Beige Book
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
SEPTEMBER 1984
TABLE OF CONTENTS
SUMMARY
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First District - Boston
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.
Second District - New York ...............
Third District - Philadelphia
...
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. ..
Fourth District - Cleveland ..............
Fifth District - Richmond ...........
Sixth District - Atlanta ....
....
......
................
Seventh District - Chicago ..............
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I-
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II-
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IV-1
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.
. V-1
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. ... ...........
Eighth District - St. Louis ..................
I-1
VI-1
. VII-1
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VIII-1
Ninth District -,Minneapolis
....................
..........
XI-1
Tenth District - Kansas City
....................
.........
X-1
Eleventh District - Dallas ...................
Twelfth District - San Francisco
..................
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XI-1
XII-1
SUMMARY*
The economic expansion appears to be moderating to a slower but still quite
Manufacturing remains strong despite weaknesses in certain sectors that
brisk pace.
have been adversely affected by the increased strength of the U.S. dollar.
Defense
and energy are the chief sources of current expansion. Retail spending remains generally
strong, but several Districts are experiencing a slower growth rate. Auto sales continue
to advance in most areas; where some deceleration has occurred, the reason is lack of
inventory rather than dampened demand.
Consumer spending for domestic travel,
however, has been disappointing in some areas because of the high exchange rate of
the dollar as well as rainy weather. Residential construction is slowing in most Districts,
but nonresidential building is proceeding at such a heady pace in certain areas that
concerns about overbuilding are mounting.
of expanded
consumer borrowing.
Lending remains strong primarily because
Farm conditions are mixed:
several Districts
anticipate higher yields and revenues, but poor weather reduced supplies in some states.
Manufacturing and Industry.
Manufacturing activity generally remains strong,
but most regions report slower growth in orders and employment.
Inventory levels are
satisfactory, for the most part, although some steel customers are cutting inventories
in anticipation of an auto strike.
Price increases have been modest, at worst, and
some Districts report flat or declining supply prices. There is no evidence of materials
shortages.
Capital goods spending has been strong, but Boston reports that plans for
1985 show no increase over current levels. Defense orders are a source of manufacturing
strength for St. Louis, New York, San Francisco, and Atlanta.
sustaining industry's momentum in the Dallas, Minneapolis,
*Prepared at the Federal Reserve Bank of Atlanta.
Energy demand is
Richmond, and Atlanta
Districts.
Demand for coal as well as pulp and paper is contributing to the strength
of manufacturing reported by Richmond,
Minneapolis,
and San Francisco.
Auto and
related production is another source of continuing growth, especially in New York,
Richmond, and St. Louis.
Weakness is concentrated in industries sensitive to import competition, but this
effect appears
widespread geographically;
more than half the Districts mention
it.
Industries affected include aluminum, steel, copper, machine tools, shoes, textile, apparel,
and lumber.
Setbacks in the lumber industry are also attributable to slower residential
construction, which is precipitating layoffs by furniture producers and building material
suppliers as well.
Consumer Spending.
Retail sales, spurred by back-to-school spending, generally
strengthened in late summer. However, Cleveland, Minneapolis, Dallas, and San Francisco
report a slower rate of growth.
soft goods varies.
The relative strength of spending on hard goods and
Boston and Richmond report that hard goods are increasing their
share, but Dallas and San Francisco note a softening of spending on consumer durables.
Auto demand remains strong in most parts of the country and would be higher if more
of the popular models were available.
In contrast
to the shortage of new cars,
inventories of other retail goods generally are reported to be satisfactory.
Inventory-
to-sales ratios in the Philadelphia District are intentionally high because of anticipated
strong demand through the fall.
Price competition and promotions appear to be helping
retailers attract buyers and move goods.
Many buyers are using available credit lines
but seem to be paying their bills without difficulty.
Looking ahead, retailers, as usual,
are optimistic, although auto dealers fear the consequences of the threatened strike.
Summer tourist expenditures are below expectations in most areas.
The effect
is greatest on attractions; business and convention travel is helping to boost the lodgings
and air transportation sectors of the industry.
However, St. Louis and Philadelphia
report that late summer visitations at certain resort areas were up substantially. Boston,
Philadelphia, Atlanta, and Minneapolis attribute the lackluster performance of vacation
travel to rainy weather and the strong value of the U.S. dollar, which discourages
Canadian tourists from visiting border resort areas and encourages increased travel
abroad by Americans.
Construction.
The residential sector continues to slow in most Districts despite
generally declining mortgage rates.
Atlanta, New York, Cleveland, and Richmond are
experiencing continued or renewed strength, but most other Districts report substantial
slowing in residential construction and sales, particularly of single-family houses.
The
August issuance of mortgage revenue bonds in Ohio stimulated an otherwise sluggish
residential sector there. High-income home buyers, many of whom are making purchases
with cash, account for New York's strong showing.
Apartment vacancy rates are
increasing, and some regions express concern about overbuilding in the multifamily sector.
Nonresidential construction is characterized as surging in Atlanta, Minneapolis,
Richmond, San Francisco, and St. Louis.
Concern over high and rising office vacancy
rates is widespread and mounting, especially in Atlanta, Dallas, and San Francisco.
However, commercial vacancy rates in Minneapolis have been declining, and New York
reports low office vacancy rates in Manhattan.
Finance.
Loan demand remains firm in most Districts.
Consumer lending is the
leading component of current growth. At least half the Banks report increased consumer
borrowing, and New York and Chicago note that delinquency rates are quite low, given
the increase in consumer credit.
Many Districts report an increased pace of real estate
lending, especially for nonresidential projects, although Philadelphia, San Francisco, and
Dallas report a slowdown in such lending.
between regions.
The rate of business loan growth varies
Deposit growth is advancing in Atlanta and Kansas City, but Dallas,
Philadelphia, and Cleveland describe the pace as flat or declining, and deposit growth
has slowed in Minneapolis.
Agriculture.
The outlook for agriculture is mixed.
Notwithstanding a drought
in June and potential crop damage from Hurricane Diana, the Southeast is experiencing
favorable growing conditions, and farmers may enjoy near-record yields.
St. Louis and
Minneapolis also anticipate good yields except in areas most affected by poor weather.
The Philadelphia District had adequate rain, and farm income there should be improved,
especially for growers of corn, potatoes, soybeans, and blackberries.
also note the positive effect
of increased Soviet purchases.
Several Banks
However,
portions of the Dallas and Kansas City areas should depress yields.
decribes price conditions for fruit and vegetable farmers as "dismal."
droughts in
San Francisco
In addition, the
farm sector, especially in Minneapolis and Kansas City, continues to face financial
difficulties exacerbated by low prices for many commodities, falling land values, and
the high cost of servicing existing debt.
Farm equipment sales are below expectations,
and Chicago notes manufacturers are cutting back even more.
FIRST DISTRICT - BOSTON
Business activity in the First District remains robust.
Retailers
are enjoying strong back-to-school buying and are optimistic about third
and fourth quarter results.
Manufacturers report that orders and shipments
are significantly above year-ago levels.
In some cases, the order rate has
slowed from earlier this year, but the manufacturers affected do not view
this as indicative of future weakness.
Both retailers and manufacturers
are generally satisfied with inventory levels.
Price increases are
reported to be very modest and respondents seem to be lowering expectations
about future inflation.
In banking, business lending is well above
year-ago levels, but competition among banks for these loans is intense.
Retail
First District retailers continued to make gains.
Two stores
reported bumpy summer seasons but strong results for the end of August and
the first weeks of September as back-to-school buying got underway.
