Beige Book
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
October 1984
TABLE OF CONTENTS
SUMMARY
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i
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First District - Boston .......................................
I-1
Second District - New York .......................................
-1
Third District - Philadelphia
Fourth District - Cleveland ....
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lIV-1
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V-I
Fifth District - Richmond ..................................
VI-
Sixth District - Atlanta .....................................
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Seventh District - Chicago ...............................
VmI-1
Eighth District - St. Louis ....................................
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Ninth District - Minneapolis ......................
Tenth District - Kansas City .......
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IX-1
X-I
XI-1
Eleventh District - Dallas ...............................................
Twelfth District - San Francisco
VI-1
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XH-l
SUMMARY*
The economic expansion has slowed in most districts, but a
resurgence in consumer spending suggests that the slowdown may only be a
pause in a recovery that has not run its full course. With the exception of
Boston, which reports a continuation of steady growth, the districts report
moderating economic recoveries in the third quarter.
Slower growth has
been especially apparent in residential construction and manufacturing
activities.
Agricultural conditions are mixed.
Generally, crop conditions
continue to improve, but low prices are expected to keep most districts'
farm income depressed.
omy.
There is a very bright spot, though, in the econ-
Consumer spending in September and early October was robust
throughout the country. These developments in real economic activity are
reflected in financial conditions: business loans have been somewhat weak,
while consumer loans have been strong.
Construction
Part of the recent slowdown in the recovery can be attributed
to residential construction activity.
While the reports are mixed, half the
districts report that housing starts have weakened, even though they remain at a high level.
Philadelphia, Cleveland, St. Louis, Minneapolis,
Dallas, and San Francisco all report that either housing starts or home sales
have slowed.
New York and Atlanta are the only obvious exceptions;
housing is reportedly doing quite well there.
Several districts also report
strength in commercial construction.
*Prepared at the Federal Reserve Bank of Minneapolis.
Manufacturing and Industry
The slowdown in the recovery is also being caused by some
slowing in manufacturing activity.
Although manufacturing continues to
expand in most districts, it is doing so at a modest pace. New York, for
example, reports that upstate managers recently experienced a slower
growth of new orders and a considerable number of actual declines.
Simi-
larly, Philadelphia, Cleveland, St. Louis, and Dallas-districts that specifically report on new orders-say that demand generally remained unchanged
or declined somewhat in recent weeks.
Agriculture
Agricultural conditions are mixed.
to above average crop yields this year.
Most areas expect average
For example, Minneapolis reports
favorable crop conditions in its district, and St. Louis expects its crop
production to be near the 1982 levels.
and continue to fall.
However, crop prices remain low
Minneapolis reports that the farm price index for
Minnesota fell 3 percent between July and August. With low and declining
prices, districts expect cash receipts and farm income to be depressed this
year. Only Richmond is optimistic for its farm sector.
It expects produc-
tion gains to outstrip falling prices, leaving farmers with higher cash receipts and income than last year.
Consumer Spending
Consumer spending is the clear bright spot in virtually all
district reports.
While somewhat restrained in most of July and August,
consumers started to spend again in September and early October.
Rich-
mond reports that consumer activity is back on its earlier strong trend,
with a significant rebound in durable good purchases. Atlanta reports that
retail sales were generally robust in September, with department store
sales in its metropolitan areas outpacing those in the nation.
St. Louis
points to retail sales as the greatest strength in its district economy. Only
Chicago and San Francisco report that consumer spending has been mixed.
Both see some weakness in durable good sales.
San Francisco, however,
notes a recent pickup in retail sales in the Pacific Northwest.
Overall, inventories appear to be satisfactory relative to sales.
Finance
Loans at commercial banks generally mirror the slowdown in
the recovery and the recent strength in consumer spending. Business loan
demand is reported to be sluggish and very soft in several districts.
Yet
most districts that report on consumer loans say these loans are quite
strong and are expected to remain so.
Philadelphia, for example, reports
that over the past six weeks business loans in its area grew only between
zero and 2.5 percent, while consumer loans grew from 4 to 10 percent.
I-1
FIRST DISTRICT-BOSTON
Steady economic growth continues in the First District.
report generally satisfactory sales gains.
Retailers
Manufacturers are experiencing
good order rates, although a few sectors remain weak.
Price increases
remain moderate in both manufacturing and retail, although several contacts
mentioned tight local labor markets.
Deposit growth and demand for bank
loans continue strong, although two nationally-oriented banking
organizations reported some slackening in business loan demand.
The
outlook is optimistic, in spite of some concern that tax policy changes
will occur after the elections, regardless of the outcome.
Retail
Retailers in the First District continued to make reasonable sales
gains in September, although performance relative to plan was mixed.
Several merchants expressed mild concern with inventory levels.
Price
competition is widespread, and prices are holding steady or rising only
slightly.
Sales reported for September ranged from 8 to 14 percent above
September 1983 on a comparable stores basis.
The department store chain
with 8 percent growth was under plan, but forecasts improved results for
the next several months.
discount chain's plan.
across stores -
The 14 percent increase was "way over" that
These two chains also reported wide sales variance
customers appear to be quite responsive to local
promotions, upgraded store interiors, and local competition.
Hard goods
and toys continued to outpace sales of men's and ladies' clothing.
I-2
Inventories were generally "as usual," except when unanticipated
sales changes left them above or below plan.
Several merchants cited stiff
competition in supplier and retail markets as explanations for stable or
moderately increasing prices.
normal levels.
However, markups have been maintained at
One chain had difficulty in finding new headquarters and
warehouse space and faces an extremely tight local labor market.
Manufacturing
Manufacturing activity in the First District continues to expand.
Some sectors report greater strength than others.
Firms or divisions
producing computers and semiconductors, automobile-related and (less
uniformly) housing-related products report healthy growth.
Products
related to the commercial aircraft, utilities, and off-the-road equipment
industries remain in the doldrums.
Exporting continues to be dampened by
the strong dollar while overseas plants are performing satisfactorily.
While order rates and sales are rising, one respondent said
The
backlogs had fallen because the firm had geared up production.
Purchasing Management Association of Boston also reported an easing of
backlogs in September.
Inventories are generally at satisfactory levels
relative to sales.
Prices are rising very moderately, perhaps 1-5 percent.
Respondents mentioned strong domestic price competition as well as imports
(or the threat of imports) benefiting from the strong dollar.
When
suppliers attempt to raise prices "too much" (more than 3-5 percent), firms
take their business elsewhere.
Very tight input market conditions reported
by a high technology firm have moderated recently.
Wage settlements have
I-3
also been moderate recently, reducing cost pressures.
However, two firms
complained of increasing tightness in the New England labor market for
professionals.
One has reinstituted an in-house training program.
Capital spending is up.
The reasons are varied.
Some firms are
combining productivity improvement with expanding physical capacity.
Others are making only labor-saving replacement investments because of
existing excess capacity.
Purchasing managers also indicated increased
capital spending in September, and expect continued higher levels over the
next 3-6 months.
Commercial Banking
Larger regional banks, who have been experiencing very strong
corporate loan demand since the beginning of the year, note a moderation in
that demand within the last 30 days.
strong, however.
Consumer loan demand continues to be
Smaller regional banks, particularly those located in
areas dominated by high technology firms, report continued strength in both
corporate and consumer lending.
Two contacts noted a definite increase in
commercial real estate investment and construction loan activity during the
past 60 days.
No changes were reported on the liability side.
continues to be strong.
Deposit growth
Intense competition for consumer time deposits has
kept these interest rates high.
