Beige Book
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
December 1984
TABLE OF CONTENTS
SUMMARY ........................................
..... . . . .
First District - Boston.........................
. . . . . . . . . . . . .
Second District - New York......................
. . . . . . . . . . . . o
Third District - Philadelphia...................
. . . . . . . . . . . . .
i
1I-1
11I-1
Fourth District - Cleveland....................
IVV -1
Fifth District - Richmond .......................
Sixth District - Atlanta........................
............
. . , . . . . . . . . . .
VI-I
VII-1
Seventh District - Chicago......................
VIIl-l
Eighth District - St. Louis.....................
IX-l
Ninth District - Minneapolis....................
X-l
Tenth District - Kansas City....................
. . . . . . . o .o. . .
Eleventh District - Dallas .....................
Twelfth District - San Francisco................
XI-l
XII-l
SUMMARY*
The
economy
continues
expansion across both regions
growing
overall,
industries.
compared
to
but
and
most
show
Districts
earlier this year.
a widespread pattern of slowing
industries.
Retail sales growth on
is seasonally normal.
interest
to
a
Manufacturing
year-over-year
basis
is
sluggish
Auto sales continue to increase more than
Residential construction is still
rates are leading to some signs of a pickup.
Districts.
is
report substantial variation among
weak,
but
lower
Most Districts note
steady loan demand overall, although consumer lending is
some
output
strengthening
in
In agriculture, crop prices continue to fall while cattle
prices are rising further.
Agricultural debt remains a concern in
several
Districts.
Manufacturing and Industry
Manufacturing
is
growing slowly in every District, although some
industrial sectors continue to
among
paper
and
perform
vigorously.
Growth
Dallas
and
Increased orders
contributing
to
San
from
indicate
Francisco
firms
defense
demand
in
some
industries are those most exposed to
textile,
Louis,
and
the
manufacturing
import
Chicago,
and
Minneapolis
the
former,
a good showing by the latter.
industry
automobile
sectors.
competition,
The
all
*Prepared at the Federal Reserve Bank of Dallas.
report
are
weakest
especially
apparel, wood product, and metal working industries.
Richmond,
highest
allied product firms and electrical equipment producers.
Atlanta, Minneapolis, and Dallas report strong performance by
while
is
the
Boston, St.
deteriorating
Several Districts report
in at least one of these industries.
performance
that inventories are rising, but among those reports only
that
inventories
are
above
by
levels.
notation
Chicago's
of
increasing,
is
as
recession fears on the part of some
improve,
Oil and gas drilling activity is continuing to
respondents.
indicate
few
Input prices are stable or
Uncertainty about future growth
rising only slightly.
evidenced
desired
a
but
the recent oil price decline threatens the industry's recovery.
Consumer Spending
Retail
sales
are slower than
attribute
expected
slower
increasing on a year-over-year basis, but they
are
several
in
Districts.
uneven
between
consumer
The
Respondents
pattern
York
Richmond,
of
sales
is
durables and nondurables across Districts.
Many stores are increasing their advertising
business.
New
sales growth to relatively warm fall weather.
on the other hand, reports quite strong sales.
also
and
Boston
increased
anticipate
expectations regarding the strength
and
of
Christmas
markdowns
holiday
sales
to
stimulate
but
sales,
lower
are
the
than
earlier.
Automobile sales are above year-earlier levels in each of the nine
in
expansion
some
areas.
strike
production and recent
for
Inventory shortages are responsible
Districts reporting them.
Availability
settlements
slower
problems persist, but increased
lead
many
dealers
to
expect
further gains in sales.
Construction
Lower
mortgage
interest
rates
are contributing to an upturn in
some previously declining residential construction markets.
Cleveland,
and
St.
Philadelphia,
Louis report growth in residential construction.
New
iii
York is reporting
despite
a
exceptionally
strong
shortage of skilled labor.
residential
regions
within
these
levels
San Francisco, Dallas, Chicago, and
Minneapolis note general weakness in their
some
construction
residential
markets,
Districts are doing well.
although
Atlanta and Kansas
City expect strengthening residential construction on the
basis
of
lower
vigorous
than
interest rates.
Nonresidential
residential.
construction
is
generally
Several Districts comment
proceeding at a strong pace.
for nonresidential
that
more
commercial
construction
is
New York is the exception with ebbing markets
construction
in
all
parts
of
the
District
except
mid-town Manhattan.
Banking and Finance
Mirroring
moderating.
reports
a
the
slowdown
Commercial lending
recent
in
is
the overall economy, asset growth is
remaining
appears
Atlanta
and
Mortgage
rates.
although
St.
Louis
pick-up in loan demand and Philadelphia expects such an
increase soon because of continued economic
still
flat,
strong
with
Cleveland
widespread
report
slight
expansion.
reports
of
increases
Consumer
sizeable
in
lending
increases.
mortgage
lending.
loan demand is generally steady elsewhere despite the decrease in
Several Districts expect a demand pickup
indicates
that
declines
in
the
future.
Dallas
in oil prices may limit the availability of bank
funds to the oil and gas industry.
Agriculture
The agricultural situation varies among Districts, reflecting
diversity
of products, weather, and market conditions.
will be considerably larger
than
last
year,
but
the
Harvests this year
declining
prices
are
iv
blunting
the
possibility
of
substantial
gains in farm income.
reports that late rains have significantly damaged the cotton
crops
in portions of the District.
that
increased
pressure on cattle prices.
herd
liquidations
prices.
improving
repayments
of
agricultural loans.
that many farmers are having difficulty
current prices.
are
putting
The brightest agricultural picture is
offered by Richmond where a better growing season and
are
U.S.
cattle prices are helping ranchers in many parts of the country,
although St. Louis notes
downward
soybean
Both San Francisco and Chicago comment
on the importance of poor export markets as one cause of low
Improving
and
Atlanta
meeting
stable
input
costs
Several Districts note
interest
payments
given
FIRST DISTRICT - BOSTON
Economic activity in the First District has slowed in the past
several months, according to representatives from both the retail and
manufacturing sectors.
Retailers attribute the recent weakness, at least
partly, to unseasonably warm weather; they continue to look forward to a
strong Christmas season.
Manufacturers have also seen a slowing since the
summer, although a couple of respondents report that orders appear to be
picking up again.
Manufacturers are concerned that the recent slowdown
means that there will be little or no growth in 1985.
Even so,
manufacturers' capital spending plans for 1985 are greater than or equal to
spending in 1984.
Some retailers and manufacturers report that inventories
are higher than desired; but for the most part, inventory control is said
to be good.
Price increases continue to be very modest; competition is
intense in both retailing and manufacturing.
Retail Sales
Retail sales growth slowed in the First District in October and the
first half of November.
reportedly fierce.
More recent signs are mixed.
Price competition is
In spite of recent results, most contacts expressed
optimism about the upcoming holiday season.
Explanations for the recent slowdown were varied.
Warmer-than-
usual fall weather reportedly inhibited purchases of cold weather apparel,
with sales of outerwear noticeably below plan.
One merchant also blamed
poor product availability caused by difficulty hiring employees for a
distribution center.
4 1/2 percent).
(New England's unemployment rate is currently about
However, a chain selling consumer durables, with well into
double digit sales growth for the last few years, had no explanation for an
unprecedented drop to "near zero" growth beginning in mid-September.