The
up-and-down summer results were attributed, in one case, to the disruption
caused by a major renovation and, in another, to weaker-than-expected
tourist purchases. Tourist-related sales were especially disappointing in
Maine where Canadian tourists appear to have been discouraged by the
exchange rate.
Other contacts also mentioned disappointing tourist
activity - on Cape Cod and in Connecticut.
Hard goods continued to outpace soft, particularly women's
sportswear, which is coming down from several years of excellent growth.
Prices of hard goods are stable to falling, and one merchant commented that
promotional discounting of all goods is so widespread that consumers can
always get high value for their dollars.
Inventories, whether high or low, were reported to be causing no
problems.
Consumers' credit use is trending up, but merchants do not
consider this a source of concern.
One store has moved up its "buy now,
pay next February" promotions from Christmas to the fall.
Manufacturing
A number of manufacturers, producing a variety of products, have
seen a slowing in orders from earlier this year.
healthy, substantially above 1983 levels.
However, orders remain
The affected firms do not view
the slowing as a precursor to any major weakening in the economy.
Some
capital goods producers are experiencing strong and increasing orders.
Overseas markets are said to be picking up slightly, but subsidiary
operations are faring better than exports.
Respondents' capital
expenditures are considerably above those in 1983.
Preliminary capital
budgets for 1985 are about the same as 1984, although one contact noted
that it would not take much of a deterioration in orders to discourage
capital expenditures.
The emphasis in capital spending continues to be on
productivity improvements.
Respondents were unanimous in reporting only
moderate increases in materials prices; wage pressures were also said to be
II-1
SECOND DISTRICT - NEW YORK
Introduction
Second
District
retailers
experienced
a
relatively
weak
summer, but all other segments of the regional economy report continuing
Department store sales generally failed to
strong and stable growth.
match
expectations
several
months.
in July and early August, for the first time
Nevertheless,
New
surge of revolving credit
nationwide
banks
York
loans.
are
sharing
Homebuilders
in
in
the
reported a
strong market dominated by high-income buyers and significant numbers of
cash customers,
and the
working at capacity.
suburban construction
industry is generally
Office space remains scarce in midtown Manhattan,
but increasing vacancy rates are a concern elsewhere in the District.
The employment outlook in New York and New Jersey is still improving as
a result of the announcement of plans for more major expansion projects.
Consumer Spending
Retail sales
July
and
early
expectations
for
in the Second District were very soft during
August.
the
first
Volume
time
generally
in
fell
short of
several months.
retailers'
Local
merchants
reported July sales gains averaging only 5 percent over the same period
a year ago, and only one major retailer registered a very large increase
in business.
In early August, the weakness persisted.
Shoppers were
widely believed to be staying home to watch the Olympic games.
Most of
our contacts reported improvements of varying magnitudes afterwards, and
sales figures for the entire month ranged from a decline of 1 percent to
an increase of 17 percent.
Inventories have been brought more in line
with desired levels over the past two months, with levels now averaging
II-2
20 percent over last year as compared to nearly 30 percent in May and
June.
However,
in
light
of
recent
soft
sales,
retailers
are
still
assessing their forecasts and their future inventory needs.
Financial Developments
Even with the slowdown in retail sales growth, New York State
banks
and
report that both the number of active revolving credit
the
proportion
of
expanding
rapidly.
encouraged
households
slightly faster
available
At
than
the
to
in
pay
the
credit
same
time,
off
balances
past,
accounts are at record low levels.
of
revolving
credit
to
the
lines
and
drawn
high
down
interest
at
least
as
the proportions
accounts
have
been
rates
have
fast
of
as
or
delinquent
Bankers attribute the rapid growth
proliferation
of
instruments and the general strength of income
new
revolving
credit
and employment in this
region's economy.
Business Activity
Economic
District
during
conditions
recent
showed
weeks.
further
Upstate
growth
moderate
purchasing
agents
in
the
reported
a
modest expansion of new orders in August and inventories were generally
at
satisfactory
levels.
The
automotive
plant
years, and
expansion.
awarded
on
operations
Long
a
tire manufacturer broke
a
Additionally,
Island,
from the south
and
an
to its
$1.3
ground
billion
electronics
facility in
strong:
a
for the first time in
major producer began accepting job applications
four
remained
industry
for a $100
defense
firm
is
million
contract
was
moving
some
the Schenectady area.
Five television series are planned to begin production in New York City
this fall and winter.
II-3
The unemployment rate, seasonally adjusted, declined in both
New
York
State
and
New
Jersey
during
August,
unchanged rate for the nation as a whole.
in
contrast
to
the
New York's 7.7 percent was
slightly above the U.S. average of 7.5 percent, while New Jersey's rate
of 6.1 percent remained below the nation's.
Construction and Real Estate
Residential
building activity
remains
brisk
and order books are largely filled for the year.
in the
region,
Activity is limited by
continuing shortages of skilled labor in New York City surburban areas.
Ongoing
construction
high-salaried
has
benefitted
technology
industries.
from
employment
Cash
purchases
growth
and
in
private
financing have helped sustain the District's solid, upper-tier housing
market, even with increasing mortgage interest rates.
Nonresidential
construction
continued
at
its
strong
pace
throughout most of the Second District.
The major exception is midtown
Manhattan,
where
high
restricting
the
lack
supply
of
of
sites
new
and
space.
construction
Observers
are
costs
looking
to
are
new
development projects in places such as Times Square, south midtown, and
the Hudson River area to provide relief.
New York's downtown vacancy
rate continues to grow as new buildings are coming on line at the same
time as the financial services industry has been weakening, and demand
for in-town back-office space has
Long
Island,
certain
that
leasing
demand
construction activity.
activity
can
keep
been depressed by
remains
pace
brisk,
with
the
but
high prices.
observers
amount
of
are
On
not
speculative
III-1
THIRD DISTRICT - PHILADELPHIA
The Third District economy is still growing in September, led by strength
in the retail sector.
However, there is some easing in activity in other sectors.
Manufacturers are seeing a slight slowdown, although some specific indicators are posting
gains.
Bankers report that consumer lending is thriving while commercial lending is
slowing its pace.
good year.
In the agricultural sector, farmers, with few exceptions, report a
Area resorts, faced with rainy weather and tough competition for tourist
dollars, have turned in a mediocre season.
In general, contacts look for continued
slowing in all areas except retail sales and consumer lending.
Manufacturing.
Respondents to the September Business Outlook Survey
indicate that growth in the local manufacturing sector is still positive but is easing.
Forty-three percent of the manufacturers surveyed this month say business activity
continues to increase while only 6 percent report a decline; just over half say there
has been no change over last month.
Despite the apparent cooling of the current business climate, most specific
indicators show improvement over last month.
New orders and shipments lead the
pack, with 44 percent and 52 percent of manufacturers, respectively, citing increases.
Only inventories and unfilled orders remain unchanged in September, with delivery time,
employee payrolls, and the average workweek all posting slight gains.
The near-term outlook for local manufacturing is beginning to dim, according
to this month's survey.
However, while the portion of respondents expecting further
growth in the next six months is the smallest it has been since June 1980, it still
remains significant at 43 percent. Manufacturers' expectations about specific indicators
are in keeping with the anticipated easing in future business.
Survey respondents look
III-2
for a reduction in inventories, and they plan to hold employee payrolls and the length
of the average workweek at current levels.
The portion of respondents reporting increases in industrial prices has fallen
for the second month in a row.
Seventy percent of the executives polled this month
say input prices are stable, and a like portion reports no change in the prices of finished
goods.
Looking ahead, approximately two-thirds of respondents predict that they will
be paying higher prices for raw materials within six months and about half expect to
receive higher prices for their output.
Retail.