One large regional bank contact expected corporate lending to pick
up in the next 30 days, while other respondents expected essentially
unchanged conditions.
Interest rates are expected to continue unchanged or
to decline slightly over the next 30 days, but to rise slightly after the
elections.
II-1
SECOND DISTRICT--NEW YORK
Introduction
Economic activity in the Second District grew moderately in
recent
weeks,
but
at
a
slightly
slower
pace
than
Consumer spending continued to show improvement in
and
October,
generally
purchasing managers
met
the
expectations
mixed across
banks,
office market
York City.
and in
softened in some
areas
of
retailers.
new
Business
the aggregate was
late summer.
September and early
of
report growth or stability
growing minority reported actual decreases.
in
Most
orders but a
loan demand was
essentially
while remaining
flat.
strong
Homebuilders will be busy through the remainder of
The
in New
1984,
and in parts of the District are optimistic about next year.
Consumer Spending
The pace of
continued improvement.
in department
through
widely
the
consumer
in
the Second
week
among respondents,
which began
in
October.
in
shows
late August has continued
September
sales
gains
averaging about 8 percent over levels
year ago, and generally matching expectations.
outperformed the nation's sales growth,
was not as good as in
District
According to area retailers, the strengthening
store sales
first
spending
of
a
The region on average
but business
the rest of the District.
varied
in New York City
Inventories remained
mostly on target, averaging 15 percent over last year, partly with the
help of promotional markdowns.
However,
one higher-income department
11-2
store chain reported inventories 22 percent over 1984
as a result of
sluggish business since June.
Business Activity
Economic
activity
the pace is slowing.
continued
to
expand
in
recent weeks,
but
Reports by upstate purchasing managers indicated
significantly slower growth of new orders and faster delivery times in
While
September.
the
the
majority of
unchanged
from
prior month or
reporting
actual
decreases
Buffalo.
Major
plant
of
firms
faced
still
orders
construction
improving,
to
grew
or
station
a
chemicals,
new
generating up
division
plastics,
and
in economically
that were
the proportion
nearly
expansion
announced by several firms across the state,
electronics,
conditions
one-third
projects
were
such as manufacturers of
furniture.
The
depressed
Jefferson
to 20,000 construction jobs.
in
Army
will
County,
The unemployment rate in
New York state, seasonally adjusted, fell from 7.7 percent in August
to 7.0 percent in
September,
while the New Jersey rate held steady at
6.2 percent.
The
cost
of
electricity
The state Commerce
concern.
threatened
to close
on
Long
Island
is
of
growing
Department reports that 400 firms have
or relocate
in
response
to recent
and expected
future rate hikes associated with the Shoreham nuclear plant.
Financial Developments
Business
loan demand at regional banks in the Second District
flat,
has been mixed in recent weeks.
Overall volume was essentially
as has been the case nationwide.
Borrowing by car dealers is reported
to be down,
reflecting lower-than-usual
inventories at the end of the
II-3
model
In
year.
contrast,
advertising agencies,
loan
demand
Western
from
industry demand,
has been strong.
the
York,
New
service
manufacturing
but
was
fairly
particularly by
Upstate bankers indicate that
sector
was
strong
in
especially
the
weak
Syracuse
in
area.
Borrowing by retailers also was geographically mixed.
Construction and Real Estate
Residential
construction
is
operating
District, and activity through the end of
only
by
unfavorable
subcontractors.
incomes,
effect.
City's
and
weather
Demand
appears
interest
current
or
be
rates
capacity
in
the
the year may be restrained
shortages
to
at
of
driven
seem
to
skilled
labor
primarily
by
little
have
and
rising
downward
Planning for 1985 is unusually active for October in New York
Homebuilders generally expect a repeat
northern suburbs.
of
this year's strong performance.
The office
the
Second
District.
considerably
market softened
leasing
High
levels
of
speculative
County
and
electricity
New
northern
rate
fears,
Jersey.
demand
is
On
parts of
construction
are
areas such as Fairfield
taking place despite sluggish demand in
still
in
Long
Island,
fairly strong but
in
some
of
spite
observers
will be sufficient to absorb the large amounts of
question whether it
The market in Midtown Manhattan continues to be
space coming on line.
very active, and the likelihood is increasing that prime space will be
scarce
and
rents
will
potential oversupply
very
large
blocks
rise
seems
of
by
year-end.
to have abated.
space
are
scarce.
Downtown,
concern
Demand seems
Still,
about
stable,
observers
and
predict
longer phase-in periods for recently announced construction projects.
III-1
THIRD DISTRICT - PHILADELPHIA
Third District business contacts have given a mixed report on the economy in
October. Manufacturers continue to see a deceleration in the growth of industrial activity and
realtors indicate that sales are down about 15 percent compared to last year at this time. In
contrast, retail sales remain very strong in the Third District and the financial sector is sailing
along, but with some slight softness in the demand for commercial loans.
Looking ahead, a healthier business climate is anticipated in the manufacturing
sector and realtors are looking for sales to pick up by about 5 percent by March. The growth
rates of both consumer loans and retail sales may slow in early 1985 if interest rates rise,
according to local business spokesmen.
MANUFACTURING
Third District manufacturers continue to see a slight deceleration in growth,
according
to the October
Business
Outlook
Survey.
This month,
35 percent
of the
manufacturers surveyed say industrial activity continues to increase, while 13 percent report a
decline. A slight majority say there has been no change since September.
Specific indicators turned in a positive performance, although it was slightly less
robust than last month.
shipments.
About half of the executives polled cited gains in new orders and
Over two-thirds of the respondents, however, reported no change in producers'
backlogs, delivery time, employee payrolls, and the length of the average workweek.
The six-month outlook
for
manufacturing
is better this month than last.
According to the survey, growth is expected to continue:
50 percent of the respondents
anticipate a healthier business climate by March and only 13 percent expect worse conditions.
Gains are expected in new orders, shipments, delivery times, employee payrolls, length of the
average workweek, and capital expenditures.
Industrial prices for both raw materials and finished goods are relatively stable
this month, as about three quarters of the executives polled report no change since September
III-2
in either prices paid or prices received.
expectations of price hikes within six months.
The outlook, however, does show widespread
Eighty-three percent of respondents anticipate
higher costs by the end of the first quarter of 1985, while 54 percent foresee receiving more for
the goods they sell.
RETAIL
Demand is still strong in the retail sector.
After a little summer sluggishness,
area retailers are meeting or exceeding their sales expectations, with gains of 10 to 20 percent
over last year's receipts.
Third District merchants project a strong ending for 1984, although
sales may not match those of last year's exceptional holiday season.
the rate of growth in retail sales is expected to slow somewhat.
Over the next six months,
Sales at the end of the first
quarter are likely to stand at about 8 percent over a year earlier.
Inventories are up about 10 percent over last year and are heavier than usual, but
are in line with sales expectations.
The proportion of sales made on credit remains stable at
about 60 percent at area department stores.
FINANCE
Loan demand in the Third District is softening slightly on the commercial side.
Bankers report a range of 0 to 2.5 percent growth in C&I loans over the past six weeks, with
most of that growth coming in the most recent 2 weeks. Bank executives anticipate a pickup in
commercial loan demand within the next six months in conjunction with further maturation of
the economic expansion.
In the consumer lending area, financial contacts report 4 to 10 percent growth
over the past six weeks.
percent ahead.
On a year-over-year basis, consumer loans are still running about 20
One local bank reports an increase of 50 percent in retail loan volume over a
year ago, principally due to intensified development of credit card operations.
look for continued growth in the consumer area but at a slower pace.