Shoppers just stopped coming to their stores.
There is extensive promotional price activity.
is growing, reducing margins.
Off-price retailing
One contact commented that merchants are
fighting so hard for market share that they are losing sight of the bottom
line.
Another, selling hardgoods, said ready-to-wear stores are facing
particularly tough times.
A mail order firm predicted a shakeout in the
catalog sector and, citing'competitive pressures, reported recent price
increases averaging only 2 percent; 1985 price increases are also expected
to be modest.
Two retailers with supply troubles have lower inventories than
desired.
They are concerned that customer service levels and, hence, sales
could be adversely affected in the next critical month.
Other stores, with
unexpectedly weak sales, are currently overstocked but expect to work
inventories down in December.
A local department store reported "fantastic" sales volume the day
after Thanksgiving; but results were spottier on the ensuing weekend days.
The slower weekend sales were attributed, at least in part, to the return
of warm weather.
With more seasonal cold temperatures, retailers project
good holiday sales and strong, but not spectacular, increases over last
year.
Manufacturing
Manufacturers in the First District report that orders have slowed
from the pace set in the first half of the year.
The slowdown has been
fairly general, encompassing high technology products, traditional
metalworking, packaging and some consumer products.
One respondent has
continued to enjoy strong, steady growth and two others have seen a pickup
in orders after a slowdown earlier in the fall; but these are exceptions.
The slowdown caught manufacturers by surprise; several report that
inventories are a little higher than desired.
that their inventory control is very good.
However, most contacts feel
The slowdown does not seem to
be viewed as a serious problem in itself, but respondents are concerned
about what it implies for 1985.
Most expect business to be flat or up
slightly next year.
Capital spending plans call for expenditures in 1985 to be about
the same as or higher than in 1984.
More additions and new plants seem to
be planned, although the emphasis in capital spending is still on
replacement expenditures and productivity enhancement.
A couple of
contacts mentioned that workers have become more receptive to productivity
enhancing equipment and the more flexible work rules this requires.
There are no signs of increasing inflation.
Materials prices are
rising only modestly and several manufacturers noted that even these modest
increases cannot be passed on to customers.
Wage increases remain moderate.
One comment heard for the first time is that the decline in the
value of the pound has made the United Kingdom a much more attractive
I-4
location from which to supply world markets.
Two manufacturers, in very
different industries, said they are expanding or thinking of expanding
their U.K. operations.
Several respondents also mentioned that the strong
dollar and the pressures of foreign competition have forced them to devote
more attention to developing new products and also to searching out new
markets overseas for existing specialty products that are not very price
sensitive.
II-1
SECOND DISTRICT--NEW YORK
Introduction
The pace of economic activity in the Second District has been uneven
in recent weeks.
November,
while
Retail
sales
purchasing
slowed significantly
managers
reported
in October and
significant
improvement
business conditions in October after a sharp slowdown in September.
reports on the Christmas season were mixed.
department
store
sales
were
is increasingly scarce.
in
The first
Over the Thanksgiving weekend,
on or above plan, but
advertised heavily and cut prices.
early
several
retailers had
Homebuilders remain busy and skilled labor
The office market, in contrast, is weakening almost
everywhere outside of midtown Manhattan.
Thus far, the demand for mortgages
and consumer loans has not responded to the recent decrease in interest rates.
Consumer Spending
Second District retailers report a weakening of consumer sales in
October and November.
slow sales
of
winter
Unseasonably warm weather was cited as the cause of the
clothing through most
of the period, yet
only one
merchant reported sharp increases when the weather cooled in mid-November.
a result, most stores report unplanned increases in their inventories.
As
Over
the Thanksgiving weekend, sales at many stores showed some improvement, with
increases over 1983 ranging from flat to 39 percent.
However, the promotional
environment has been escalating and some retailers reported needing aggressive
advertising and price cuts.
II-2
Business Activity
During
recent
weeks
the
pace
of
improvement after the September slowdown.
economic
expansion
showed
some
In Rochester, the percentage of
purchasing managers reporting improved business conditions rose substantially
in
October;
in
Buffalo
the
percentage
reporting
declining
orders
fell.
Inventories were steady to slightly higher and remain at satisfactory levels.
Several New York firms plan to increase production and hiring as a result of
newly-awarded
contracts
government
Additionally, a Japanese
electronics
and
development
urban
firm will
build
grants.
a U.S. headquarters
complex in Mahwah, New Jersey on the site of a large plant closed in 1980.
A recent
report
indicates
that New York City's
employment growth
during the recovery extended to all five boroughs, in contrast to past years
when most job gains were concentrated in Manhattan.
Employment increases in
Brooklyn and the Bronx reversed a six-year pattern of decline.
Construction and Real Estate
Residential construction activity remains intense.
New contracts for
home construction are being written by some upstate builders at a rate that
exceeds even the rapid pace of last summer.
In downstate New York, however,
shortages of skilled labor in parts of the metropolitan area are reportedly
worsening, and
parts
the delays have been very costly to some homebuilders.
of New Jersey, planning for multi-family housing is picking
court-ordered down-zoning is gradually being implemented.
up
In
as
Additionally, for
the first time in several years, New York City is sponsoring the production of
rental housing without Federal subsidy.
II-3
Observers
absorption
across
the
entire
in almost
of office space
District,
appear
Observers
to be
also
a "wait and
taking
believe
that
plans
started are likely to be postponed.
is
in
midtown Manhattan,
where
slower
all areas, with parts of Westchester,
Connecticut and New Jersey especially sluggish.
space
report
however,
for
see"
many
Potential renters of office
stance
signing leases.
before
projects not
construction
yet
The one exception to this softening trend
demand
is still
strong
and
inventories
of
rental spaces are low.
Financial Developments
Despite
the
drop
in interest
rates since August,
several
regional
banks said they experienced little or no increase in the demand for mortgages
and consumer loans beyond the normal seasonal variation.
for
the
weakness
is
that
their mortgage
One reason mentioned
and consumer loan
rates have not
dropped as much as open market interest rates, and consumers are said to be
delaying their borrowing
rates.
in anticipation of a further decrease in the bank
The banks also reported that for new mortgages, fixed rate instruments
have become more popular in the last few months.
III-1
THIRD DISTRICT - PHILADELPHIA
The Third District economy is turning in a somewhat mixed performance again in
November.
On the up side, retailers are starting the holiday season with strong sales, realtors
are seeing an increase in traffic, listings, and sales, and consumer lending continues to grow
steadily.
Less positive are manufacturing, where the expansion continues to lose steam, and
business borrowing, which has been flat over the past six weeks.
The overall economic outlook is generally upbeat.
Retailers expect to finish the
year with a bang, and realtors hope to continue to ride the tide of lower mortgage interest
rates. Area bankers predict continued economic expansion and expect commercial loans to pick
up again. Growth is expected in manufacturing also, but at a slower rate.
MANUFACTURING
The rate of expansion in local industry continues to decline, according to
respondents to this month's Business Outlook Survey. Almost two thirds of the manufacturers
polled in November say there has been no change in the level of business activity compared to
last month.
November is typically a slower month, but, even after adjusting for seasonal
effects, this deceleration in growth is still evident.
durable goods sector where not one
The slowdown is most pervasive in the
respondent indicated
improvement.
Producers
of
leveling off
in
nondurables, on the other hand, are still posting solid gains.