Retailers in the Third District report strong sales over the past six
weeks, with back-to-school promotions and cool weather in late August giving sales a
boost.
Contacts in the retail industry indicate that big-ticket home furnishings are
moving well, along with children's apparel.
Inventories are slightly heavier than usual,
relative to current sales, but are in line with expectations for the next four months.
Sales are currently running 10 to 25 percent above last year's levels, and retailing
executives say they are looking forward to tallying up an overall good year with the
help of the holiday season.
Financial.
Third District bankers are sending mixed signals on their loan
activity. Contacts continue to see a slight slowdown in the rate of growth of commercial
loans but report that the dollar volume of C&I loans is still up substantially over yearago levels.
Consumer lending has not faltered at all and is registering increases in
the range of 20 to 28 percent over last year.
Local bankers
are lowering their
expectations for commercial loan growth in the near future, but their optimism continues
to be buoyed by strong prospects for growth in the consumer lending area.
The prime rate has been holding steady at 13 percent since the end of June.
Third District bank economists foresee no fluctuations in that rate before the end of
the year.
The general easing in the economy has induced contacts to revise their
III-3
federal funds rate forecasts downward slightly with the year-end rate expected to hover
around 11.5 percent.
Agriculture.
Third District county agriculture agents report that 1984 has
been a premium farming year in terms of weather.
After a dry, underpar season last
year, plentiful rainfall has helped to produce a bumper crop of both sweet and feed
corn, along with a healthy crop of blueberries and soybeans in south Jersey, exceptionally
large fruits in Pennsylvania, and a strong potato crop in Delaware.
Field and cereal
crops are very good, and farmers expect to benefit from the easing of restrictions on
grain exports. Weather did have some damaging effect on two crops this year.
Peaches
in New Jersey are down by about two-thirds due to a frigid winter, and tomato yields
are running about 60 percent of normal, owing to cracking caused by too much rain.
Dairy farmers in Pennsylvania are having a good year and note that the
consumption of milk is up about 6 percent.
Chicken farmers, their flocks depleted
last fall and winter by Avian flu, have excellent prospects for production when the
quarantine on chickens is lifted shortly.
Farm prices, in general, have held steady since last year.
While record
yields in corn and potatoes in particular tended to push prices for those two crops
lower, corn farmers still can expect to be "in the black" for this year.
Grain sales to
the Soviet Union are expected to boost prices and help local farmers.
Farm income is expected to be slightly better than last year, although peach
farmers will be hit fairly hard.
Peach crop yields in New Jersey and the surrounding
Pennsylvania and Delaware counties were low enough to qualify farmers for Farmers
Home Administration low-interest loans.
Tourism.
Resort business in the Third District was disappointing to most
vacation-spot entrepreneurs this year. Wet, unseasonable weather kept many vacationers
at home through midsummer, but that was only one of the factors keeping the lid on
III-4
local travel.
Both European travel, encouraged by the exceptionally strong dollar, and
the summer Olympics in Los Angeles were tough competitors for tourist dollars.
South Jersey seashore reports saw a drop in visitor volume of about 10
percent from last year, a result not only of rainy weather and cold ocean temperatures
but also of the strong American dollar, which has cut the number of Canadian visitors
virtually in half.
Only in Atlantic City, where casino gambling flourishes, was business
better than last year.
In the Pocono Mountains, as elsewhere, weather caused a disappointing June
and July, but August showed surprising strength due mostly to last-minute bookings.
Gross dollar volume this summer could run 3 to 5 percent above last season.
resorts have excellent prospects for the fall.
Pocono
IV-1
FOURTH DISTRICT--CLEVELAND
Summary.
Growth
of
economic
activity
Labor market conditions
sales
Retail
gains
summer.
inventories.
continue
Inventory
The
District
and
to expand,
are
in
from a special
on
a
but
at
mixed
housing
appears
price
shrink
to
trends
downtrend
interrupted by funds
this
softened recently
activity continues
Manufacturing
early
in
but
increases
be
slowing.
are
slowing.
year-over-year
a
slower
suggest
activity
Ohio bond
to
has
issue.
pace
slow
been
basis.
than
in
of
growth
temporarily
Business
loan demand
is flat while consumer loan demand remains strong.
District Labor Market Conditions.
Labor market conditions
and unemployment
rise
to
9.8%
rose
in Ohio
in August,
its highest
(s.a.),
Employment
in the District have softened.
causing
the unemployment
since May
level
and only
1.5
fell
rate
to
percentage
Nevertheless, Ohio manufacturing
points below its level of a year earlier.
employment continues to increase slowly while average weekly hours worked by
manufacturing
production
workers
continues
to
decline.
The
decline
in
overtime in manufacturing has been pulling down the average weekly earnings
of manufacturing production workers in the last few months.
Prices.
Upward
price
Purchasing
continues.
increase
pressures
in
prices
are
managers
paid
for
report
continued
for
services
and
slowing only slightly.
One
commodities.
increasing at the slowest rate in a year.
paid
but
easing
equipment
are
concern
slowing
group
in
the
reports
The rates of increase
higher
than
for
inflation
about
rate
prices
of
are
for prices
commodities
and
are
A survey of midwestern manufacturing firms reveals a
IV-2
smaller
percentage
earlier
in
of
the
substantial
firms
year.
are
raising
prices
Nevertheless,
concern about
now
contacts
than
were
doing
report
there
that
increases
inflation and they believe
so
remains
in
the
rate of inflation would cause a resurgence of inflationary expectations.
Retail Sales.
department
Major
sales
store
chains
this
in
District
gains continue to slow in most product
inventories
are
not
accumulating
expects year-over-year
gains
at
the
to
year-over-year
Nevertheless, unwanted
lines.
retail
will continue
report
level.
shrink
One
to
8%
major
chain
the
fourth
in
quarter of 1984 and 7% in the second quarter of 1985.
Cleveland
August
but
area
in
auto
early
dealers
September
report
strong
moderating
sales
consumer
problems have resulted in a mild sales slowdown.
at
the
onset
domestic
of
1985
sales.
the
model
dealer
Import
year
would
outlook
for
demand
appetite
continued
and
in
inventory
Dealers say an auto strike
sharply
the
reduce
fourth
quarter
quarter
fourth
is
more
positive because 1985-model deliveries are easing quota-induced shortages.
Manufacturing.
continues
activity
Manufacturing
expand.
to
agents
Purchasing
report
new orders continue to increase at a slower pace than recently in Cincinnati
but
more rapidly
continues
shipments
to
strong.
expect
in
the
steadily.
in
June
and
Order backlogs
steel
Major
as
July
in anticipation of an auto
Orders
further
auto
Cleveland.
increase
fell
particularly
in
for
steel
improvement
industry.
A
improved
in orders
producer
reports a slowing of orders.
producers
customers
strike,
slightly
if there
of
remain
flat,
report
reduced
and steel
in August
and
is an early
consumable
as
supplies
production
orders
and
inventories,
imports
remained
steel producers
labor settlement
used
in
mining
IV-3
Inventories.
Inventories
Cincinnati
show mixed
trends.
A
area indicates manufacturers'
being held constant, but purchasing
manufacturers'
raw materials
finished
goods
of purchasing
in
the
inventories of raw materials
are
agents in
inventories
against lengthening lead times.
of
survey
are
agents
the Cleveland area indicate
being
increased
as
Both groups report continuing
inventories.
Steel
users,
especially
a hedge
slow growth
in
the
auto
industry, and steel distributors continue to trim inventories.
Housing.