Area bankers
III-3
The prime lending rate dropped from 12.75 to 12.50 percent on October 17 at most
large banks in the area.
within the next few weeks.
Third District bank economists predict another 25 basis point cut
Their six-month projections, however, show a prime rate of about
15 percent as a result of increased credit demand.
Deposit growth, in general, has remained flat with the exception of savings
certificates with a maturity of eighteen months or more.
This may reflect consumers'
expectations of further drops in interest rates and an attempt to lock in higher rates now.
REAL ESTATE
Residential real estate sales have been flat over the past six weeks and contacts
say sales are down by about 15 percent compared to year-ago levels. They attribute this almost
entirely to high mortgage interest rates.
available at 13.9 percent.
Thirty-year fixed-rate conventional mortgages are
Adjustable rate loans, negotiable after one year with 20 percent
down, stand at 11.5 to 12 percent. Inventories of unsold houses have been a little heavy lately
as a result of the mini-slump in sales and continued new construction, mostly of townhouse and
condominium complexes.
Realtors are optimistic for the future, however.
Unit sales are
expected to grow by about 5 percent from their current levels by March 1985.
Commercial real estate is reported to be experiencing a boomlet.
Building
permits are up and office occupancy rates are around 90 percent in both the city and suburbs.
IV-1
FOURTH DISTRICT - CLEVELAND
Summary
Reports
this
from
is
Employment
intense.
District
growing
Retail sales
slowly
moderation
indicate
and
gains are
pressures
to
moderating.
smaller order increases or declines in orders.
levels.
Housing activity continues
of
avoid
economic
price
growth.
are
increases
Manufacturers
report
either
Inventories are near desired
to fall, but banks report business and
consumer lending remains strong.
District Labor Market Conditions
Labor market
conditions in the District improved
in September.
Employment
increased and unemployment declined in Ohio, reducing the unemployment rate
to
(s.a.),
9.2%
2.3
percentage
points
below
its
year-earlier
level.
Manufacturing employment continues to rise slowly.
Prices
Firms
report
substantial
competitive
pressure
on
prices.
A
survey
of
manufacturing firms in the region reveals fewer firms are raising prices and
more are cutting prices than three months ago, while most are holding prices
steady.
prices
Those
paid
anticipate
firms
for
using
also
report
commodities
productivity
a
and
substantial
services.
gains
primarily
slowing
Capital
to
of
increases
goods
moderate
in
producers
increases
of
prices charged rather than to widen profit margins, despite their view that
profit margins are very narrow for this stage of an economic expansion.
Retail Sales
General merchandisers in this District report double-digit sales gains from
year-earlier
levels
for
September.
The
increases,
however,
were
IV-2
concentrated
in
single-digit
pace by
Retailers
one
the
first
part
of
month-end and
the
month.
remained
Gains
there
dropped
through
back
early
to
a
October.
expect this more moderate pace to continue through yearend, with
analyst
anticipating
a
7% -
8
1/2%
gain
for
the
year
as
a whole.
Cutbacks in orders have kept inventories at acceptable levels.
Area
auto
dealers
report
an
easing
in
early-October
inventory rather than a lack of demand continues
sales.
Low
to be cited as the major
cause of slower sales.
Manufacturing
Firms in this District generally report new orders continue to rise but at a
reduced
pace,
although
declines.
Weakness
inventory
adjustment,
in
several
capital
growth
capital
goods
of
goods
orders
imports,
and
is
producers
report
generally
attributed
of
slowing
business
order
to
fixed
investment to a more normal pace for this stage of the business cycle.
One
the
for
capital
goods
producer,
noting
capital spending, expects
strength
orders to rebound
decline in late 1985 at the earliest.
of
new
appropriations
and capital spending
soon,
to
Firms experiencing declines in orders
expect to use order backlogs to avoid reducing output, but only for a few
months.
A producer of truck parts notes that there was a decline in orders
for large trucks in the third quarter because orders had been bunched into
the first half to avoid tax increases effective July 1.
He expects truck
orders to rebound in the fourth quarter.
Steel
producers
report
soaring
imports
and
liquidation have caused a reduction of orders and production.
excess capacity,
this weakness
below published prices.
in demand has kept
A major producer estimates
inventory
customer
Together with
transaction prices well
it will be
late in the
first quarter of 1985 before customer inventory targets are reached.
IV-3
A
tire producer
reports
orders
from original
equipment
manufacturers
continue very strong but orders for replacement tires have softened in the
last two months.
Despite their having operated at capacity for many months,
domestic tire producers generally plan no increases in production capacity.
Inventories
Inventories generally appear to be near desired levels.
Most manufacturers
report inventories of materials and finished goods are being kept level,
roughly
while
decreases.
equal
numbers
Excessive
especially at steel
of
inventories
firms
report
are
reported
inventory
in
the
and
increases
steel
industry,
service centers, and in the farm machinery industry.
Inventories of truck and automobile tires are very low for this stage of the
business cycle but manufacturers, distributors, and retailers seem satisfied
with current inventory levels.
General mechandisers report inventory levels
are satisfactory, and automobile dealers complain that inventories are too
low.
Housing
After an unusual one-time surge in August funded by proceeds of State of
mortgage
Ohio
revenue
bonds,
downward trend of recent months.
the
fourth
quarter,
sales and profits
for
on
speculation
September
are
expecting
and
its
resumed
better-than-normal
Nevertheless,
stage of an economic expansion.
builders and realtors are undertaking
building
in
Despite signs of further weakening during
participants
market
this
activity
housing
significant steps, including reducing
employment
lowering
attrition,
through
to
weather the slowdown that they forecast will continue through mid-1985.
Mortgage
quarter
20-40%
than
lenders
report
in
second,
the
below expected
considerably
levels.
with
fewer
applications
Lenders
indicate
in
applications
in
September
that
high
the
ranging
mortgage
third
from
rates
IV-4
have
softened
rates
had
no
demand
considerably,
effect
on
and a
borrowing.
country, mortgage borrowers
in this
recent
Unlike
in
slight
many
drop
other
in
mortgage
parts
of
the
area seem to be particularly cautious
about adjustable rate mortgages.
Commercial Banking
Loan outstandings in all major categories increased at Fourth District banks
during
September.
Business
lending
relatively flat in July and August.
strong
although
the
pace
of
lending
increased
Consumer
has
significantly,
after
being
loan demand continues
to be
tapered
off
somewhat.
expect business and consumer loan demand to remain quite good
Bankers
in the next
few months.
Evidence suggests that district banks used borrowed funds to accommodate
much of the recent loan growth.
Although savings deposits increased, banks
experienced a greater decline in transaction deposits.
FIFTH DISTRICT - RICHMOND
Overview
A
confluence
of
special
factors
is making
it
very
difficult
to
evaluate the underlying condition of economic activity in the Fifth District.
Seasonal factors, weather, labor negotiations, and especially rising imports
appear
to be masking more general
trends.
The manufacturing
sector, for
instance, seems to be making further headway, although losses in the apparel
and
textile
group
are
continuing.
The weakness
earlier
reported
in
the
retail sector now appears to have been less than uniform, and the earlier
momentum
of retail
sales
has
been
recaptured
in
any
event.
There
have
clearly been production losses in several areas, notably coal, textiles, and
automobile related manufacturing, as a result of labor negotiations.
auto-related
production
In the
sectors, these losses should be made up rather quickly.
continues
very
strong, with
a
record
year virtually
Coal
assured.
Construction activity remains strong, but somewhat less uniform than in early
summer.