Reports
on specific
manufacturing activity.
indicators
also
reflect
the
apparent
The only indicator to increase in November is shipments; unfilled
orders, delivery times, inventories, employee payrolls, and the length of the average workweek
all register minuses.
The outlook for manufacturing over the next six months is still positive, but
optimism is waning. The proportion of respondents looking for future expansion has been
III-2
shrinking steadily since mid-1983 and now stands at 47 percent.
Nevertheless, projections of
new orders and shipments are still strong, and payrolls and working hours continue on their way
up.
Industrial price reports have been marked by stability over the past few months.
This month, three out of four executives polled say there has been no change in either prices
paid for raw materials or prices received for finished goods.
As for the future, however, the
same proportion of respondents predict higher costs by April, while about half expect to receive
more for their output.
RETAIL
Retail sales over Thanksgiving weekend were strong, giving an extra push to what
has been an already brisk six-week period. Most retail contacts feel that consumer confidence
is up, citing increases in credit purchases and a "freewheeling" attitude about spending. Still,
heavy promotional activity is being used to attract shoppers, and area merchants say they will
continue to use the discounting tactic to boost sales throughout December.
Currently, sales
volume is running about 10 percent above last year at this time.
Inventories at Third District department stores are slightly heavier than usual
relative to sales, but are in line with sales expectations for the next month. One contact said
that the heavy stock levels are a reaction to last year's empty-shelf syndrome, pointing out that
retailers want to have enough merchandise to avoid shortages.
Area merchants expect to finish 1984 on a strong note, topping last year's
exceptional sales by 10 to 15 percent. In part this is the result of the date of Thanksgiving this
year, which provides two extra shopping days compared to last year.
Local retailers say that
each additional day adds about 1 percent to holiday sales figures on a year-over-year basis.
Automobile sales are very strong in the Third District, up about 25 percent over a
year ago. Car dealers also are seeing improved consumer confidence. One contact reports,
III-3
"people are not buying new ears because they need them but because they want them." The
average wait for a new car is three to five weeks.
FINANCE
Reports on lending remain mixed in the Third District.
Commercial lending has
flattened somewhat over the past six weeks but is still up over last year. Area lenders look for
a slight pickup in C&I loans by year-end 1984 in spite of the usual downward seasonal pressure.
They also anticipate a surge in C&I loan growth in early 1985 in conjunction with continued
overall economic expansion.
Consumer loans are growing steadily.
On a year-over-year basis, local bankers
report increases of 30 percent or more. In the past, credit card operations have been cited as
the main source of growth, but auto loans account for a large portion of the pickup in late
November.
Bankers expect consumers to maintain their spending mood through December of
this year. Spending in the first half of 1985, however, may slow down if the ratio of installment
credit to personal income, currently about 14.5 percent, reaches or surpasses its 1979 peak of 15
percent.
The prime rate at most local banks has dropped to 11.5 percent as of November
27, and Third District bank economists expect another cut of 25 basis points by the end of the
year. Forecasts of declining rates are based on sluggish fourth quarter economic growth and on
expectations that the Fed will try to stimulate economic activity.
Bankers apparently expect
such efforts to be successful and see the prime climbing back up to 11.75 or 12 percent by mid1985 as a result of renewed growth.
REAL ESTATE
Third District realtors enthusiastically report that traffic, listings, home prices,
and sales are up.
Seasonal factors which usually depress sales in late fall and early winter are
being offset by lower mortgage interest rates and some pent-up demand.
Thirty-year fixed-rate
conventional mortgages are available for as low as 12-7/8 percent; 15-year mortgages for 12-1/2
III-4
percent.
Adjustable rate mortgages start at 10-3/4 percent and go up to about 13 percent
depending on the terms of the agreement. Although lenders are pushing ARMs, consumers are
flocking to the relatively low fixed-rate loans.
IV-1
Fourth District - Cleveland
Summary
this
Overall,
District's
economy
conditions weakened in October.
is soft
and
uneven.
market
Labor
Department store sales improved recently
after being slow in the first two weeks of November.
Automobile sales were
Manufacturing production has begun to expand
strong throughout November.
again but orders are growing so slowly that backlogs are falling.
Machine
tool and steel producers continue to suffer from strong import competition.
Inventories
are high in several
moderate improvement.
sectors.
The housing market is showing
Commercial bank lending has been flat.
District Labor Market Conditions
Labor market conditions in the District softened in October.
Employment
fell and unemployment rose in Ohio, increasing the unemployment rate to 9.5%
(s.a.), 0.8 percentage points above its July level but 1.6 percentage points
below its year-earlier level.
slower
pace.
An
index
of
Manufacturing employment is growing
leading
indicators
of
employment
at a
the
for
Pittsburgh area fell again in September to its level of February, suggesting
that employment there has peaked.
Retail Sales
Retail sales were relatively slow over the first two weeks of November
but have
since
representatives.
improved,
according
to
Fourth
District
department
store
One economist now estimates that November sales will show
a 7%-8% year-over-year
increase.
However,
he
and others
November retail sales report period ended on the 24th,
late-month strength.
noted
that the
missing some of the
As a result, reported November sales figures may be
somewhat understated while those for December will be somewhat overstated.
IV-2
Nevertheless,
no one anticipates
two-month period.
a
return
to double-digit
gains
for the
Further, part of the anticipated November-December gain
will likely be achieved through price reductions as retailers attempt to cut
inventories.
Auto dealers report strong sales throughout November for both domestic
and imported cars.
One dealer, in particular, noted that his November sales
were about even with the October level.
about 20% below the October volume.
Typically,
his November sales run
Car buyers apparently
have not been
deterred by reports of weakened economic activity or by anticipation of tax
increases.
A major
auto
producer
believes
that auto
sales
are
still
constrained by shortages of GMC cars.
Manufacturing
Manufacturing activity in the District is
survey of manufacturers
A survey of manufacturers
production and new orders
indicate
Manufacturers
New orders continue to grow at
in the Cincinnnati
are rising very slowly,
falling for the first time since very early
data
A
in northeast Ohio indicates production is expanding
once again after a recent brief contraction.
a slow pace.
growing slowly on balance.
manufacturers
expect
area indicates
but order backlogs
in the recovery.
to
backlogs
report prices paid for commodities
Other survey
to
continue
and
are
services
decline.
are rising
very slowly while prices paid for equipment are flat.
A manufacturer
of machine
tools expects orders
to be slightly higher
this quarter than last, with slow growth continuing into 1985.
orders
persists
from the auto
in
equipment.
orders
and defense
from producers
Machine tool
industries remain strong while weakness
of
farm,
construction,
and
oil
Imports remain a major drag on the domestic machine tool
field
IV-3
industry, and are absorbing about 40% of the market.
reported
to
be
competing
fiercely
for
sales
Japanese producers are
of machining
centers
and
numerically controlled lathes.
A diversified producer of
components for capital
automotive related orders remain solid.
goods
reports
that
Orders for some electronic
components have declined but the firm views this as a correction of earlier
overbuilding of
inventories rather than
Space-related and defense-related
a decline
in underlying demand.
orders continue to grow but less rapidly
than their previous exceptional pace.
Major
because
steel
producers
customers are
strong.
report
orders
reducing excessive
and
production
inventories
remain
and
imports
sluggish
remain
Order backlogs are expected to continue falling throughout
this
quarter.