Housing activity
August
because
mortgage
of
revenue
participants
in Ohio experienced an unexpected,
lower-cost
bonds.
remains
financing
Although
gloomy,
made
the
optimism
is
one-time
possible
near-term
surfacing
by
outlook
that
surge in
state-issued
of
housing
market
activity
Most market participants expect 1984 to closely
will improve by mid-1985.
approach the sales pace and profits of 1983.
Builders remain cautious and, except for August, have been experiencing
Housing completions were strong
a steady dwindling of their order backlogs.
during July and August
and new orders, which typically are seasonally low,
registered unexpected gains because of
of bond monies,
August,
but
lenders recorded
otherwise
are
the bond monies.
Also, as a result
stronger-than-expected loan volume
experiencing
gradual
a
slowing
of
during
mortgage
originations.
Realtors
report
an
unexpected
surge
of
new
contracts
principally from home buyers using mortgage bond monies.
in
August,
Contract closings
in August, which resulted from June's sales, also exceeded projected levels
by
a
wide
margin.
According
to
realtors,
the
overall
deceleration
of
IV-4
housing activity will reverse in mid-1985 if interest rates fall and another
dose of mortgage bond money becomes available.
Commercial Banking.
Business
loan
demand
has
been
relatively
flat
recently
banks, but consumer loans continue to grow at a strong pace.
at
District
Bankers expect
consumer loan demand to remain quite strong and business loan extensions to
pick-up moderately in the next few months.
Banks appear to be funding new loans to a large extent by stepping up
their issuance of large certificates of deposit and reducing the volume of
federal
funds
and savings
deposits.
sold.
Although District banks registered
increases
deposits, these gains were negated by declines
in
time
in transaction
FIFTH DISTRICT - RICHMOND
Overview
Generally, Fifth District economic conditions have changed little in
recent weeks.
The expansion is continuing, but at a somewhat slower rate.
Individual sectors are showing more variability from month
inventory building
seems
have run its
to
course.
to month, and
The past month,
instance, drew strength from housing and construction, sales of
durables, and coal production.
for
consumer
The manufacturing sector was essentially flat
as imports continued to eat into sales of such goods as textiles, apparel,
furniture, and lumber products.
At the same time, however, manufacturers
supplying the automobile industry continue to operate at near capacity, as
does the paper producing sector.
Despite the continued strength of imports,
a lack of inventory accumulation, and the possibility of nationwide strikes
that would significantly affect
the District,
the outlook among District
businessmen remains generally positive.
Manufacturing
District manufacturing activity showed little change in August, but
with the sizeable gains of July, the overall level is quite high.
durables
uniform
and capital
strength
and
and
near
industrial
capacity
goods
continue as
production.
The
Consumer
leaders,
building
showing
materials
sector, a source of strength earlier in the year, seems to be coming under
increased pressure from import competition, and the national market may have
softened somewhat as well.
V-2
Apart from the auto related segments, textile and apparel producers
report
continued
position.
slack
and
further
deterioration
of
their
foreign
trade
Furniture producers are also reporting soft spots in their mar-
kets, but once again import competition and a slowing of inventory accumulation at the retail level appear to be at fault.
Coal production is one of the truly bright spots in District activity.
Despite a sharp decline this year in total exports of bituminous steam
coal, U.S. coal production is running nearly 20 percent ahead of 1983, and
all
indications
are
that
the
Fifth
District
may be
doing
even
better.
Furthermore, the latest reports show that stocks on hand at domestic electric
utility plants are actually down from a year ago, despite the potential for a
strike later in the year.
Consumption
Consumer activity is still robust.
Further gains in sales, particu-
larly at department stores and general merchandise outlets, were reported for
the past month.
total sales.
Also, sales of big ticket items apparently rose relative to
For the most part, consumers remain aggressive in their buying
and borrowing, although there have been scattered reports of minor retrenching.
Most respondents expect further expansion of consumer debt, at least
over the
remainder
of
the
year.
Comments
from
respondents
suggest
that
consumers favor higher quality products and respond more enthusiastically to
advertising and promotion of top of the line items.
Housing and Construction
The construction sector in the District is still very strong, with
steady increases in commercial activity and a recent rebound from a temporary
V-3
drop in the residential area.
New announcements of hotel, shopping center,
and urban redevelopment projects point to continued buoyancy in those sectors.
Several of the metropolitan areas around the District are experiencing
virtual construction booms in the downtown areas.
tial sector is seen as
In addition, the residen-
fundamentally strong even though it may not regain
production levels of earlier in the year.
Most respondents expect housing to
at least hold at current levels over the rest of the year.
Banking and Finance
Financial institutions
are
showing
further gains
in business and
consumer lending, but there is no indication that their liquidity positions
will prove restrictive in the near term.
In general, these institutions are
expecting continued growth in loan demand, including the business, consumer,
and real estate components.
Yet, they seem willing and able to accommodate
this growth.
The Outlook and Prices
Businessmen
and
representatives
of
financial
institutions
remain
basically optimistic with regard to activity and prices over the next
months.
six
On balance, they expect further growth in the national economy and
in their respective markets, although there is a spreading feeling that the
largest gains may be behind us.
Negative factors most often mentioned are
interest rates, the level of imports, and the prospects for strikes in major
industries.
There is
little
evidence of its resurgence.
concern over inflation,
and little
reported
VI-1
SIXTH DISTRICT - ATLANTA
Economic conditions in the Southeast are mixed, but strengths continue to
outweigh weaknesses.
Industries dependent on international trade continue to be hit
hard by the climb in the value of the dollar.
Consumer spending remained strong
through August, but summer tourist trade fell below anticipated levels of growth.
Very
recently, declines in mortgage rates have contributed to renewed growth in residential
construction.
Deposits at financial institutions are also increasing for the first time
in many months.
The general outlook for farmers is somewhat brighter than in several
years, but last winter's freeze devastated many citrus groves.
Employment and Industry.
foreign
exchange
rates
have
Conditions in industries sensitive to interest and
deteriorated,
and
labor
markets
have
softened.
Unemployment rates increased in each of the Sixth District states from June to July,
after holding steady, on average, for three months.
Higher short-term rates and slower
residential construction nationwide caused many furniture plants to reduce inventories.
As a result, some small sawmills expect to close temporarily.
The increasing strength
of the U.S. dollar is adversely affecting many southeastern industries.
A Florida shoe
manufacturer expects to furlough 1,500 workers because of import competition, and
leather employment in Tennessee is down 17 percent from last year.
A recently
retooled steel plant in Alabama closed temporarily in response to weak foreign demand.
The outlook for the chemical, energy, and defense industries is brighter.
Two large oil companies recently announced plans to build refineries in Alabama.
For
the third consecutive month, the number of active drilling rigs in Louisiana increased
in July.
Military contracts boosted manufacturing employment in Georgia this year,
and job growth is likely to continue through 1986.
VI-2
Consumer Spending.
Retail sales activity in the region continued strong
through August. Atlanta, Orlando, and Jacksonville led the region in sales gains. Thanks
to a spending surge in the latter part of the month, August sales activity was reportedly
better than in July. Electronics, fall clothing, and housewares moved particularly well,
but all departments fared better than last year, according to most store managers
polled.
Auto sales remained healthy through August, but dealers are concerned about
the impact of a strike, which some feel could keep potential customers out of showrooms.
Construction.
The construction outlook has brightened over the past two
months. Residential brokers and real estate agents report new strength in single-family
home sales as a result of the recent mortgage rate decline, which enabled more home
buyers to enter the market.
In some areas, rates on fixed-rate mortgages fell from
15 percent in July to as low as 13 1/2 percent in early September.