Loan demand is essentially stable, with consumer installment loans
back on trend, and there have been modest inflows of consumer deposits into
District financial institutions.
Manufacturing
Most evidence suggests that further gains in employment and output
have
occurred
in District
manufacturing
in
recent
weeks.
It
is
almost
certain that the machinery and equipment and electrical equipment industries
have expanded
employment.
Also,
seasonal
strength in food processing and
tobacco manufacturing is boosting employment and output.
On the other hand,
V-2
textile
and
strength.
apparel
producers
have
not
exhibited
their
normal
seasonal
Most other industries have shown little change of late, and some,
such as paper producers,
continue
to operate at extremely
high
levels of
capacity utilization.
Manufacturers' inventories have been essentially flat recently, and
there appears
to be
only scattered
concern
that
they might
be excessive.
Plant and equipment is largely in line with perceived needs, although there
is
decidedly
months.
less
optimism
among
District
manufacturers
than
in
recent
Prices at the manufacturing level are practically flat.
Consumer Activity
At present,
lished
earlier
mid-summer.
widespread
Some
the year,
Current
are
now
despite
indicators
than earlier
areas
recently.
in
consumer activity is back on the
are
some
that
isolated
the
indicated, and was
reporting
a
spots
earlier
significant
rebound
As an aside,
some respondents
of weakness
weakness
was
in
those
less
goods more
double digits almost
seemed surprised
suggestion that August may have been an off month for retail sales.
other factor, however, has been unusual weather.
in
in durable goods.
concentrated
Thus, year over year gains are once again in
across the board.
strong trend estab-
by the
One
In particular, a hurricane
significantly disrupted business activity in a sizeable part of the District
in the past month.
Construction
Commercial construction continues to lead the way for the District,
especially
in
the
metropolitan
areas.
The
pipeline
for
these
projects
remains full, as new plans
and announcements
are
still keeping up with
completions.
Housing activity is by most indications, making a comeback after a
brief respite.
Once again, major strength seems to be concentrated in and
around the metropolitan areas, but that has been the case, more or less,
throughout the recovery.
All in all, housing construction and sales are at
or near the levels reached earlier in the year.
Agriculture
Agricultural cash receipts in the Fifth District are expected to
rebound sharply from the drought dominated levels of a year ago.
Preliminary
estimates call for District cash receipts rising 12 to 17 percent over 1983
levels.
Larger crop production as well as increased livestock production
have fueled the cash receipts increase, more than outweighing lower crop
prices experienced this
season.
Production cost increases were modest in
1984, indicating that agricultural net cash receipts levels will also show
improvement.
The Outlook
Expectations
around
the
District
Manufacturers, as noted, are considerably
are
very
mixed
less optimistic
at
present.
than in recent
months, perhaps even pessimistic. Quite a few now seem to feel that current
levels
of activity
are unsustainable.
related to import competition, however.
Much of this lack of optimism is
Textile and apparel producers are
very concerned and 1984 imports to date could easily justify that concern.
Consumers and retailers, on the other hand, are seen as confident
and still holding to positive expectations, at least for the remainder of the
V-4
year.
Retailers are described as cautious with regard to inventories, but
indications are that inventories are adequate to support continued strength
in sales.
Retailers are not, apparently, inclined to risk losing sales on
this account.
There
is little sense that
inflation poses
any near term threat.
Prices are expected to rise only very little in coming months.
VI-1
SIXTH DISTRICT - ATLANTA
The Southeast's economy continues to progress in spite of nagging difficulties
in several areas.
The strong dollar and high mortgage interest rates have retarded
manufacturing employment growth and dampened somewhat the region's usually dynamic
housing industry.
Inadequate dealer stocks of popular automobile models and drought-
reduced crop yields have countered the general expansion.
On the positive side, steady
consumer spending continues to be the principal impetus behind the region's growth,
followed by swelling defense-related payrolls, strong commercial construction and a
rebound in housing, and improving tourism.
Employment and Industry.
In August, the District unemployment rate of 8
percent continued near the level that has prevailed since last April. Florida and Georgia
posted unemployment rates slightly over 6 percent, contrasting sharply with Alabama
and Mississippi at 11.2 and 11.3 percent, respectively.
has been offset by strength in others.
Weakness in some industries
Expectations for forest products have been
revised downward as a result of slackening demand for housing and Canadian competition.
In spite of productivity-enhancing investments by domestic textile and apparel firms,
foreign producers continue to increase market share due to the strong dollar.
Chemical
companies are reacting to foreign competitive pressures by reducing production costs
and shunning large projects that could result in excess capacity.
In contrast, defense and related industries are boosting payrolls throughout
the region.
Shipyards doing Navy work, high-tech electronic firms and aerospace
companies are all experiencing rapid growth.
Appliance producers expect their record-
breaking sales to continue through year-end.
Oil and gas drilling activity should remain
strong in the months ahead and show signs of increasing stability. Carpet manufacturers
report strong sales, especially for commercial use.
VI-2
Consumer Spending. Retail spending through September exceeded its year-ago
level by a substantial margin.
Retailers in the Southeast reported varying sales gains
for August, but generally robust September sales.
The Atlanta, Orlando, Jacksonville,
and Miami metropolitan areas continue to outpace the nation in department store sales.
Clothing, electronic items, and housewares are early fall best sellers.
A low inventory of popular models weakened auto sales during August and
September, according to car dealers throughout the region.
Although August car and
truck registrations in the Southeast fell sharply from previous months, year-to-date
figures were 19 percent ahead of the same period last year.
A major auto producer's
sales in the region and the nation advanced 10 and 18 percent, respectively, in the
first nine months of 1984 compared to 1983.
Construction. Residential construction in the Southeast remained surprisingly
buoyant through early October, particularly in central Florida and the Nashville area.
However, single- and multifamily building permits are down from their year-ago levels.
Builders believe that uncertainty about the overall state of the economy and the impact
of government deficits, in particular, is keeping interest rates high and limiting housing
activity.
The downward creep in mortgage rates over the past three months has
increased the popularity of fixed-rate contracts.
Mississippi's housing market got an
infusion of new money from the state's $175-million housing bond issue designated for
below-market-rate home mortgages.
Commercial construction continues to surge, with
office construction leading the way.
Financial Services.
September over August.
Total loans by large commercial banks were up in
Both commercial and residential real estate loans showed
continued strength in August and September, while some leveling off occurred in business
loans.
Contacts attribute slower business lending to corporations reaching desired
inventory levels and moderating economic growth.
They also report that a large share
VI-3
of commercial real estate loans in September was for the building of office parks,
strip shopping centers, and hotels.
August mortgage commitments at S&Ls dropped 9
percent from July and were 11 percent below commitments for the same month last year.
Tourism.
performance.
Early fall activity in the tourism industry exceeded its year-earlier
Visitor center registrations were up in every state except Tennessee.
Many attractions posted double-digit increases in attendance. Boosted by strong business
and improved convention travel, hotels seemed to have filled more rooms without
lowering rates.
Despite poor average daily attendance of 38,000 at the World's Fair,
New Orleans hotels have enjoyed a 12 percent increase in occupancy and a $10 average
increase in room rates.
Air traffic remains strong at most District airports.
Contacts cite renewed
travel interest following the Olympics and ideal weather as two main factors contributing
to the overall high level of tourism activity in the District.
The start of the school
year has not dampened travel to the extent expected.
Agriculture. Significant changes have occurred in the prospects for soybeans
and cotton in the region over the last month.
