, with more visitors than usual
to Yellowstone National Park and fewer to Glacier National Park.
TENTH DISTRICT--KANSAS CITY
Overview.
Economic activity in the Tenth District continues to grow
moderately, and price increases are expected to be relatively small for the
rest of the year.
Inventories of input materials are satisfactory but retail
inventories are somewhat high.
anticipated, however.
No major inventory adjustments are
Higher interest rates are restraining mortgage
commitments, as well as housing starts and sales.
Automobile dealers are also
concerned about the impact of rising rates on new car sales.
Loan demand has
increased somewhat at commercial banks, in spite of increases in the prime
rate and in consumer loan rates.
The district wheat crop was generally good,
and fall-harvested crops are also in good condition.
Retail Trade.
Retailers report that year-to-date sales are slightly
ahead of a year ago, but results for the last three months are mixed.
Sales
of home furnishings and men's and women's apparel have been particularly
strong.
Inventories are generally reported to be somewhat high, but little
adjustment is anticipated in the near future.
on schedule.
Clearance sales are occurring
Retail prices have remained approximately constant during the
last three months and are not expected to change significantly before the
first of the year.
Expectations of sales for the remainder of the year are
mixed, but no large changes from current rates are predicted.
Automobile Sales.
Automobile dealers throughout the Tenth District
continue to report improved sales in 1984 relative to 1983.
Credit market
conditions are satisfactory and financing is available for both floorplanning
and customer purchases.
Most dealers express concern over rising interest
rates, indicating that further rate increases would restrict sales.
Attempts
to expand inventories have been frustrated by a lack of availability, with
highly demanded models in short supply.
the balance of 1984.
Dealers anticipate strong sales for
X-2
Purchasing Agents.
Over half of the purchasing agents contacted report
input price increases over the past year ranging from 1 to 8 percent.
Increases were concentrated in the second quarter of this year.
Expectations
of price movements for the remainder of 1984 vary by industry, with stable or
falling prices expected by several soft goods producers.
Some respondents
report difficulties in getting materials because of strikes at suppliers and
heavy demands placed on suppliers by the automobile industry.
Most
respondents are satisfied with their materials inventory levels, having
slightly trimmed or maintained these inventories recently.
maintain or slightly trim inventories the rest of the year.
Most intend to
None of the
respondents report bottlenecks in skilled labor or plant capacity.
Housing Activity and Finance.
Homebuilders in the Tenth District report
mixed results when housing starts in the first half of 1984 are compared to
year-ago levels.
Starts of multi-family units are generally up, while starts
of single family units vary across the district.
Higher interest rates have
slowed housing starts since early June and are expected to continue to do so
through the remainder of the year.
Sales of new homes are down from last
year, with prices holding steady to slightly higher.
homes vary considerably across the district.
supply at generally steady prices.
Inventories of unsold
Building materials are in good
Savings inflows at savings and loan
associations are unchanged to slightly higher than a year ago, and are
expected to remain steady throughout 1984.
Mortgage demand has declined due
to higher interest rates and is expected to soften further for the rest of the
year.
Fewer mortgage commitments are being made.
Mortgage rates are expected
to rise somewhat more in 1984.
Banking.
Loan demand was moderately higher than last month at most
Tenth District banks.
At all of the banks surveyed, commercial and industrial
X-3
loans and consumer loans were either flat or up slightly, while agriculture
loans were either flat or down slightly.
Residential and commercial real
estate lending was considerably more variable, rising sharply at some
respondents but falling or remaining unchanged at others.
Total deposits were
higher than last month at a narrow majority of the respondents.
Most of the
increases were in conventional NOW's, Super NOW's, and MMDA's, but some
respondents reported weakness in these categories.
The prime rate was 13
percent at most of the banks surveyed, up a half point over the previous
month.
Consumer lending rates were slightly higher at about half of the
respondent banks and unchanged at the other half.
Several respondents expect
to raise their consumer lending rates in the near future.
Agriculture.
this year.
Colorado.
The wheat crop in the Tenth District is generally good
Most wheat has been harvested, though rain has delayed cutting in
New Mexico and parts of Colorado report excellent crops, but
production is lower than normal in Nebraska and dry conditions lowered
production in parts of Oklahoma.
Some farmers have sold enough wheat to cover
immediate expenses, but are holding the rest of the crop.
Producers are
selling more wheat in Oklahoma, Missouri, and Nebraska than in other district
states.
Although some producers are actively selling harvested crops forward,
there is not much use of forward selling or futures.
The district's corn and
milo crops are in generally good condition, though slightly behind in
development.
There are reports of localized hail damage, some of it heavy.
The soybean crop is also in good condition but it, too, lags normal
development.
Moisture conditions are good to excellent in New Mexico,
Colorado, and parts of Nebraska.
The rest of the district reports dry
conditions and some concern about the lack of rain.