Mortgage rates
appear high by past standards, and much of the activity has been in the resale market,
where buyers can assume mortgages at less than current market rates. The attractiveness
of adjustable-rate mortgages apparently is waning.
Earlier this year, roughly 60 percent
of new mortgages were of this type, but our latest survey suggests that this level may
have been the peak and the proportion is now declining.
beginning to rise as first-time home buyers vacate.
Apartment vacancy rates are
Estimates of vacancy rates range
from 20 percent in Jackson, Mississippi, to below 6 percent in Atlanta.
Commercial construction in the Southeast continues to surge despite high
interest and office vacancy rates.
Developers, financiers, and leasing brokers, buoyed
by the continued strength of nationwide business expansion, believe demand for office,
warehouse,
manufacturing,
and retail space
will increase.
However,
commercial
developers have historically provided more office space than most southeastern markets
could readily absorb.
Office buildings are the most common type of commercial
VI-3
construction currently in progress, yet most markets have more excess office capacity
than any other type of commercial structure.
Financial Services.
Loans by large commercial banks advanced in July and
August after a strong June showing.
business or consumer lending.
Real estate credit recorded faster growth than
Mortgage commitments at S&Ls fell 12 percent from
June to July, but recent mortgage rate declines are likely to have produced some
growth through mid-September.
Large commercial banks recorded the first substantial
growth in deposits in July and August since February, but financial institutions report
that loan demand exceeded new deposits in early September.
The overall deposit
advance is traceable to additions to nontransaction accounts, principally certificates of
deposit, and a deceleration of the five-month decline in demand deposits.
A slight
majority of those polled indicate they are setting rates on their money market accounts
on the basis of national rates.
More than half the institutions contacted believe that
time-deposit maturities on new issues are shortening, but only slightly.
Most banks
attributed this change to expectations of higher interest rates.
Tourism.
Business conditions in the tourism industry are mixed.
Rainy
weather and increased international travel, due to the high exchange rate of the dollar,
depressed midsummer tourism in the Southeast.
However, hotels had higher revenues,
and air travel remained strong through August.
World's Fair average daily attendance
through early September dropped slightly to 42,000.
Attractions, such as theme, state,
and national parks, are posting only slight gains or declines in attendance.
Visitor
center registrations also dropped in July. The lodgings industry is showing more positive
signs.
All states reported double-digit increases in hotel/motel tax receipts in July,
reflecting increases in room rates and occupancy.
The World's Fair and increased
business travel are largely responsible for the strong performance of lodgings.
VI-4
Agriculture.
The outlook for District farmers appears more favorable than
in recent years. Despite a drought in June, most crop yields are expected to approach
record 1982 levels. Last year's sharp reduction in commodity stocks, a strong economy,
and increased Soviet purchases may keep prices at a profit-making level.
As a result,
net revenue for major District crops is projected to be up substantially this year.
The full extent of Florida's citrus damage from last winter's freeze is now
estimated at $1.1 billion. The freeze, the worst in this century, caused varying amounts
of fruit loss and tree damage to approximately 100,000 acres of citrus.
Florida's citrus
industry is likely to shift further south as growers seek to replant trees, which take
five years to reach bearing age, in areas less vulnerable to freezes.
VII-I
SEVENTH DISTRICT--CHICAGO
Summary.
Business conditions in the Seventh District appear less
robust than earlier in the year.
Payroll employment, adjusted for seasonal
trends, has been about level since the first quarter.
clined in August contraseasonally.
Steel output de-
Farm income remains depressed and farm
equipment producers have scheduled extended plant shutdowns.
Demand for
mechanical equipment, generally, has failed to show expected gains.
Re-
tail sales improved in late August, but merchants report intense price competition.
Housing activity has softened, but is holding up better than
some realtors had expected in view of high financing costs.
Auto sales
continue to be limited by availability of preferred models.
Lack of progress
in the auto industry's labor negotiations casts a heavy shadow over District
centers specializing in production of motor vehicles and parts.
Inroads of
imports in markets for an ever-broadening spectrum of consumer and producer
goods present a serious threat to the viability of many producers of goods.
Employment.
Payroll employment in the five District states has in-
creased only half as fast as in the nation since late 1982.
Compared to
June 1979, employment in the five-state area was down 8 percent in contrast
to a 5 percent rise for the nation.
Moreover, while the national total
continued to rise through August, District employment, seasonally adjusted,
has been about even since February.
Iowa employment showed a slight decline
in the recent period and has been below the level of late 1982.
Despite
strength in the auto industry, employment in Michigan has been stable since
February, both in manufacturing and nonmanufacturing.
Estimated unemploy-
ment as a percent of labor force in the five-state area, while still above
VII-2
the national average, has declined more than the national rate since late
1982, implying withdrawals from the labor force.
Iowa's statisticians
estimate its unemployment rate well below the national average in the face
of its poor economic performance.
These comparisons cast doubt on the use
of unemployment rates as measures of economic well-being for states and
localities.
Recent weeks have brought new layoffs of hourly workers in
steel, farm equipment, autos, and construction components, and white-collar
staff cuts in manufacturing, financial services, and health care.
Steel.
Operating rates in the District's steel industry were lower
in August than in July and trended downward through the month.
ment had not been anticipated last June.
This develop-
Since steel consumption is be-
lieved to have held up, the decline in domestic steel production is attributed to increased imports coupled with reductions in user inventories.
A larger proportion of steel going to fabricators has been coming from steel
service centers, rather than direct from the mills, partly because of handto-mouth inventory policies under which smaller quantities are ordered at
one time.
A large share of foreign steel comes through service centers,
many of which are owned by foreign steel producers.
Farm Equipment.
Through much of the first half of the year, Dis-
trict producers of tractors, combines and other farm equipment clung to the
belief that the year would see modest increases in sales to farmers, perhaps 10 percent.
However, sales have been disappointing all year and, in
July, were far below last year's dismal pace.
As a result, extended shut-
downs of major plants have been announced, plants that had been operating
below 50 percent of capacity in some cases.
In addition, further substan-
tial cuts in white-collar staff are planned, apparently of a permanent
nature.
Reasons for poor sales of farm equipment include depressed farm
VII-3
income, increased imports, and a large supply of good used equipment, often
disposed of at auctions.
Machine Tools.
The Biennial International Machine Tool Show opened
in Chicago on September 5 for a nine-day stay.
A thousand exhibitors and
100,000 visitors are expected, about the same as in recent years.
The up-
coming show may have been responsible for some of the slowing in orders for
metal-cutting machine tools in June and July.
but well below the levels of the late 1970s.
Sales are higher this year,
Moreover, a sharp uptrend in
imports since then has increased the share of market accounted for by imports from 20 percent to near 50 percent in 1984--over 50 percent for metalcutting types.
Some U.S. producers are incorporating foreign components
in their machines or are offering complete foreign machines under domestic
name plates.
Capital Goods--General.
Demand for mechanical capital goods produced
in the District, while varying greatly by type, remains soft overall.
Heavy
construction equipment is almost as weak as farm equipment.
Sales of heavy-
duty trucks levelled off in late spring after a rapid rise.
Bookings of
trailers, many of them tandems counted as two units, are still in excess of
capacity.
Freight car deliveries in 1984 are now estimated at 12,000, double
last year's total, but only a fraction of the 90,000 shipped in both 1979
and 1980.
Auto companies, recording record profits, have sharply increased
appropriations to buy presses, machine tools, robots, and other items intended to update facilities and reduce labor requirements.
New plans by
electric utilities are at the lowest level in many years.
Auto Labor Talks.
At this writing, chances of a settlement of the
auto industry labor negotiation before the September 14 contract expiration
date appear dim.