Capacity utilization in steel production is 50%-55% for integrated
producers
and 55%-60%
import competition.
for the
industry.
Prices
remain weak
because
of
Producers expect market demand to be stable in 1985 and
their shipments to increase slightly if quotas restrain imports.
Inventories
Department stores report excessive
inventories are tight.
among northeast Ohio manufacturers.
Petroleum
Steel
firms
producers
are
some auto dealer
Inventories of raw materials and finished goods are
reported to be flat among Cincinnati
stable.
inventory, while
report
resisting
expectations of price declines.
area manufacturers and rising slowly
Lead times for deliveries appear to be
customers
seasonal
are
inventory
reducing
growth
inventories.
because
of
IV-4
Housing
Housing market participants
summer's general
prospects
for
participants
downward trend.
even
that
The
mid-1985.
in this District report a reversal
lower
housing
Because of softening mortgage rates and
rates,
there
is a
activity
will
improve
possibility
of
of the
a
strong
consensus
mildly
housing
among
until
rebound
market
at
is
least
generally
considered to be remote.
As a result of a substantial
realtors
are
reversing
their
recovery in listings and contract closings,
previous
plans
to
scale
down
operations.
Realtors, who are the most optimistic among market participants,
that housing activity will
improve
throughout 1985.
rebound may continue to mid-1985 but are
reduce
the
size
of
their operations.
persists.
weak and brief.
In contrast,
Although
lenders
Builders
expect
not reversing previous
Builders
minimize down-side risk and forego potential
rebound
now expect
apparently
profits if
plans to
would
rather
the housing market
expect the housing rebound
inquiries are up slightly,
the
mortgage
to be
volume has
been only marginally increased by lower mortgage rates.
Commercial Banking
Loan growth was relatively flat at Fourth District banks during the past
five weeks.
in
A few bankers who reported fairly strong business loan demand
recent weeks
expect
the demand
for business
credit
to weaken.
Some
contacts said that consumer loan demand has been good and should remain that
way for the balance of the year.
A few large banks report that consumer
leading rates have not yet been adjusted downward.
Retail
weeks.
deposit growth
has
been moderate
at district
banks
in
recent
Banks have relied less on large certificates of deposit, but more on
the use of borrowed funds.
FIFTH DISTRICT - RICHMOND
Overview
Although there
are presently cross currents at work, the primary
thrust of the District economy seems to be forward.
Employment appears to be
making substantial gains despite seasonal weakness in some sectors.
Retail
sales have been holding their own and most observers are encouraged by the
early
indicators
of
holiday
buying
strength.
Construction
activity
is
essentially unchanged, remaining strong in the metropolitan areas, somewhat
less robust elsewhere.
Countering all of
these positive factors,
is what
appears
to be a sharp contraction in the textiles and apparel industries.
Several
major
layoffs
and
plant
closings
the District
around
have
announced recently, and industry employment has fallen substantially.
contraction
is
generally
attributed
to
rapidly
increasing
been
This
imports
of
competing products.
Business loan demand seems stable and relatively strong,
although
variations
there
are
from
area
to
area.
In
agriculture,
an
excellent growing season in much of the District, good prices, and a strong
livestock sector should make for significantly improved cash receipts in 1984
and some relief on the agricultural credit front.
Manufacturing
The manufacturing sector must almost be treated as two,
since the
behavior of textiles and apparel differs sharply from most other sectors.
balance,
the District's manufacturing industries
are continuing
to
On
expand
output and employment, and the gains appear significant in some industries,
such as machinery and electrical equipment, where year over year gains in
employment remain the rule.
Building materials and furniture production and
employment have apparently stabilized after several months of ups and downs.
Textiles and apparel, on the other hand, after a year of little change, began
cutting back employment and output, severely in some cases.
import situation is a major factor.
As noted, the
Nationally, 1983's record for textile
and apparel imports had been broken by the end of September.
Inventories at the manufacturing level are essentially stable and
there is
little
noticeable
dissatisfaction with present
levels.
Current
plant and equipment capacity also remains basically at desired levels, and
there
is
little
existing
inclination
expansion
plans.
on the
Prices
part
in
of
the
most manufacturers
manufacturing
sector
to
alter
continue
stable, with no significant upward pressure apparent in any sector.
Coal
production
in
the
District,
as
in
the
nation,
substantially after the BCOA-UMW negotiations were completed.
fell
rather
Nonetheless,
production, year to date, remains well ahead of last year, and record output
is still within reach.
Another segment of the District bringing in an outstanding year is
the ports.
Although much of the traffic is in imports, activity, particular-
ly at the District's larger ports, has been very strong.
Consumer Activity
District has been quite strong
Consumer spending in the
time,
and
indications
are
that
it
remains
so.
Earlier,
for some
there was
some
trepidation among retailers, but recent developments have apparently relieved
it.
Early indications are that the holiday buying season got off to a good
start.
Most observers think that sales will be up from a year ago, and thus,
quite healthy.
Even before the seasonal kick-off, durable goods sales which sagged
in late summer, had rebounded and were making gains relative to other product
lines.
Although retailers had expressed some concern over inventory levels,
their fears on that front seem to have been quieted as well.
improvement
in retailers attitudes
Part of the
arose from their perception that
sales
were doing well despite unfavorable weather conditions.
Construction
In general, the
construction industry in the
District is
staying
busy.
Variation persists, particularly between the larger cities and smaller
towns
and
rural
areas.
There
are
presently
indications,
however,
that
industrial projects are lending support to a number of localities outside the
urban
areas.
Within
the
areas
metropolitan
commercial
and
construction are still doing well, apart from seasonal factors.
indications, however, that in
some of
these
areas multifamily
residential
There are
residential
markets have or are about to weaken while excess supplies are worked off.
Agriculture
The agricultural sector of the Fifth District should experience an
economic rebound in the current year.
most
of
the District,
good prices,
An excellent growing season throughout
and
a strong
livestock sector
should
provide $8.15 - $8.20 billion in cash receipts for 1984 about 10 - 12 percent
above the drought reduced
The cost
1983 level, but only about equal the
1982 mark.
of production should exhibit only modest increases over the same
period, leaving the net income
of farmers
substantially improved over the
1983 position.
The improved income position of District farmers is expected to show
up
in
the District
agricultural
credit
agricultural
conditions
credit picture.
indicates
rates are improving at District banks.
that
The quarterly
agricultural
loan
survey of
repayment
In addition, short and intermediate
loan demand is strengthening although the demand for long term loans remains
weak.
District farmland prices are stabilizing.
Outlook
The
outlook around
the District
has
improved
somewhat
in
recent
weeks, although most respondents see activity as essentially flat in coming
months.
outlook
Apart
seems
considered
from the
to have
textile
arisen
unsustainable.
as
The
and
apparel
sectors,
activity continued
trade
deficit
at
remains
the
improvement
levels
a
major
in
previously
concern,
particularly among the textile, apparel, and furniture manufacturers.
Their
attitudes are clearly less buoyant than those in other sectors.
Consumers
and retailers
sales activity has improved.
for inflation.
are
confident,
particularly
since
recent
There remains little concern with the prospect
VI-1
SIXTH DISTRICT - ATLANTA
Strengths continue to outweigh weaknesses in the southeastern economy.