A late summer drought in Georgia has
caused projected soybean production to fall by 12 million bushels for an approximately
$75-million decline in revenue.
On the other
hand,
weather has favored cotton
production, causing estimated yields to approach or surpass record yields of previous
years.
The net effect of these changes is likely to be a modest decline in net revenue
to the region's producers of major crops.
The US. Department of Agriculture projects a larger domestic supply of
orange juice this year than in the 1983-84 season.
The Florida crop is expected to be
about 30 percent smaller than in 1980-81, the last year without freeze damage.
Citrus
canker has not yet been found in bearing groves but was discovered in a seventh Florida
nursery.
VII-1
SEVENTH DISTRICT--CHICAGO
Summary.
Developments of recent weeks suggest that economic activity
in the Seventh District has plateaued, but few observers are apprehensive over
an imminent general recession.
Total employment in the five-state area has
shown very little improvement since early in the year and job seekers are abundant.
However, surveys by consultants indicate increases in salaries of over
6 percent in 1985.
Apparent settlement of the threatened auto strike removes
a shadow over many District centers, but the terms of the agreement perpetuate the region's competitive disadvantage of high labor costs.
Except for
new cars, small trucks and vans, retail sales were disappointing in the third
quarter.
Steel output appears to have started up again, after a sharp slump,
and steel executives here anticipate effective government actions to curb imports.
Mechanical capital goods demand remains weak with new disappointments
in farm and construction equipment, and slower sales of heavy trucks.
Housing
activity is slipping while most nonresidential construction has upward momentum.
Delivery leadtimes on goods have shortened.
Most inventories are under close
control, but stocks of general merchandise are described as "high."
Prices are
fairly stable with competition restraining increases in most markets.
Many
District farmers are hard-pressed by heavy debts, unprofitable prices, and declining values of farmland and used equipment.
General Outlook.
Despite vexing problems, quite serious in some sectors,
business and consumer confidence in the Seventh District remains generally sound-but not ebullient.
It is now recognized that the national expansion has been slowing
since last spring, but only a few isolated voices are apprehensive that a general
recession is at hand.
Relatively stable prices and lack of speculative buying
by consumers and businesses have been welcome surprises.
Recent easing of in-
terest rates has allayed fears voiced earlier of a new credit crunch.
Apparent
VII-2
settlement of the auto negotiations removes a storm cloud.
However, there is
widespread worry over huge federal deficits, enormous foreign trade deficits,
and the shaky state of some financial institutions and some foreign debtors.
Serious imbalances, in short, are seen to be financial rather than physical.
Employment Growth Slow.
Through August 1984, the rise in payroll em-
ployment since December 1982 in the five District states was only half as great
as in the nation. District employment has remained well below the level of the
late 1970s.
Since February, a large portion of the District including the en-
tire states of Illinois and Iowa have witnessed no growth at all in employment.
Hiring surveys and projections of activity by industry indicate no significant
improvement in the months ahead.
Job seekers are abundant, although many are said
to be poorly trained and qualified.
Despite slack labor markets, private surveys
indicate Chicago area employers plan average increases in salaries in excess of
6 percent for 1985, slightly more than in 1984, and close to the national average.
Employers are making intense efforts to curtail soaring costs of medical benefits,
but have had only limited success so far.
fits intact.
contributory.
The new UAW pact retains medical bene-
Chicago teachers threaten a strike if their medical plan is made
Strike threats loom in the trucking and airline industries where
employers are trying to force substantial compensation concessions to get labor
costs more in line with those of non-union competitors.
Evaluating the Auto Settlement.
Rank-and-file approval of the three-year
UAW-GM pact and the tentative Ford settlement seem to remove the threat of a major
work stoppage that had been overhanging the District economy all year.
Unlike
earlier years of auto contract renewals, there are no near-term contract expirations of importance to be faced in the farm and construction equipment industries.
Thus, the durable goods industries of the Midwest appear to be enter-
ing an extended period of labor peace.
The new auto agreements, valued at roughly
VII-3
25 percent over three years (depending on actual costs of COLA, medical benefits,
job security provisions, retirement improvements, etc.) have been greeted by some
as "modest" and noninflationary, but other observers point out that they extend
and reinforce the heavy labor cost differential that has been a major factor
in the competitive disadvantage of the region relative to other regions and abroad.
At the end of the contract, the average annual labor cost per active production
worker in the auto industry will substantially exceed $50,000.
Pressures
for investments in labor-saving equipment and foreign sourcing can be expected to
intensify.
Steel Slump Over?
Raw steel production in the Chicago and Detroit dis-
tricts dropped by more than a third from mid-May to late September before turning
up in early October.
The accompanying decline in steel shipments in the third
quarter was more than seasonal, in contrast to earlier expectations.
Except for
the hard-hit farm sector, steel consumption has held at, or near, expected levels.
Therefore, the decline is attributed to increased imports and inventory liquidation.
The fourth quarter is expected to see improvement, bringing industry shipments
for the year to about 75 million tons, well above 1983, but several million tons
less than expected earlier in the year.
Higher mill shipments in the fourth
quarter will reflect greater consumption in the motor vehicle industry and nonre-
sidential construction, stabilization of inventories, and reduced imports.
Industry
leaders have been assured that the Administration "means business" in restricting
imports from third-world countries, up till now uninhibited by restraints.
Im-
ports are expected to return gradually to 20 percent of domestic usage, down from
the 26 percent ratio for the first 8 months of 1984.
Capital Goods.
weakness.
Producers of mechanical capital goods still report general
Defense orders continue to expand, but are of relatively small importance
in the District.
Orders for oilfield apparatus and materials handling equipment
have improved, but from a very low base.
Light construction equipment is improved,
VII-4
but heavy items, such as outdoor cranes, remain severely depressed.
ment sales are running well below last year's sad level.
Farm equip-
Orders for heavy trucks
dropped in the third quarter, but demand for medium trucks and truck trailers
remains vigorous.
Construction.
near last year's level.
Homebuilding has declined from last spring, but remains
Sales of new and used homes have held up better than ex-
pected, partly because the public has accepted the view that high rates are here
to stay.
Conventional mortgage interest rates quoted range from 13.5 to over 14
percent, plus 3 to 5 points, about 100 basis points below the peak of last spring.
Almost 70 percent of new home mortgages are ARMs, with initial rates ranging up
to 12 percent.
Nonresidential construction of virtually all types, with office
buildings leading, continues to increase with a steady stream of sizable new
projects announced.
Retail Sales.
in recent months.
Some major retailers express disappointment over volume
The two-year boom in appliances, furniture and other home
furnishings appears to have peaked out.
Soft goods have strengthened somewhat.
General merchandise inventories are generally excessive.
This has led to wide-
spread price cutting to keep inventories from rising further.
Prices Fairly Stable.
Competition, including a wide range of imported
goods, is keeping inflation in check.
A retail analyst estimates general mer-
chandise prices average less than 1 percent above last year, the smallest rise
in many years.
In the wholesale markets, prices of many metals have declined in
recent months.
Increases in prices of paper products, gypsum board, and electronic
components have been substantial, but may have levelled.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Consumer spending continued at a brisk pace during September and
early October in the Eighth District, but home sales were down and most
other sectors of the economy experienced little change.
Expectations by
most respondents are that consumer spending will remain strong for the
remainder of the year and that manufacturing, transportation and
employment will rise moderately, while construction is likely to drift
lower.
Consumer Spending
The greatest strength in District economic activity during
September and early October was in retail sales.
At six department
stores, sales were 8 percent higher than the comparable period a year
ago, which was then considered a relatively good sales period.