On September 6, with only 8 days to go, the UAW named
VII-4
General Motors as its "target" for concentrated discussions.
issues must be resolved:
Many large
wages, COLA, holidays, pensions, medical benefits,
mandatory overtime, outsourcing, job training and retraining, and, perhaps
most difficult, "job security" (guaranteed employment).
Reported profits
of the big auto companies have been huge, but analysts warn that funds are
vitally needed for investment in new facilities.
much lower labor costs.
Modern plants abroad have
Cars, small trucks and components from Japan are
the main current concerns, but major components also are coming from Mexico
and other nations in which U.S. firms have subsidiaries.
Korea, with labor
costs well below those of Japan, is a potentially serious competitor.
choice of GM as the target has significant ramifications.
The
With 350,000 union
workers, a strike at GM would exhaust the UAW's record strike fund three times
GM, with very low inventories of
as fast as a strike at Ford with 115,000.
finished cars, assembled 57 percent of the autos and 42 percent of the trucks
produced in the U.S. in the first months of 1984.
ger share of its components than Ford or Chrysler.
Moreover, GM produces a larA long strike at GM would
be reflected noticeably in total industrial production and GNP.
A 67-day
strike against the company occurred in 1970.
Retail Sales.
Sales of apparel and back-to-school merchandise picked
Consumers have continued to pur-
up in late August, helped by warm weather.
chase major appliances at a record pace.
have not been limited by availability.
Unlike autos, sales of appliances
Retailers complain of intense price
discounting, especially from competitors trying to reduce excessive stocks.
After improving last year and early in 1984, sales of recreational vehicles
softened in the summer.
General merchandise prices average no higher than
last year currently, a surprising development to most analysts who had expected
some increase.
Credit use (especially through bank cards) has been heavy, but
delinquency experience has been quite favorable.
VIII-1
EIGHTH DISTRICT -
ST. LOUIS
Economic expansion continued during August and early September in
the Eighth District.
Expectations are for continued moderate growth over
the rest of the year, and many planners assume that the expansion will
continue at a reasonable pace throughout 1985.
Department store sales
and resort businesses were strong, but residential housing sales were
below year-ago levels.
Construction remained on a high plateau.
Factory
production and employment continued to grow, but new orders were mixed.
Consumer Spending
Sales at District department stores continued above year-ago
levels in August and early September.
Several merchants mentioned that
there was a lull in activity during the Olympic games, but that volume
swelled afterward.
Back-to-school sales were successful in late August.
Despite the overall sales strength, several merchants reduced prices of
slower moving goods.
Merchants are generally optimistic concerning the
upcoming Christmas season.
The Missouri resort industry did an unusual volume of business in
the last half of August when normally activity begins tapering off.
Weekday attendance at amusement parks, resorts and motels was up
significantly, partly reflecting a new Missouri law delaying the start of
the public school year until after Labor Day.
Traffic was up over 60
percent at one major amusement park, and a large resort reported that its
lodging units were 95 percent occupied compared to 60 percent at this
time last year.
VIII-2
At several dealers in the District, automobile sales were
sluggish in August and early September.
Others reported favorable sales
and noted that they could have sold more if they still had the popular
models.
On balance, sales were higher than in the same period of 1983.
New cars apparently sold better than used cars.
upset over recent factory price increases.
Two dealers were greatly
Although the average price
mark-up was relatively small percentage-wise, the dollar increase was
said to be enough to hinder significantly sales of certain models.
Small
truck sales continued to run slightly ahead of year-ago levels.
Housing and Construction
Sales of older homes continued at year-ago rates in August and
early September in the District, but according to builders, sales of new
single-family homes were off 15 percent from the same time last year.
Interest rates on fixed rate mortgages have declined nearly a percentage
point from the peak early in the summer, but rates on variable-rate
mortgages have changed little.
Building costs and land values continue
to rise; partly as a result, the average new home is slightly smaller
than a year ago, and there has been a tendency to reduce lot sizes.
Most home builders in the District remained busy, but the volume
of unfilled orders has declined substantially.
There has been an unusual
amount of new apartment building in both Memphis and St. Louis.
Nonresidential construction also continued at the earlier fast clip, with
the building of many offices, roads, stores, hospitals, warehouses and
hotels.
VIII-3
Industrial Production
New factory orders were mixed during August and early September
in the District, but production and employment inched up slightly.
Demand was strong for motor vehicles and defense goods and there was an
uptick in the demand for steel, which had been weak.
Some businesses,
such as synthetic fibers and plastics, noted a plateauing.
Other
businesses experienced a slackening in orders, largely because customers
ceased building inventories.
In the southern part of the District, a
foundry is closing and an aluminum plant reduced operations because of
declining sales, idling nearly 400.
Because of projected flat sales over
the next year, a major appliance manufacturer announced it will reduce
its employment by nearly 1,700 in the next month; however, some
operations are being moved to other locations.
risen only slightly on balance,
squeezed.
Industrial prices have
and some profit margins have been
Foreign competition is
a major factor in
pricing policies.
Banking
Business, real estate and consumer loans continued to expand in
August at 12 relatively large banks, but demand deposits declined and
there was little net change in time deposits.
Agriculture
Rainfall was uneven across the District during the growing season
causing crop yields to vary greatly.
It
now appears that in
aggregate, District crops will be relatively large in 1984.
the
IX-1
NINTH DISTRICT - MINNEAPOLIS
Moderate
improvement in
economic
growth continues
in
Seasonal
the Ninth District.
the labor market continues unabated.
Modest consumer spending
While residential construction appears to
gains are reported by most sectors.
have fallen off, nonresidential construction doesn't appear to have done so.
Performance
in
the
financial,
agricultural,
and resource-related
sectors
re-
mains unchanged from our last report.
Employment
The most recent data show stability in the labor market.
ment rates in
Ninth District states continued to seasonally
led by South
Dakota's precipitous
drop
to 3.8 percent.
Unemploy-
improve in
July,
While Minnesota's
unemployment rate rose somewhat, analysts attribute most of the increase to
Ninth District unemployment fell by close to 14,000
statistical anomalies.
between June
workers
increase in
and
July.
Continuing stability
is
indicated
by the
the Minneapolis help-wanted advertising index, which rose in
July
to a level 10 percent higher than a year earlier.
Consumer Spending
General merchandise sellers report modest gains in August.
retailer says its August volume was slightly below expectations
slightly
disappointing
thinks that
some cool August
Both of these retailers
1983.
back-to-school
weather
promotion.
depressed its
recorded an 8 percent
Another
One large
because of a
large
retailer
air conditioner
sales.
nominal sales gain over August
Reports from around the district are mixed, with modest gains in diver-
sified cities and no gains in agriculturally dependent smaller towns.
IX-3
be on the horizon, due to the congressional cap on industrial revenue bonds
and recent changes in the federal tax code.
Finance
Between mid-July and mid-August, deposits grew slower and loans grew
faster at large Ninth District commercial banks than at large banks in the
Commercial and industrial loans were especially strong at
nation as a whole.
the district's large banks.
Outside the Twin Cities, Bank directors report
fairly flat deposit and loan growth.
Agriculture
Agricultural conditions haven't changed much from those reported earlier this summer.
dry
Crop conditions are generally good outside the excessively
of the western
areas
exceptional
oat yields
Dakotas
northeastern Montana.
and
reported in parts
are
cattle prices are firming, and the dairy
production.
farmers.
But low prices
of Wisconsin.
For
example,
Furthermore,
diversion program is cutting milk
and high debt service continue to plague many
A recent survey of Minnesota farmers found that 13 percent had high
debt-to-asset ratios, in excess of 70 percent.
Resources
directors
Bank
production.