With the exception of certain import-sensitive industries, the manufacturing sector
continues to expand, and optimism remains strong.
sales without
excessive pressures
on profits.
Retailers expect healthy holiday
The large
volume of commercial
construction is helping to offset the slower pace of residential building, and contacts
believe that underlying conditions portend a revival in housing next year.
demand remains
seasonal norm.
on the upswing,
Bank loan
and thrift mortgage commitments are above the
Business and convention travel is sustaining growth in lodgings and air
transportation, although vacation travel has slowed somewhat.
The agriculture sector,
particularly cotton and soybean growers, also experienced some late-season setbacks as
the result of heavy rainfall and flooding.
Employment and Industry.
Unemployment
rates changed
marginally
in
However, more recent labor market data for three of the six District
September.
states suggest that the region's overall rate rose slightly in October.
also is mixed.
Industrial activity
Fewer housing starts and rising imports of Canadian lumber are swelling
forest product supplies and depressing prices.
Alabama reportedly is Canadian.
One-third of the lumber now sold in
Clothing and textile producers continue to face stiff
foreign competition that has resulted in layoffs and plant closings.
Although previously idled workers in Louisiana's petrochemical industry are
being recalled, the industry remains weak.
However, respondents anticipate chemical
production to grow from current depressed levels if interest rates stabilize or fall
further over the next quarter since demand for the state's chemical products stems
largely from the credit-sensitive auto and construction industries.
south Louisiana continues its gradual upward trend.
Drilling activity in
Over 89 percent of rigs are now
VI-2
working compared to 68 percent a year ago. The region's many paper mills are operating
near capacity.
Industry spokesmen fear that packaging-related orders may slow as the
economy cools, but they foresee ongoing strong demand for computer paper and other
forms.
Defense and space programs are providing additional stimulus.
A satellite
assembly facility and a cruise missile plant recently began operating in Florida.
A
major Mississippi defense contractor expects to add 1,500 workers to its payrolls by
spring as naval shipbuilding and refurbishing contracts reach the assembly stage.
Consumer Spending.
Southeastern retailers report varied sales gains ranging
from 2 to 10 percent for October and November.
Mild fall temperatures slowed
consumer spending and contributed to the accumulation of unwanted inventories in a
few areas.
However, generally steady retail sales and increased advertising and sales
promotions helped keep inventories at desired levels elsewhere.
toys were best sellers in the October-November period.
especially
Electronic items and
Sales of winter apparel items,
outerwear, also spurted in November with the onset of cooler weather.
Retailers report that prices for Thanksgiving weekend were at "regular discount levels."
Although some retailers have lowered their expectations for consumer spending, most
expect good Christmas season sales without the need for extreme price discounts to
move inventory.
Shortages of certain popular models and strike-related sales declines slowed
car sales activity in October and the first two weeks of November, but regional auto
sales remain sharply ahead of 1983 on a year-to-date basis. Southeastern dealers expect
new car sales to continue strong through the first half of 1985.
Construction.
Many builders and real estate agents polled believe that
declining interest rates, stable home prices, and increasing personal income augur a
rebound in housing in 1985 from the current moderated level of residential construction.
Commercial real estate
construction
continues
at a record
pace
in most major
VI-3
southeastern cities, but vacancy rates are generally high.
Miami's vacancy rate edged
Shopping center construction has increased in Birmingham
down to 13 percent, though.
and Miami with the entry of major retailing chains into those markets.
Financial Services.
Loan activity remained strong in October.
and business lending accelerated from the growth rate of previous months.
Consumer
The pace
of real estate lending at banks slackened in October, but mortgage commitments at
savings and loan institutions currently are above the level expected for this time of
year, according to thrift officers surveyed.
They report that the higher qualifying
standards for customer income recently enacted by mortgage insurance companies has
not noticeably dampened consumer demand for mortgages.
Tourism.
convention
Vacation tourism slowed somewhat in October, but business and
travel remains
strong.
Attendance
decreased relative to year-earlier levels.
at
many southeastern
attractions
For the first time since the beginning of the
year, Florida welcome centers registered fewer visitors.
However, hotels and motels
increased revenues in October due to increased occupancy and steady room rates in
most markets.
Miami's convention bookings were 20 percent ahead of year-ago levels.
Most regional airports, which, like hotels, serve primarily business and convention
travelers, had higher passenger volume than in October 1983.
Agriculture.
Late season weather has changed crop prospects.
As a result
of extensive rainfall and flooding, Mississippi's estimated cotton yield declined 115
pounds per acre, occasioning a 17 percent revenue loss from earlier projections.
Rains
and floods also proved damaging to the soybean crop in Louisiana and Mississippi.
Production declines in those states, added to earlier drought-induced losses in Georgia,
may reduce revenue to southeastern soybean farmers by 9 percent, or $139 million,
from 1983's relatively low level.
VII-1
SEVENTH DISTRICT--CHICAGO
Summary.
Total business activity in the Seventh District has been about
stable since early this year, having flattened earlier than in the nation.
Most District reports suggest relative stability in the months ahead, but concern has been growing that a general deterioration is underway.
Auto pro-
duction has returned to a high level, but only slightly above last year.
Steel
output has improved since late September, but remains well below the first
half rate, and below break-even levels.
from the auto industry.
Machine tool orders are up, mainly
Heavy construction and farm equipment makers, faced
with weak markets, are selling off units and closing marginal plants.
Cutbacks
are occurring in the important health care industry, reversing a long-term expansion.
Container loadings on flat cars, which had slowed earlier in the year,
slipped significantly in November.
ment remains weak.
from high levels.
Demand for most mechanical capital equip-
Sales of heavy trucks and trailers have softened recently
However, surveys show sizable additions to capital outlays
next year by the auto and steel industries.
Many lines of seasonal retail
merchandise are reported moving well, but the 2-year boom in consumer hardgoods
apparently has run its course.
encouraging price markdowns.
Retail inventories are viewed as excessive,
Recent declines in paperboard demand partly re-
flect reduced orders for general merchandise.
Residential construction con-
tinues to weaken, while nonresidential construction is expanding.
District
farmers, many in distress because of heavy debts and weak prices, continue to
restrict purchases.
Recession Fears.
The plateau in District activity since last spring,
coupled with recent declines in factory orders and freight movements, raises the
question of an imminent recession.
are intense.
Pressures to reduce or hold down inventories
Our contacts with industries important in the District generally
VII-2
expect relative stability during the rest of 1984 and early 1985--but no
precipitous decline.
However, some company analysts are warning their manage-
ments that the situation is fragile and that a general decline, rather than
renewed expansion, is the more likely development.
Motor Vehicles.
Auto makers are planning production at a high level
through next year's first quarter, but with only small gains from year-earlier
levels.
Weaker auto sales in recent months reflect shortages of popular models.
Strikes, unrelated parts shortages, and import quotas have limited supplies.
Large "availability" premiums are reported on some models, recalling the
situation after World War II.
Steel.
Steel production in the Chicago and Detroit areas has improved some-
what from September lows associated with heavy imports, the auto strike, and inventory cutting.
However, output remains well below the first half pace.
In-
creasingly, imports have penetrated Midwest markets. usually through steel service centers, often owned by foreign steel producers.
Fourth quarter shipments
are expected to be about even with the third quarter, in contrast with a normal
seasonal rise.