Better
quality apparel, sports wear, cosmetics and consumer electronics moved
particularly well, while sales of furniture and carpeting were below
year-ago levels.
At each of three discount stores, sales increases were
more than 14 percent above the year-ago pace.
Promotions combined with
price markdowns were successful in moving merchandise.
Auto demand remained strong in most parts of the District during
September and early October.
In the last week of September, however,
sales became somewhat sluggish.
Seven dealers reported sales 11 percent
higher in September than in the same month a year ago, and early October
was nearly as good.
Reflecting the strong demand and a continued
VIII-2
shortage of popular models, effective new car prices increased at the
retail level.
Realtors and developers reported that single-family housing sales
in September and early October were about 25 percent below the comparable
period of 1983, and new housing starts declined further.
towns, the real estate market was virtually dormant.
In some smaller
The volume of
construction activity, both residential and nonresidential, however,
remained on a high plateau although some softness is beginning to
appear.
A building material business continued to operate at capacity,
which its owner expected would continue through the end of the year.
Industrial Production and Employment
Output of manufacturing firms generally continued to be strong in
September and early October, but the flow of new orders remained
relatively unchanged.
Some customers trimmed orders temporarily in order
to reduce inventories, and auto assembly was interrupted by a strike.
Price changes have been modest, with declines nearly matching increases.
Employment in manufacturing changed little on balance, but retailers,
service firms and government increased their employment moderately.
Transportation
A railroad reported that business had been drifting lower since a
peak reached in early summer, but activity in September was still 6
percent larger than a year ago.
the Russian purchases.
cars.
Grain moved well in September because of
Railroads are increasing their orders for
new
A Memphis-based truck line is still enjoying excellent business.
VIII-3
Barge traffic on the Mississippi remained flat at a rather depressed
level, and there are still a large number of excess barges.
Finance
Total loans and leases outstanding at large weekly reporting
banks decreased at a 3 percent annual rate in September.
This decrease
comes after a 22 percent growth rate during the previous month.
A
falling volume of loans to financial institutions was primarily
responsible for the September loan contraction.
Commercial and
industrial loans and consumer credit rose at slower rates, while real
estate loans increased at a slightly faster rate than in the previous
month.
While total loans were down, total deposits were growing at an
annual rate of 26 percent, reversing the previous month's decrease at a
rate of 19 percent.
Agriculture
Early fall cold weather has effectively stopped any further crop
maturation and shifted attention to the completion of harvest.
The lack
of rain during September also has diminished soybean yields 3-4 bushels
per acre in the southern portion of the District.
Despite these recent
setbacks, harvests for most crops are expected to be very good, near 1982
levels.
The availability of hogs for slaughter continues to surprise the
market and should dampen what were expected to be sharp increases in red
meat prices during the fourth quarter.
Higher numbers of hogs for
slaughter, however, also are responsible for low prices to farmers;
recent prices for feeder pigs were only 1 percent above the 1983 average.
IX-1
NINTH DISTRICT - MINNEAPOLIS
Modest
growth
in
continues
the Ninth
Unemployment
District.
and other labor market indicators seem to have improved lately.
in
consumer spending is
tered
signs
financial
of
reported,
commercial
activity
are
but not for homes.
and
industrial
mixed--strong
in
rates
Some growth
Also reported are scat-
expansion.
Indicators
the Minneapolis-St.
of
Paul
recent
area,
but
weak in the rural areas, where farmers are facing low prices.
Employment
The latest available data indicate that labor market conditions have
strengthened
a
bit.
percent in
August,
employment
in
ularly
Minnesota's
in
reached
the Twin
still
in
all-time
August.
August the Minneapolis-St.
about 47 percent above its
sota's initial
to report
an
high.
Cities metropolitan
rate dropped to 4.5 percent in
demand,
rate
fell 0.1 percent
reversing two months of slight increases.
Minnesota
notable
unemployment
Improvement
where
in
was
partic-
the unemployment
Paul help-wanted advertising index was
level a year earlier and in
rates
Also in August,
Indicative of continuing strong labor
unemployment claims fell again.
that unemployment
area,
to 6.3
southern
September Minne-
This Bank's directors continue
Minnesota and the Dakotas are
low and that rates in parts of Wisconsin and Montana have fallen somewhat.
Consumer Spending
With the
exception
of sales
in
agriculturally
dependent
cities
and
towns,
retail sales of general merchandise appear to be following the trend of
modest
growth
reports
that
reported
last
month.
its back-to-school
One
large
retailer
promotion went well,
in
the Twin Cities
particularly
in
Septem-
IX-2
ber.
Its sales figures are still
retailer
in
the Twin
Cities
directors
from
findings.
Large chain stores
ber,
although
considerably in
say that
diversified
smaller
running ahead of plan.
cities
in
Rochester,
the
district
Minnesota,
doing as
Sioux Falls,
and another large
sold particularly
around
stores weren't
September in
apparel
It
Bank
well.
report
similar
report a good Septem-
well.
Mall business
South Dakota,
but
was
up
only modestly in
Bismarck, North Dakota.
Mirroring reports for the nation,
motor vehicle sales in
seem to have picked up a bit since August.
turer was
surprised to find both its
levels.
still
in
low.
Some Bank directors
In September, a domestic manufac-
car and truck
substantially over year-earlier
the district
sales
in
this
region up
District inventories of vehicles are
agriculturally
dependent
areas report that
cars and trucks have been moving well there, too.
Home purchases,
be
Both
falling off.
while still
Bank
up from levels of a year ago,
directors
and
district
realtors
indicate
housing affordability has deteriorated,
with high financing costs,
taxes
revenue bonds
mentioned
as
factors.
Mortgage
appear to
prices,
that
and
are helping to prop up
sales in parts of western Wisconsin, though.
Tourist
spending in
the district,
which may have been somewhat more
restrained this summer than last, picked up with the arrival of the fall color
season.
In
the Upper Peninsula of Michigan,
lasting longer than expected.
the season started early and is
Travel to parks in
Montana and the Dakotas has
been lower this year than last.
While some attribute this to exchange rates
inducing Canadians to stay home,
in fact more Canadians appear to be crossing
the border this year.
than parks.
Canadian tourist dollars appear to be flowing elsewhere
IX-3
Commerce and Industry
Scattered
reports
have
been
appearing
lately
about
commercial
and
industrial production and expansion in the Ninth District.
Plans to build a
$100 million office-hotel
announced.
complex
in
Minneapolis
have been
Some
energy production facilities are being built in North Dakota, where petroleumrelated activity
are down in
is
being
there.
is
running at a record rate.
Bismarck,
built
in
North Dakota.
South
Dakota,
However, construction permits
While an auto parts distribution center
little
other
new
expansion
is
reported
Building products plants, which are benefiting from low lumber prices,
are producing at high levels to meet
building demand.
While pulp and paper
plants are still very busy, no expansion plans have been announced recently.
Agriculture
Most
prices,
of
Despite
sector
continues
and high debt service,
In Minnesota alone,
July and August.
recent
agricultural
low land values,
improve soon.
tions
the
Soviet
largest on record,
indicate that
in
purchases,
prices are
of which
generally
the nation's
is
by
low
likely to
favorable
further.
crop condiFor example,
corn harvest will be the fourth
1983.
Corroborating this, dis-
report favorable crop conditions
in
the district,
of the western Dakotas and northeastern Montana.
continue to report severe farm debt-service
some reason
plagued
and both soybean and wheat production are up substantially
Bank directors
the dry areas
be
the farm price index fell 3 percent between
over the drought- and PIK-reduced levels of
trict
none
may push production up enough to lower prices
estimates
to
loads.
except
They also
The only ag producers with
for optimism seem to be those selling meat animals.