At the same time, land
that was flooded earlier this spring did not dry out enough to be replanted,
except in isolated higher areas.
XI-1
ECONOMIC COMMENTARY
ELEVENTH DISTRICT--DALLAS
The Eleventh District's economic recovery continues strong,
although there is some evidence of slowing.
A broad spectrum of the
District's manufacturers report increasing demand.
slow upturn continued.
The energy sector's
Auto and retail sales remain brisk.
Despite rising
interest rates and earlier declines in permits, the level of residential
and non-residential construction is still high.
Drought is a major problem
for central and southwest Texas farmers and ranchers.
District manufacturing growth remains moderate but steady.
Despite rising rates of capacity utilization in a number of industries,
there is little evidence of widespread plans for investment in additional
capacity.
Inventories continue to be tightly managed.
report price increases in raw materials.
Some respondents
The demand for construction-
related goods remains very strong and has stimulated the production of
concrete, brick, lumber, and other building products.
is keeping lumber prices and profits low.
Foreign competition
Concern over the possibility of
mill closings among less efficient producers has surfaced.
District pulp
and paper plants are operating near full capacity and product shortages are
expected.
Defense spending for high-technology systems has led to
increased electronic equipment production.
Orders of machinery for the
energy industry are rising, after a long period of decline.
Chemical and
allied products demand is increasing only modestly overall, although the
market for specialty chemicals used in medicine and in the electronics
industry is very high.
XI-2
The number of active drilling rigs dropped slightly in early July,
but the number was still 20 percent above the year-earlier level.
The
seismic crew count and the number of well permits issued, both leading
indicators of drilling activity, continue to show an irregular pattern of
modest increases.
The Gulf of Mexico offshore rig count reached the
highest level ever.
Inventories of a number of drilling-related
manufactured goods are falling to desired levels.
Rising demand for these
products, together with declining inventories, has led to employment
increases in oilfield equipment manufacturing.
Nevertheless, recent
declines in oil prices have raised concerns over the sustainability of the
energy recovery.
After a record-breaking May, auto sales in June registered a
smaller increase over last year's level than in previous months.
Sales
rebounded in July, but respondents attribute some of this resurgence to
fears of an autoworker strike this fall.
Shortages of popular models were
heightened by the end of production of 1984 models.
Respondents said
increased financing costs have not noticeably affected buyers' attitudes.
Retail sales are still rising, but some respondents report that
year-over-year increases have begun to slow.
Consumer durables, a strong
contributor to sales earlier in the year, are no longer outpacing other
categories.
Residential construction continues to show evidence of slowing.
The number of permits increased in May, but second quarter 1984 totals are
about 10 percent below the year-earlier level.
overbuilding has contributed to the slowdown.
In some markets,
Savings and loan officials
XI-3
report that higher interest rates have reduced the demand for mortgage
loans.
Even so, most respondents expressed optimism that the level of
residential construction would remain high.
The level of office and commercial construction is strong, as
gains in May and June offset weakness in April.
The value of permits for
the second quarter of 1984 about equals the year-earlier level, but
respondents report that concerns about overbuilding and higher interest
rates have prompted caution among builders and lenders.
Loan growth at large District banks remained steady, with business
and consumer loans showing larger year-over-year gains.
Growth in real
estate loans at these banks has ebbed somewhat, but it continues at a very
fast pace.
Total deposits have lately increased owing to significant
growth in time deposits.
Conditions at Texas S&Ls mirrored this asset and
deposit growth, but year-over-year gains in loan volume are slowing.
Drought continues to affect central and southwest Texas farming
and ranching.
Cattlemen are continuing to liquidate their herds.
The
drought has also reduced income prospects for District feed grain
producers.
In spite of these problems, low levels of bankruptcies and
problem loans are reported by agricultural lenders.
XII-1
TWELFTH DISTRICT -- SAN FRANCISCO
In the Twelfth District, the growth of the economy appears to be slowing as
rising interest rates and the strong dollar adversely affect certain key sectors.
Consumer spending appears to have grown at an accelerated rate in July, with both
department stores and automobile dealerships experiencing strong sales.
Nonresidential construction activity also continues to pick up.
But rising mortgage
interest rates have further reduced both the construction and sale of new homes.
Employment in the manufacturing sector generally has been growing at a slower rate as
the rising foreign exchange value of the dollar has increased imports of lumber and
primary metals, forcing Western producers to curtail operations.
In agriculture, the
prospects for significant improvement in farm income in 1984 have deteriorated further
as prices have weakened in response to overly abundant harvests and declining exports.
In July, Twelfth District banks experienced a further large outflow of money market
deposit accounts, without an offsetting pickup in large time deposits.
Consumer Spending
July was a very favorable month for retailers.
Sales are reported to have grown
at an accelerated rate, following some moderation in June.