Local analysts have lowered estimates for total U.S. mill ship-
ments to around 74 million tons.
Next year's shipments are expected to be helped
by the Administration's import restraint plan, retroactive to October 1.
Capital Equipment.
Many capital goods manufacturers with production
facilities in the region are restructuring and downsizing operations.
heavy construction equipment producer plans to close five plants.
are consolidating divisions and laying off workers.
A major
Other firms
Producers of most mechanical
capital goods face intense competition from abroad in U.S. and foreign markets.
Some farm equipment suppliers, long-time leaders in their fields, are selling or
writing off money-losing divisions.
softened further.
Farm equipment sales, weak last year, have
Some other types of capital goods, for oil and gas de-
velopment, materials handling, food processing, and railroad transportation,
VII-3
have improved but from low levels.
Easing of orders for heavy trucks and
trailers, in strong demand earlier in the year, is expected to reverse when regulations on size limits and routes are clarified.
Surveys show further growth in
capital spending next year, with sizable increases in outlays by the auto industry and steel.
Retail Trade.
General merchandise sales in the District have been mixed in
recent months, with good gains for some discounters and declines, seasonally
adjusted, at other chains.
Large appliance sales are at record levels, but the
vigorous two-year expansion has lost momentum.
Furniture demand also has slowed.
However, small "traffic" appliances, toys, and other gift items are moving well,
raising hopes for a good Christmas selling season.
in the region, remain optimistic.
Markdowns are frequent.
Consumer attitudes, measured
Inventories are widely viewed as excessive.
Some general merchandise chains have cut back orders.
This helps account for an easing in paperboard demand, after an 18-month expansion.
Prices on average are about stable and little changed from last year.
Residential Construction.
ened since about midyear.
New housing construction in the region has weak-
Despite sizable declines in mortgage interest rates
since then, area lenders report softer loan volume.
the outlook is somewhat improved.
However, with lower rates,
Fixed-rate loans are accounting for a larger
share of the total, due to higher standards on adjustable rate mortgages and a
narrower "spread" between rates on fixed- and adjustable-rate loans.
Permits
for residential construction in District states are 68 percent above the low 2
years ago for nine months, but 58 percent below the peak in 1977.
Nationwide,
permits are up 80 percent from 2 years ago and only 8 percent below the 1978 high.
Nonresidential Construction.
strong in the Chicago area.
Office and retail construction continues
Total nonresidential building contracts this year
in the five District states (F.W. Dodge data, in square feet) are up nearly 60
VII-4
percent from 2 years ago, but still more than 40 percent below good levels of
the 1970s.
The backlog of public works projects is growing--mainly highways,
bridges, water and sewer.
The amount of road and bridge work next year will
depend on resolution of a political impasse in Congress which is delaying
release of accumulated funds.
Agriculture.
Following rain-caused delays, the District farm harvest is
finally drawing to a close.
Corn and soybean prices remain well below year-
earlier levels, keeping farm income low.
Despite average domestic harvests,
record crop production world-wide is forecast for 1984-85.
the expected recovery in U.S. grain exports.
This may dampen
Meat output is down from last
year, but above earlier forecasts, largely reflecting increased broiler output.
Milk production is running about 4 percent under last year, partly be-
cause of federal payments to farmers to cut output.
has been trimmed by higher consumption.
The milk surplus also
Dairy farmers apparently are poised
to expand output when the paid diversion program ends in March.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Summary
The Eighth District economy has experienced slight reductions in
employment levels recently and at least one District state has seen a
small rise in unemployment.
Though retailers continue to expect a good
Christmas season, forecasts for sales through the end of the year have
been revised downward.
Lower interest rates have spurred small gains in
residential construction levels.
Total loan growth has increased
recently, especially among commercial and industrial loans and consumer
loans.
Prices of District agricultural commodities remain weak as
marketings continue to be sufficient to meet current demand.
Outlook
Most respondents in the Eighth District expect little change in
business conditions through mid-1985.
They expect the real volume of
sales to go up slightly in the next three months, but plan to keep price
and employment levels unchanged.
Consumer Spending
Retailers continue to expect a good Christmas season though not
as robust as forecasted last summer.
Sales of durable goods in Memphis
were up significantly in early November, while retail sales in eastern
Arkansas were considerably above last year's level.
Auto sales for early
November in the District were just slightly above November 1983 levels.
VIII-2
Employment
Employment levels in the District have declined slightly in
recent weeks as several District firms have laid off workers.
A major
appliance producer in Kentucky laid off 1,400 production workers and will
phase out nearly 300 white collar positions.
Kentucky also recently
experienced the loss of approximately 900 jobs in the cigarette
manufacturing industry.
Arkansas lost approximately 2,600 employees in
the textile, metal and communications industries.
Its unemployment rate
rose 0.2 percent to 8 percent in October, but remained below the 8.3
percent rate of October 1983.
Business Activity
General business activity, as defined by an index of seven
indicators, has slowed in Arkansas from a 4 percent annual rate of growth
in September to a 2 percent rate in October.
Business activity in
Missouri declined at a 6 percent rate in October, following a 1 percent
rate of increase for the month of September.
Construction
Housing sales in the District, which have been stable in recent
months, seem to be picking up again on a seasonally adjusted basis.
Housing market observers expect further improvement through the end of
the year due to the recent fall in interest rates.
Multi-family housing
construction has been particularly strong in the St. Louis and Memphis
areas.
VIII-3
Banking
The growth of total loans outstanding at large weekly reporting
banks has picked up after a lull in recent months.
The annual growth
rate for the four-week period ending November 14 was 12 percent over the
previous four-week period.
Strong seasonal growth in commercial and
industrial loans and consumer loans accounted for the overall increase.
The growth of loans to financial institutions and real estate loans was
flat.
Total deposit growth slowed to a 5 percent annual rate, down from
17 percent a month earlier.
All deposit categories experienced slower
growth, while large denomination CD levels declined sharply.
Agriculture
Red meat producers, who had expected sharp price increases during
the second half of 1984, continue to be disappointed by price weakness.
Cattle prices have been pressured by a 7 percent increase in cattle on
feed and a 2 percent increase in marketings over October 1983.
Competition from a 5 percent increase in broiler production has prevented
sharp increases in hog prices even though hog slaughter in October was 12
percent lower than a year ago.
Corn and soybean prices have declined in response to better
estimates of this year's harvests.
Large foreign and U.S. cotton crops
and weak demand suggest further price declines in this market.
Little
evidence is available to suggest substantial price increases for any of
these commodities in 1985.
IX-1
NINTH DISTRICT -
Except
conditions
favorable
in
for
the
some
large
layoffs
Ninth District
employment
conditions
have
have
MINNEAPOLIS
in
not
northeastern
changed
changed little
Minnesota,
economic
much lately.
Generally
from earlier this
fall.
Consumer spending appears to be stronger in the Minneapolis-St. Paul area than
in
other less
diversified parts of the district.
The pulp and paper and the
oil and gas sectors are performing well, while the lumber and plywood and the
iron
mining sectors
are
not.
Crop farmers'
profitability has
not
improved
much, but dairy and fat cattle prices have.