Lower feed
improving the profitability of hog and livestock operations,
cattle prices have picked up a bit recently.
and
IX-4
Finance
The financial sector reflects the continuing trend of urban economic
growth outstripping
rural growth.
Both deposits
and loans at
large Twin
Cities banks have been growing faster than their national counterparts.
From
mid-August to mid-September in the Twin Cities, large bank deposits and loans
grew 1.7 percent and
2.8
percent,
respectively.
figures were only -0.1 percent and 1.1 percent.
particularly strong in the Twin Cities.
The
comparable national
Consumer loan growth has been
Financial activity in the rest of the
district seems to be slower, though, according to this Bank's directors.
TENTH DISTRICT--KANSAS CITY
Overview.
Some moderation continues to be apparent in Tenth District
economic activity.
While retail sales continue to improve, housing activity
and mortgage demand have generally slowed.
Inventories of retail goods are
slightly larger than desired, while inventories of materials inputs are at
satisfactory levels.
continue so.
Price increases have been small, and are expected to
Loan demand is increasing slightly at district banks, while
deposits remain unchanged.
Yields of fall-harvested crops varied across the
district while the newly-planted winter wheat crop is in good condition.
Retail Trade.
Retailers report that year-to-date retail sales are up
significantly over a year ago, and that sales continued to improve in the past
three months.
retailers.
Inventories are slightly larger than desired for some
However, no major trimming is intended, because most retailers are
optimistic about sales through the remainder of the year.
Prices remained
generally flat in recent months, and no significant increases are anticipated
through the remainder of the year.
Automobile Sales.
Automobile dealers throughout the Tenth District
continue to report improved sales in 1984 relative to last year.
Credit
market conditions are satisfactory, and financing is available both for
floorplanning and car buyers.
Most dealers report smaller inventories due
mainly to the 1985 model introductions and partially to the GM strike.
Dealers are optimistic about sales for the balance of 1984 and early 1985.
Purchasing Agents.
Purchasing agents report input price increases of 5
to 10 percent over the last 12 months, with virtually no price increases
during the last three months.
Although metals prices are expected to continue
to fall, prices for other inputs are generally expected to remain stable
through the end of the year.
No problems with availability were reported and
X-2
none are expected.
Most purchasing agents report inventories at satisfactory
levels, and no substantial changes in inventory levels are planned.
Housing Activity and Finance.
softening.
August.
Residential construction activity is
Single-family starts are generally down, particularly since
Starts in multi-family units range from below year-ago levels to
about the same levels.
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 (except in Colorado where sales have
been steady).
remain so.
Building materials are in good supply and are expected to
Prices for materials are generally steady.
Demand for mortgage
funds and mortgage commitments at savings and loan associations is slowing
because of slight increases in mortgage rates over the past months, and also
because of seasonal declines.
Most respondents expect mortgage demand to
continue decreasing, although rates are expected to stabilize.
inflows range from much higher to much lower than last year.
Savings
Increased
competition was cited as a contributor to the declines at certain
institutions.
Respondents, however, generally anticipate only very moderate
changes in savings flows for the remainder of 1984.
Banking.
district banks.
Total loan demand increased slightly last month at Tenth
The gains were distributed unevenly throughout the district,
however, reflecting the diversity of economic conditions.
Commercial real
estate loans and commercial and industrial loans increased where strong
construction activity is underway.
The slight increase in consumer loans was
also concentrated in the economically more active areas of the district.
Residential real estate loans declined district-wide, however, as did
agricultural loans.
Following money center banks, Tenth District banks
reduced their prime lending rates by three-quarters of a percent early in
October to rates ranging from 12 3/4 to 13 3/4 percent.
Most bankers expect
the prime to decline slightly further, although they expect a lower prime to
have little effect on consumer lending rates.
generally unchanged from last month.
Consumer lending rates were
Total deposits remained unchanged last
month at Tenth District banks, reflecting the general lack of strong loan
demand and the slow pace of the district economy.
A slight increase in MMDA's
and IRA and Keogh accounts offset a slight decrease in demand deposits and
passbook savings accounts, while other deposits remained constant.
Agriculture.
Fall harvest is underway in district states.
Corn yields
in New Mexico, Oklahoma, and parts of Colorado and Nebraska are average to
above average this year.
Other parts of the district have not harvested corn
yet due to wet conditions, and yields in Kansas and Missouri may be below
average.
Below average soybean yields in most district states are partly
attributed to late planting in the spring and to an early frost.
Planting of the winter wheat crop is underway
sorghum yields are mixed.
throughout the district.
Reports on
Though just starting in Kansas, planting is finished
in Oklahoma, Colorado and parts of Nebraska, while other states report 50 to
75 percent of the crop planted.
The crop is in good condition, and moisture-
conditions are generally favorable.
Very little wheat acreage will be used as
pasture this fall, but range conditions in the district are generally good.
Bankers are generally pessimistic about debt repayment by farmers this year.
Production loans will be repaid, but little reduction of intermediate and
long-term debt is expected.
Some bankers expect problems in receiving full
payment of interest on outstanding loans.
liquidations are mixed.
Reports of foreclosures and partial
With some exceptions, most bankers believe that
agriculture's financial stress will worsen during the year ahead.
XI-1
ECONOMIC COMMENTARY
ELEVENTH DISTRICT--DALLAS
The Eleventh District's recovery continues at the slow pace that
has characterized it since mid-summer.
This pace represents a reduction
from the growth experienced in the District during much of 1983 and the
early portions of 1984.
Overall demand for District manufactured goods is
rising very sluggishly.
Oil and gas drilling currently shows no
appreciable growth.
Retail sales exhibit an irregular pattern of modest
expansion across product lines.
Nonresidential construction-is declining
slowly, but the level of activity remains strong.
Residential construction
continues to slide, due to large declines in multifamily building.
Improved weather has boosted prospects for the District's agricultural
sector.
District manufacturing sales growth is unchanged and slow.
Demand
for paper and allied products and electrical machinery is rising steadily.
Stone clay and glass firms report flat demand, with the decline in
housing-related demand being offset by strong sales of cement for use in
public works projects.
increased sales.
prices.
Some lumber and wood products firms report
Primary metal manufacturers report weak demand and low
Sales of chemical and allied products remain unchanged, while
there is evidence of weakness in the purchase of refined petroleum from
District producers.
Fabricated metal products and nonelectrical machinery
manufacturers report that growth is slowing, with the increased demand
XI-2
coming primarily from energy firms that are replenishing depleted equipment
inventories.
Demand faced by District apparel manufacturers remains low
primarily due to continued strong competition from imports.
The District's rate of oil and gas drilling remains unchanged.
The number of active drilling rigs in Texas is declining, while the total
for the three District states (including Louisiana and New Mexico) was
virtually the same in September as in August.
Britain's October oil price
cut, together with attendant movements in spot prices, represents a
significant contribution to the down-side risk faced by District drillers
and may further discourage drilling in the District, even if OPEC countries
do not also cut prices.
Retail sales growth continues at a moderate pace, owing chiefly to
increased promotional activity by stores.
Demand for consumer durables
remains low, but sales of men's and women's apparel are strong.
Major
deparment stores are building inventories in anticipation of a good
Christmas.
After a summer of brisk sales, a seasonal downturn has begun to
affect automobile dealers.
on product availability.