Throughout the District,
major shopping malls and department stores experienced year-to-year sales gains
ranging from 10 to 15 percent.
This occurred even in Oregon where the economic
recovery generally has been faltering.
While retailers are concerned that rising
interest rates could dampen consumer spending, they are encouraged that thus far rapid
gains in employment and income have been outweighing that negative influence.
This is
evidenced by continued strong demand for such discretionary durable goods as home
entertainment electronics (video-recorders, televisions) along with strong sales of
nondurable items, especially apparel.
Auto sales also continue to be excellent and
would be even higher were it not that dealer inventories are low.
Consumer debt
XII-2
continues to grow at a record rate, but retailers do not consider this situation
worrisome since consumers are keeping their payments current.
The excess inventory
situation that prevailed at department stores in June was corrected by July's strong
sales pace.
Despite the interest rate climate, most retailers are optimistic that
they will experience a very robust fall and Christmas buying season.
Manufacturing and Mining
With the important exception of California, the growth of manufacturing
employment in most District states has slowed recently.
Such basic materials
industries as aluminum, copper, steel and lumber cut back production and employment
sharply in July.
The cutbacks in the primary metals industries have been attributable
to the strength of the U.S. dollar which has been increasing the influx of lowerpriced foreign imports and forcing domestic producers to reduce their prices.
Layoffs
have been most severe at copper mining and processing facilities in Utah and Arizona,
but steel mills in Utah and aluminum plants in the Pacific Northwest also have been
curtailing operations.
Pacific Northwest lumber mills have been closing for extended
vacations to reduce the heavy buildup of inventory that has occurred in response to
the downtrend in national homebuilding activity and to increased Canadian imports.
Fortunately, the paper segment of the forest products industry is operating at near
full capacity.
Rising federal expenditures for defense and space programs, as well as
increased investment in aircraft by the world's airlines, continue to generate new
jobs in the electronic equipment and aerospace industries.
But consumer and business
demand for some electronic equipment has levelled off recently, suggesting that the
rapid employment growth that has been occurring in that industry could slow.
Construction and Real Estate
Housing starts in the West have continued to fall further below this year's peak
reached in January, contrary to the recent increase nationally.
also are reported to have slowed 20-30 percent in recent months.
Sales of new homes
Bankers report that
XII-3
even rates on adjustable rate mortgages have reached the point where many more
potential buyers are being priced out of the market.
Similarly, even the increased
offerings of "buy-down" programs by builders are no longer sufficient to prop up the
housing market.
In Southern California, the slowdown in home sales has caused some
builders to cancel planned projects.
increasing.
In Oregon, residential foreclosures are
Rising interest rates have not put a damper on the large number of
nonresidential construction projects planned or under construction in the West
however.
Salt Lake City, Portland, Tuscon and some other metropolitan areas are
reported to be on the brink of a boom in construction of new shopping malls, office
towers and hotels.
Firms continue to be cautious about investing in new industrial
structures, except for electronic equipment manufacturers.
Agriculture
Prospects for significant improvement in California net farm income in 1984 have
become even dimmer recently due to the effects of hot weather in hurrying the harvest
of many crops, flooding the market with excess supplies and reducing prices below the
break-even point for many growers.
Harvests of most tree fruit and nut crops have been
anywhere from one-third higher to as much as double production levels of a year ago.
The harvest of summer vegetable crops also has been outstanding.
But demand has
lagged behind production, reducing prices for important vegetable crops to or below
break-even levels.
Growers of raisin and wine grapes also are likely to experience
depressed prices due to the huge carryover of raisins and the slow growth in overall
wine sales and increased share of the market being supplied by foreign imports.
The
cotton crop is progressing well, but the strong U.S. dollar and prospect of record
world production have been reducing prices.
In the Pacific Northwest, the outlook for
farm income is less favorable than in California due to the greater importance of
grains in the crop mix.
XII-4
Financial Institutions
In July, banks in the Twelfth District continued to experience the large outflows
in money market deposit accounts that began late in the first quarter.
The $2.6
billion drop in these deposits from their February level of $40.4 billion is due in
part to the hesitancy of banks to offer rates competitive with those available through
money market funds.
In May and June, large time deposits picked up, helping to offset this outflow.
But in the first three weeks of July, growth in those deposits slowed considerably.
The sharp drop in business loans that occurred during this period, following two
months of rapid growth, may be one reason banks were less aggressive in acquiring
these funds.
Consumer and real estate loans closed continued to grow at their trend
rates for the year, with consumer loans showing remarkable growth.
But bankers report
a decline in residential mortgage loan applications, suggesting that the demand for
those loans also is falling.
Cite this document
Federal Reserve (1984, August 20). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19840821
@misc{wtfs_beige_book_19840821,
author = {Federal Reserve},
title = {Beige Book},
year = {1984},
month = {Aug},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19840821},
note = {Retrieved via When the Fed Speaks corpus}
}