Employment
District
ota's
conditions
seasonally adjusted unemployment
crease is
state,
employment
are generally
rate rose a bit in
widely thought to be due to statistical
seasonally
adjusted
nonfarm
stable.
payroll
September,
quirks.
employment
While Minnes-
In
fact,
in
that
a
September
increase only slightly less than the 1984 average monthly increase,
and aver-
age weekly earnings in
ust.
posted
the in-
manufacturing industries increased slightly from Aug-
Similar reports come from other parts of the district.
In the Dakotas,
for example, the September unemployment rate was only 4 percent.
In the Sioux
Falls, South Dakota, area, it was as low as 3 percent.
Employment
recently:
massive
were announced in
in
one of the district's
layoffs
November.
workers were laid off in
14,500 workers,
in
industries
the northeastern
Due to a slump in
has
not been stable
Minnesota iron mining
steel demand,
sector
about 4,500 more
an industry which had at one time directly employed
but which more
recently had employed only about 8,000.
The
IX-2
latest layoffs are a severe blow to the northeastern Minnesota economy, which
had been recovering from lingering effects of the national recession.
Consumer Spending
A mixed pattern
generally
noted
in
the
of consumer spending is
Twin
Cities,
it
is
reported.
not
in
some
While growth
other parts
is
of the
district.
Sales of general
At
two
large
November.
ahead
of
Bank's
Twin City
Both
retailers,
of these
year-earlier
directors
merchandise have not been uniformly strong lately.
also
sales
retailers
levels,
report
report
although
good
appear
to have
November sales
inventories
sales
picked up late
in
parts
are
about
still
12 percent
high.
of western
in
This
Wisconsin
and
around Bozeman, Montana.
Retail sales have not been so good in other parts of
the
In
district,
however.
Rochester,
Minnesota,
early
November
sales were
generally slow, with smaller retailers doing worse than larger retailers.
Bank director reports
while
other
small increases
directors
report
a
at best for retailers
general
merchandise
slump
in
in
One
South Dakota,
many parts
of
Montana and North Dakota.
Motor
pace in
vehicle
in
contrast,
many areas of the district
strike).
Regional offices
rose between
this October
Bank directors
light in
Dakota.
of domestic
9 percent
than
report
last.
that
seem to be continuing at a good
(despite the effects of the General Motors
September and October.
facturer experienced
sales
sales,
auto manufacturers
Indicative of this
higher car
in
strength,
sales
one manu-
sales and 43 percent higher truck
Its inventories
car sales
report that
are
low but
still
adequate.
October and November were a little
South Dakota and about the same as a year earlier in
Bismarck,
North
IX-3
While housing purchases have picked up lately in
in
some scattered areas,
August,
Twin
City home
they have been slow in other areas.
sales rose in
percent higher than a year earlier.
the September pace.
the Twin Cities and
Sales
in
September,
After falling in
maintaining a level over 17
October sales in Minneapolis maintained
Sioux Falls,
South Dakota,
were good,
in
part
due to the availability of subsidized mortgages financed with mortgage revenue
But Bank directors report
bonds.
consin and Montana,
that housing starts slowed in
and many units
remain unsold in
Bismarck,
western WisNorth Dakota,
and in Rochester, Minnesota.
Resource-Related Industries
The picture in
resource-related
tors are continuing to do well.
have been
delayed,
particularly
pulp
and
industries
is
mixed,
While expansion plans in
paper
prices
for coated printing paper.
too.
Two sec-
the paper industry
and production
are
Oil production is
still
strong,
also strong, with
50 rigs operating in the Williston Basin of North Dakota and a new $51 million
project to enhance oil recovery from these wells.
ther,
oil and gas
Two other
there.
drilling has
sectors
gone well in
are not
Montana,
doing too well,
continuing low steel demand helped cause massive
eastern
Minnesota's
iron
mining industry.
Due to the warm,
dry wea-
increasing employment
though.
As noted above,
layoffs recently
And domestic
in
north-
lumber and plywood
prices continue to be hurt by Canadian imports and substitute building products.
Agriculture
Despite
still
a
generally
favorable
suffering from low product prices,
prices.
harvest,
many
district
excessive debt burdens,
Dairy farming and livestock operations
farmers
are
and low land
have seen some price improve-
IX-4
ment,
though.
consecutive
spondents
to
The Minnesota farm price index fell in
month.
It
this
has
Bank's
percent said that farmers
fallen nearly 12 percent
late
September
October
for the fourth
since June.
survey of district
Of the re-
ag bankers,
44
in their areas earned less in the third quarter than
a year earlier, and a full 50 percent said that debt repayment was slower than
normal
for that
strong recently,
tightened.
time
of year.
and milk prices
However,
fat
went up in
cattle
October,
prices
have
been
quite
as fluid milk supplies
TENTH DISTRICT-KANSAS CITY
Overview.
There appears to be a lull in economic activity in the Tenth
District at this time.
But retailers, including automobile dealers, are
mildly optimistic about sales for the rest of 1984.
Inventories are viewed as
generally satisfactory by retailers and manufacturers.
Few price increases
are expected for the rest of the year at either the retail or the producer
level.
Housing starts and sales continue above year-ago rates, while demand
for mortgage funds is weak.
Most responding banks report no change in total
loan demand, and some growth in total deposits.
Agricultural bankers expect
unsatisfactory progress in debt servicing by many farmers in 1985.
Retail Trade.
Although most retailers report year-to-date sales have
improved over year-ago levels, results have been mixed in the past three
months.
Stores with declines in sales in the past three months note some
recovery more recently.
Clothing has been selling particularly well.
Inventory levels are slightly higher than some retailers desire, but this
comes at a time when retailers are trying to position inventories for the
holiday season.
Retailers are mildly optimistic about sales through the
remainder of the year with "better than last year" the predominantly expressed
sentiment about this year's Christmas sales.
Prices have remained flat in
recent months, and no significant increases are expected for the remainder of
the year.
Automobile Sales.
year-ago levels.
Automobile dealers report sales are slightly ahead of
Credit market conditions remain satisfactory, and financing
is available both for floor planning and new car sales.
A number of dealers
describe inventories as tight, and the mix of inventories is unsatisfactory
with some of the 1985 models in short supply.
Despite this, dealers remain
optimistic about sales for the remainder of the 1984 and early 1985.
X-2
Purchase Agents.
Respondents report input price increases ranging from 2
to 7 percent over the past year.
Most have experienced smaller increases over
the recent three months, and few expect price hikes during the remainder of
1984.
Except for some difficulties with undependable suppliers, most agents
have had no problem getting deliveries and expect none for the remainder of
the year.
Most respondents describe inventory levels as satisfactory while
they continue to look for ways to trim further during the remainder of 1984.
Housing Activity and Finance.
The majority of homebuilders report that
housing starts are still running ahead of last year.
Most report substantial
improvement in multi-family starts, but only moderate increase in singlefamily starts.
Sales of new homes are at or above last year's rate.
Prices
for new homes have remained constant or risen only slightly, and inventories
are generally low.
risen slightly.
Prices for building materials have remained stable or
No availability problems were reported, nor are any expected.
Demand for mortgage funds at savings and loan associations is weak, especially
for residential mortgages.
pace.
Mortgage commitments are thus being made at a slow
Mortgage rates are expected to fall slightly, but no significant
improvement in mortgage demand is anticipated before early next year.
Savings
inflows are reported to be somewhat higher than last year, with some further
improvement expected.
Banking.