Lumber
is
report
a
mixed
still suffering
prices have firmed a bit.
picture
from low prices,
But pulp demand is still strong.
in North Dakota and Montana hasn't increased much.
are
helping to
Montana.
spur
the
in
economy
of western
North
resource-related
although
plywood
Coal production
But oil and gas profits
Dakota and northeastern
Furthermore, Lake Superior ore shipments are greater than they were
a year ago.
TENTH DISTRICT--KANSAS CITY
Overview.
Some further moderation is apparent in Tenth District
economic activity.
While retail sales are expected to improve further,
housing activity and mortgage demand are generally slowing.
Inventories of
both retail goods and materials inputs are at satisfactory levels.
increases have been small, and are expected to continue so.
Price
Total loan demand
at district banks remains relatively constant while deposits are higher.
Fall
crops in most district states are suffering from dry weather.
Retail Trade.
Retailers report year-to-date sales up as much as 10
percent over a year ago.
Sales have generally improved in the last three
months, with apparel and accessories selling particularly well.
sales are expected for the rest of the year.
Stronger
Retailers seem satisfied with
inventory levels and plan no changes in the near future.
Prices have
generally been flat in the last three months, with some price declines
reported.
Automobile Sales.
Automobile dealers throughout the Tenth District
continue to report improved auto sales compared to a year ago.
Credit market
conditions are satisfactory and financing is available both for floorplanning
and customer purchases.
Dealers in some areas report that only lack of
availability is constraining sales.
the rest of 1984 and early 1985.
Dealers are optimistic about sales for
Their only concern is over possible supply
interruptions due to a strike.
Purchasing Agents.
Purchasing agents generally report input prices from
2 percent to 10 percent higher than a year ago.
Most respondents had either
unchanged prices or quite small price rises in the past three months and
virtually all expect steady input prices for the balance of 1984.
Some firms
are experiencing slight increases in lead times for materials, but no
X-2
materials availability problems are reported and none are anticipated through
1984.
Most respondents report satisfactory materials inventory levels, with
several having trimmed inventories recently because actual sales are running
below forecasted sales.
Housing Activity and Finance.
Residential construction activity in the
district is mixed both by type of structure and by location.
Starts of
single-family units are generally down, particularly since June.
Starts in
multi-family units range from below year-ago levels to considerably higher.
Overbuilding of multi-family units is reported in some areas such as Colorado
Springs and Oklahoma City.
Housing starts are expected to slow through
yearend if interest rates remain at, or rise above, their current level.
Sales of new homes are generally down from last year, with much of the
slowdown occurring since June.
larger than desired.
Inventory levels range from satisfactory to
New house prices are stable.
good supply and are expected to remain so.
Building materials are in
Prices for materials are generally
steady, although sheet rock prices are still rising in some areas.
Demand for mortgage funds and mortgage commitments at savings and loan
associations is slowing from a generally robust Spring due mainly to the
sizable increase in both fixed and adjustable mortgage rates over the past
several months.
Most respondents expect mortgage demand to continue
decreasing, although rates are expected to be stable or down slightly.
Savings inflows are higher than last year, but respondents generally
anticipate a zero inflow or net outflow over the remainder of 1984.
Banking.
Total loan demand was generally constant over the last month
at Tenth District banks, although real estate and consumer loans rose
slightly.
Commercial real estate loans were slightly stronger than
residential loans.
Some respondents report difficulty in competing with
X-3
finance companies on consumer loans.
agricultural loans were flat.
Commercial and industrial and
Total deposits were higher, mostly due to
increases in Super NOW, MMDA, and IRA and Keogh accounts.
accounts rose slightly.
Conventional NOW
Demand deposits were flat, while large CD's and
passbook savings accounts declined.
Almost all respondents report no change
in their prime rate in the last month, and the majority do not foresee a
change in the near future.
Consumer lending rates were unchanged at most of
the banks surveyed, with the rest reporting higher rates.
None of the
respondents expect further changes in the near future.
Agriculture.
Dry conditions in several district states will affect
production and yields of fall-harvested crops.
In Missouri, where spring
flooding prevented timely planting, lack of moisture and hot weather have cut
expected crop yields.
Corn yields are expected to be halved and soybean
yields will also be substantially reduced.
In Kansas, dryland milo production
is well below average and rain is needed to prepare the fields for winter
wheat planting this fall.
Irrigated crops in the state are doing well,
however, especially irrigated corn.
Cotton yields in Oklahoma will be well
below normal, and rain is also needed there for preparing winter wheat ground.
Nebraska and Colorado are not as dry as the other states.
are in good shape, as are soybeans in Nebraska.
Their corn crops
In general, Nebraska and
Colorado crop production has been very good this year.
Livestock production
has not suffered as much as crops from dry conditions, nor has marketing of
cattle been affected by the weather.
Colorado, parts of Kansas, and Nebraska
have abundant feed, both in pastures and hay.
In Missouri and parts of
Oklahoma and Kansas, however, rangeland is dry and cattle weight gains have
been slower than normal.
Bankers expect below-normal paydowns on their
agricultural loans by the end of the year, and some expect more problems with
agricultural loans this year than last year.
XI-1
ELEVENTH DISTRICT--DALLAS
The Eleventh District's recovery is slowing.
for manufactures has begun to decelerate.
characterizes retail sales.
Expansion in demand
A decreasing rate of increase
The recovery in oil and gas drilling is more
sluggish than earlier this year.
Nonresidential construction remains very
active, but the pace of growth has fallen.
Most measures of housing
construction are declining absolutely, both from a year earlier and from
earlier months of this year.
Drought continues to hinder the agricultural
sector.
The recovery in District manufacturing is cooling.
Lumber and
wood products and stone clay and glass manufacturers report falling demand
due to declining homebuilding.
Some construction materials firms have
reduced employment in recent weeks.
Apparel manufacturers face slackening
demand from wholesalers and some firms have temporarily shut down
production.
Electronic equipment manufacturers are experiencing moderate
growth in demand, due to business investment and to defense contracting,
but the rate of growth is unchanged.
Demand in District primary metals,
fabricated metals, and chemicals manufacturing firms is rising as a result
of continued needs by nonresidential building and energy-related
industries.
Growth is not accelerating, however, and some respondents
expect smaller gains in the future.
Metal manufacturers cite stiff
competition from imports as a continuing problem.
Inventories of some
types of drilling equipment remain above desired levels and improvement in
sales is very slow.
XI-2
District oil and gas drilling has been diminishing moderately but
is widely expected to commence further growth very soon.
Strength in
offshore drilling has partially offset recent declines in land-based rigs.
Past instability in oil prices explains the recent slowing in drilling.
Lately, oil prices have begun to climb.
This pattern, together with growth
in the seismic crew count, a leading indicator of drilling, motivates
anticipations of further recovery in drilling.
Even after recent declines,
however, the rig count remains significantly above a year ago.
Retail sales continue their year-over-year increases, but at a
slower rate than during the first two quarters of 1984.
growth is concentrated in consumer durables.
The declining
Sellers are having to make
bigger-than-planned markdowns on sale merchandise in order to clear the
market.
Nevertheless, most retail respondents anticipate brisk fall and
Christmas seasons, although they are increasingly uncertain about sales
prospects for early 1985.
Automobile dealers are still realizing record sales in the
District, although they are moving into a period traditionally
characterized by seasonal slowdowns.
Dealers have become concerned about
the possibility of strikes at the auto plants.
Some dealers also express
fears about the possibility of rising interest rates.
Slower sales through
the end of the year are widely expected in the District.
The rate of increase in the number of nonresidential construction
projects is beginning to slow, but this market remains very active in the
District.