The strike has had no appreciable effect so far
The recent strike settlement has offered hope to
dealers that supply problems will not occur for domestic autos, but import
dealers report inventory shortages.
Prices are expected to remain stable
through the first of the year.
Nonresidential construction value is declining in Texas, although
it remains high and is showing little evidence of abatement in the other
District states.
The number of nonresidential construction projects is
XI-3
increasing in all District states, including Texas.
Rising office vacancy
rates have discouraged new office construction in some District cities, but
retail construction continues at a high rate.
Residential construction is slowing throughout the District, owing
to a rapidly weakening multifamily activity.
Declines in builders'
inventories have lately reversed the fall in single-family building, but
the recovery has not proven very strong.
Builders speculate that home
buyers are waiting to see if mortgage rates will fall further.
Growth in deposits at member banks has remained flat since the end
of the second quarter.
At large District banks, year-over-year rates of
deposit growth are slowing markedly.
Deposits at these banks fell
absolutely on a month-over-month basis in August and September.
loans and securities at large banks also is declining.
Growth in
The rate of
increase in real estate loans is ebbing and respondents indicate that a
significant portion of these loans is being used to finance development
projects outside the District.
Business loans outstanding have shown
almost no change since mid-summer.
While consumer loan volume at large
banks is well above a year earlier, it has also remained flat since
mid-summer.
September and October rains have significantly reduced drought
problems for Texas farmers and ranchers.
September cattle prices are
generally higher than a year ago and third quarter sales are estimated at
40 percent above the third quarter of 1983.
Large harvests, growing
surpluses, and falling prices characterize the outlook for feed, food
grain, and cotton producers.
XII-1
TWELFTH DISTRICT -- SAN FRANCISCO
The Twelfth District economic expansion has cooled dramatically.
In September
and early October, retail sales at department stores and automobile dealerships are
reported to have shown no significant improvement from August's reduced pace.
Nonresidential construction activity is reaching boom proportions in key
metropolitan areas.
But the recent slight reduction in mortgage interest rates has
been insufficient to prevent both the construction and sale of new homes from
falling further.
The strong U.S. dollar, and consequent increase in lower-priced
foreign imports, is hurting such key Western industries as lumber and primary
metals, reducing the overall growth of manufacturing employment to a crawl.
Prices
for important Western agricultural products continue to fall, increasing the debt
position of many farmers.
Business loan demand at many District banks sagged during
the third quarter, and only large banks expect a pickup in coming months.
Consumer Spending
Retail sales results were mixed throughout the Twelfth District states in
September and early October.
But overall, sales at major department stores appear
to have shown little or no increase from August's reduced pace.
The four major
department stores in Southern California described back-to-school and early fall
business as "disappointing".
In September, their year-to-year gain in sales
narrowed to 8 percent compared with 13 percent in August and 17 percent in July.
Retailers attributed this weaker performance in part to unusually warm weather which
hindered sales of autumn apparel.
But the fact that sales of furniture, housewares
and appliances fell indicates that the housing slowdown is taking a toll on consumer
purchases of durable household items.
and Idaho.
Retail sales also were disappointing in Utah
In contrast, retailers in the Pacific Northwest apparently experienced a
pickup in sales after the mid-summer slowing.
Throughout the District, automobile
XII-2
and recreational vehicle sales were reported to have declined in September, but
mainly due to supply problems.
for Christmas business.
Retailers generally have lowered their expectations
But department stores still expect an average year-to-year
sales gain of 8-10 percent.
Manufacturing and Mining
The growth of manufacturing employment in most Twelfth District states has
slowed dramatically recently, both because the growth of consumption of many key
products manufactured in the area has slowed but also because lower-priced foreign
imports are supplying on increased share of U.S. markets.
The influx of imports has
forced further cutbacks in employment in the metals and lumber industries and
recently has begun to undermine domestic paper orders and prices as well.
Moreover,
the fact that inventories of such internationally-traded commodities as copper,
aluminum and paper have continued to rise suggests that domestic producers may be
forced to cut output further.
If the Administration approves legislation recently
passed by Congress, Pacific Northwest forest products firms could receive
substantial relief from the burden of high-cost federal timber under contract.
Still, lumber market conditions are so weak that many companies are expected to
operate at a loss in 1984.
Rising federal expenditures for defense and space
programs and increased business investment continue to boost employment in such
industries as electronic equipment, aircraft and missiles and nonelectrical
machinery.
But even in those industries, employment growth is slowing.
Construction and Real Estate
Housing starts in the West have shown further weakness recently, despite a
slight reduction in mortgage interest rates.
Western starts have held up somewhat
better than those nationally but still are currently running about 27 percent below
this year's peak reached in January.
Because builders have reduced the construction
of new homes about in line with the decline in sales, their inventory of unsold new
XII-3
homes has not risen to excessive levels.
Nevertheless, builders expect Western
housing starts to fall further in 1984 and 1985, even if mortgage rates remain at
current levels.
Falling permits reinforce the likelihood of a further slowdown in
regional homebuilding.
High interest rates have not impeded the virtual boom
underway in nonresidential construction activity in the West.
Portland is doing
particularly well in attracting investment in high-technology manufacturing plants.
Office vacancy rates are reaching disturbing levels in major metropolitan areas,
however, reducing rents below year-ago levels.
Agriculture
In general, the Twelfth District agricultural sector continues to be in a
difficult period financially, especially those farms which are highly leveraged.
The strength of the dollar is reducing exports, while putting downward pressure on
prices through a large influx of imports.
Summer and fall crops in the region have
been especially abundant, further reducing prices.
Even in California where total
net farm income may be up in 1984, the return on equity generally will be
unsatisfactory.
In California, above-normal production this year has combined with
a carryover of surplus inventory to depress prices for such commodities as grapes,
nuts, and tree fruits to or below the break-even point for many growers.
California's cotton crop is progressing well, but the strong U.S. dollar and
prospect of record world production continue to push prices lower.
The situation of
rice growers is especially troublesome, since such countries as Taiwan and Thailand
have stepped up their exports.
In California, Utah and other Intermountain states,
the livestock sector has not experienced significant year-to-year improvement in
prices.
Farm land values are still falling, while highly-leveraged farmers are
further increasing their debt position.
reported to be rising sharply.
In Utah, foreclosures on farm loans are
XII-4
Financial Institutions
Commercial and industrial loans at many Twelfth District banks sagged during
the third quarter, and bankers report mixed prospects for the coming months.
At
large banks, business loans (not seasonally adjusted) declined at a 3 percent annual
rate over the third quarter, in contrast to increases of 7 and 23 percent
respectively during the first and second quarters.
Still, most of the larger banks
reported continued strong demand from certain borrowers, especially high technology
firms, retailers, builders, and the service industries.
Moreover, these banks
expect improved retail sales, strong capital spending, and a slowdown in the growth
of corporate profits to boost overall business loan demand in the near future,
although lower inventory financing requirements will offset some of this expansion.
Smaller banks -- especially those located in regions dominated by the mining,
lumber, and energy industries -- also have experienced weaker demand for credit in
recent months.
But these banks generally do not expect business loan demand to pick
up, due to the effects of continued high interest rates and import penetration in
depressing their local economies.
Moreover, an increasing number of firms in their
market areas are trying to limit their investment to an amount that can be financed
with internally generated funds.
Cite this document
Federal Reserve (1984, November 6). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19841107
@misc{wtfs_beige_book_19841107,
author = {Federal Reserve},
title = {Beige Book},
year = {1984},
month = {Nov},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19841107},
note = {Retrieved via When the Fed Speaks corpus}
}