Dallas leads the nation in the number of square feet of office
space under construction.
There is increasing concern about overbuilding
not only of office space, but also of retail square-footage.
XI-3
Residential construction in the District continues to fall.
The
bulk of the residential permit decline is in multifamily residences, where
overbuilding has been a significant problem for some time.
Apartment
vacancy rates in the District are generally high compared to the nation and
further slowdowns are expected in apartment building.
Despite the recent
decline in mortgage rates, builders continue to blame high rates for a
current weakness in single-family sales.
The deceleration of the District recovery is reflected in a number
of financial statistics, but not in all.
Year-over-year growth in total
loans and securities at large banks is ebbing.
The pace of expansion in
business and real estate loans at large banks is slowing, although real
estate loan volume is well above a year ago.
The rate of increase in
consumer loans is accelerating, as it has throughout 1984.
Year-over-year
deposit growth remains flat for all member banks in the District, but is
declining at large banks.
A drought continues to punish agriculture in southern Texas.
Even
so, preliminary 1984 estimates of Texas crop production far exceed the
PIK-diminished output of 1983.
However, this year's harvest estimates for
some crops are lower than for more representative years, such as 1981.
Increased national production has depressed the price outlook for most
crops, although reduced meat supplies mean potentially higher prices for
cattle.
Because Texas cattlemen have planned large marketings in the third
quarter, they are likely to benefit from the higher prices.
A July survey
of Texas agricultural banks shows 17 percent reporting any farm or ranch
bankruptcies, down from 21 percent both for last January and for July 1983.
XII-1
TWELFTH DISTRICT -- SAN FRANCISCO
The Twelfth District economy continues to grow, but at a slower rate due to
weakness in certain sectors.
Retail sales at department stores and automobile
dealerships are reported to have dropped in August, although there may have been
extenuating circumstances such as the effect of the Olympic Games and shortage of
popular automobile models.
Nonresidential construction activity continues to pick up,
with additional projects announced recently.
But rising mortgage interest rates have
further reduced both the construction and sale of new homes.
Weakness in certain
industries, especially primary metals and lumber, is slowing the overall growth of
manufacturing employment.
The agricultural sector has been experiencing a dismal
summer as overly abundant harvests have brought low prices for fruits and vegetables,
and farm land prices have continued to drop.
Banks reported strong consumer loan
growth in August, but most expected some slowdown.
Consumer Spending
Retail sales at department stores and shopping malls are reported to have dropped
off in August, following a favorable month in July.
For example, the four major
department stores in Southern California experienced a noticeable slowdown which
reduced their year-to-year gain in sales for that month to 13 percent compared with 17
percent in July.
A similar slowdown was reported for stores in Washington and Utah.
In Southern California, some of the slowdown occurred because residents stayed away
from the stores during the Olympic Games.
But the fact that sales fell even further
in early September suggests that consumers may be becoming more cautious.
Back-to-
school apparel sales were disappointing, while sales of furniture and appliances
declined.
The slowdown has left retail inventories above desired levels.
As a
result, retailers plan to restrain their inventory investment until just before the
Christmas holiday season.
Automobile sales apparently also fell in August, but
XII-2
respondents attributed at least part of the decline to extreme shortages at the end of
the model-year.
Despite the pause, retailers expect a strong Christmas selling season.
Manufacturing and Mining
The growth of manufacturing employment in most Twelfth District states has slowed
during the third quarter, reflecting weakness in such important industries as primary
metals, lumber and petroleum refining.
Aluminum companies in the Pacific Northwest
and copper producers in the Intermountain states have been curtailing operations
recently as the rising foreign exchange value of the U.S. dollar has increased the
influx of lower-price imports and forced domestic producers to reduce their prices.
The administration's decision in early September to deny copper producers import
protection suggests that further layoffs will occur in that industry.
Pacific
Northwest lumber mills increased production in August, following extended vacation
closures in July, but output still remained well below levels reached earlier this
year due to the downtrend in national homebuilding activity and inroads by Canadian
lumber imports.
Two lumber companies declared bankruptcy in August due to their
inability to pay for high-cost public timber under contract, and numerous others also
could be forced to go out of business if Congress does not grant the industry contract
relief.
Fortunately, the paper segment of the forest products industry is
experiencing extremely strong demand.
The largest gains in manufacturing employment
continue to occur in those industries benefiting from rising federal expenditures for
defense and space programs and increased business investment.
These include the
electronic equipment, aircraft and missiles and nonelectrical machinery industries.
Construction and Real Estate
Housing starts in the West have shown further weakness recently, with the pace
now off about 25 percent from this year's peak reached in January.
Sales of new homes
have declined by a similar percentage from levels reached earlier this year.
point to a further slowdown in homebuilding.
Permits
The inventory of unsold new homes has
XII-3
risen but is not considered to have reached a disturbing level, partly because
developers have attempted to protect themselves by building mainly on a pre-sold
basis.
Home prices are about equal or slightly higher than those of a year earlier.
The use of creative financing is rising.
In addition to below-market interest rates,
some builders are offering to pay all closing costs.
Despite rising interest rates,
nonresidential investment continues strong in the West, with a large number of office
towers, shopping malls and hotels planned or under construction in major metropolitan
areas.
Office vacancy rates in these areas already are considerably above the
Rental rates are falling, and bankers are concerned that a serious
national average.
excess supply of office space may be developing.
Agriculture
This summer has been dismal for the California agricultural sector.
Unusually
hot weather either damaged fruit and vegetable crops or alternatively hurried their
harvest, flooded the market with excess supplies and reduced prices below the breakeven point for many growers.
The fact that the heat caused many crops to ripen all at
once aggravated the downward pressure on prices.
lowest in three years.
Table grape prices have been the
The raisin inventory already amounts to two years'
consumption, so the current harvest of raisin grapes is expected to bring very low
prices.
Similarly, the nation's largest winery -- Gallo -- is reported to be offering
only 40 percent of last year's price for wine grapes not already under contract.
The
hot weather helped spur the growth of the California cotton crop, but the strong U.S.
dollar and prospect of record world production have caused futures prices to move even
lower recently.
In California, Utah and other Intermountain states, the livestock
sector has not shown significant improvement.
In August, beef cattle prices were just
about equal to last year's level, while dairy cattle prices were well below the level
of a year earlier.
Farm and ranch real estate values continue to fall, especially for
nut and grape acreage in the San Joaquin Valley area of California.
XII-4
Financial Institutions
In August, consumer credit (not seasonally adjusted) at large banks in the
This represented the largest
Twelfth District grew at a 24 percent annual rate.
monthly increase in 1984 and offset weakness in commercial and real estate lending.
sample of smaller institutions showed similar behavior.
A
These increases continue the
pattern of strong consumer loan growth shown earlier this year.
Bankers in the region
attribute the strength to improved economic conditions which have boosted consumer
purchases of new cars and recreational vehicles.
While a number of banks also report
strength in home equity loans, others have experienced slow to flat demand for those
loans as consumers have shifted to use of personal credit lines and credit cards for
financing.
The forecast for consumer credit remains mixed.
loans to continue to grow rapidly through year-end.
Many banks expect these
However, an even larger number of
institutions expect slower growth in personal income and rising interest rates to
cause a slowdown in both consumer spending and borrowing.
experienced a falloff in consumer loan demand.
A few of these already have
Cite this document
Federal Reserve (1984, October 1). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19841002
@misc{wtfs_beige_book_19841002,
author = {Federal Reserve},
title = {Beige Book},
year = {1984},
month = {Oct},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19841002},
note = {Retrieved via When the Fed Speaks corpus}
}