A majority of respondents at Tenth District banks report no
change in total loan demand during the last month.
However, a sizable
minority indicate that loan demand was somewhat higher.
The situation is
similar for commercial and industrial loans, and for commercial real estate
lending.
Some respondents express continuing concern about loan quality in
industries such as energy and agriculture.
Most banks report an increase in
consumer loans, but lending for residential real estate is unchanged.
A
majority of respondents experienced growth in total deposits.
Demand deposits
and conventional NOW accounts showed little change, but most banks registered
increases in Super-NOW accounts and MMDA's.
Large certificates of deposit,
passbook savings accounts, and small time deposits were generally unchanged.
Agriculture.
Banks in the Tenth District report a slight decline in
interest rates on operating loans for farmers, with current rates ranging from
13.5 to 14.5 percent.
The largest decrease was in New Mexico, and some
bankers in Missouri and Nebraska expect interest rates to move lower yet.
Despite slightly lower interest rates, paydowns on operating loans at
agricultural banks have been much slower than expected throughout the Tenth
District, with the exception of Colorado.
Agricultural bankers now expect
many farmers to make unsatisfactory progress in servicing their debts in 1985.
Land prices continue to decline, but very little land is currently changing
hands.
Corn yields are reported above average, except in Missouri where
yields are sharply lower than normal due to a summer drought.
are generally reported below average.
Soybean yields
Extensive total and partial
liquidations of cow-calf herds by major ranch operators are reported in
Nebraska, Oklahoma, and Colorado.
Stocker cattle operators are reflecting
guarded optimism about 1985 price prospects, however.
XI-1
ELEVENTH DISTRICT--DALLAS
The Eleventh District's economic expansion remains sluggish across
a broad spectrum.
Demand for manufactured goods continues to grow slowly.
Oil and gas drilling is increasing as is normal for this time of year, but
lower crude oil prices could dampen this activity.
fallen far short of expectations.
showing.
Retail sales have
Auto sales continue their strong
The level of residential construction is continuing to decline as
fears of overbuilding now affect single family construction.
Nonresidential building is steady, but rising vacancy rates are beginning
to deter construction.
District manufacturing growth remains low.
Areas of strength are
the paper and allied products and electrical machinery sectors which
continue to show consistent growth.
Transportation equipment manufacturers
are reporting increasing demand from utilities and oilfield service
companies.
Apparel manufacturers, on the other hand, continue to
experience low demand as a result of import competition and sluggish retail
sales.
Sales in the chemical and allied product sector are increasing only
modestly.
Lumber and wood products and stone, clay and glass producers are
experiencing slow sales growth, except in Houston where weak construction
activity has curtailed demand for these materials. Rising inventories and
stiff competition are keeping prices low relative to costs.
Primary
metals, fabricated metals, and nonelectrical machinery manufacturers report
slight increases in demand from energy firms, which are still restocking
inventories, but little demand growth elsewhere.
for the seventh straight month.
Refinery employment fell
XI-2
October drilling activity increased in District states, with the
rig count rising slightly and remaining above last year's level.
Some
respondents report that despite the decline in oil prices, drilling should
increase, following the normal seasonal trend at year-end.
However, the
drop in oil prices has lowered lenders' valuations of reserves used as
collateral.
This may reduce the availability of funds for drilling, and
thus the extent of any upturn.
Retail sales are showing surprising weakness.
Some respondents
report that sales are down significantly on a year-over-year basis; for
many this represents the first decline in this recovery.
The weakness is
widespread, affecting all product lines.
The normal seasonal downturn in auto sales continues, but sales
are still above last year's level.
The strike of Canadian auto workers led
to increased availability problems, worsening the inventory shortage that
has plagued dealers.
Delivery of 1985 models and the strike settlement are
beginning to ease inventory problems.
Residential construction continues to slow throughout the
District.
Both single-family and multifamily permits reached lows for the
year and they are below last year's third quarter level.
Overbuilding,
long a concern in the multifamily market, now is also dampening single
family construction.
Some lenders have reported that the recent decline in
interest rates has led to a slight increase in loan activity.
This may
lead to some resurgence in construction.
The value of nonresidential construction in the District is
holding steady, although the number of projects is up significantly.
reflects strength in light office and warehouse construction.
This
Some office
and commercial projects are being developed, but overbuilding has resulted
XI-3
in a generally weak market for new projects.
Previously strong markets
such as Dallas are showing signs of slowing, although San Antonio and
Austin are still strong.
Monthly deposit growth at the District's member banks is declining
slightly, although recent year-over-year growth rates remain well above the
averages for the first three quarters of 1984.
At large banks, the recent
pattern of absolute monthly declines in deposits is continuing and
year-over-year growth rates are slowing significantly.
Borrowings by large
banks have declined substantially, but remain high in comparison to two
years ago.
Large bank asset growth is slowing.
Year-over-year growth
rates in business, consumer and real estate loans continue to decline, with
the largest reduction coming in consumer loans.
While large bank real
estate loan growth remains very high on a year-over-year basis, real estate
loans have remained virtually unchanged since late in the summer.
Respondents continue to report that a significant portion of real estate
lending is for projects outside the District.
Texas cattle and sheep producers are gaining from high seasonal
prices, despite an increase in drought-induced production costs.
Stable
prices and costs, along with increased production, should improve crop
producers' net cash receipts.
Because of herd liquidations, dairy program
cutbacks and problems associated with the drought conditions of last summer
and early fall, Texas beef producers marketed 25 percent more fed cattle in
October than a year earlier.
XII-1
TWELFTH DISTRICT -- SAN FRANCISCO
Economic
vigorous
activity
levels
in
earlier
the Twelfth District
in
the
year,
although
remain above their levels of one year ago.
stores
remain healthy, but
month.
Automobile
certain
parts
sales
of
the
exception
of
continued
deterioration
moderation
have
in
wood
economic
from
the
indicators
Retail sales at major department
significantly
remain
states
above
in
residential
rates.
and, in a few instances,
and
but
most
however, remains healthy.
lumber
declined
region,
mortgage
many
slow
to
are at a flat or slightly slower pace than last
California,
in
continues
the
since
1983
With
have
activity
Non-residential
month
levels.
District
building
last
in
the
experienced
despite
construction
the
activity,
Increases in manufacturing employment have slowed
unemployment
products
rates
industries
in
are up
the
from a month ago.
Pacific
Northwest
The
remain
particularly weak, with continued plant closures and activity levels in some
products
that
harvests
have
products,
remain below
depressed
those
in
1979.
significantly
the
Weak
foreign
prices
for
demand
many
consumer
loan
demand
large
agricultural
threatening the income and solvency of western farms.
loan demand remained cool but
and
Commercial
appeared to be
strong,
leading some to anticipate strong holiday sales activity.
Consumer Spending
The
rapid
clearly has
growth
stores
in
retail
but sales
ceased,
optimistic about
of
sales
volumes
experienced
are
healthy
credited
Southern
Pacific
with
Northwest
and most
the upcoming holiday buying season.
California,
for
example,
stimulating
generally
particularly
reported
strong
increased
in
the
year
retailers
The large
experienced
volumes about 12 percent higher than a year earlier.
is
earlier
are
department
October
sales
Good weather in Oregon
retail
retail
sales
sales
and
volumes
the
over
XII-2
last
year.
stimulus
are
In Alaska,
to
value
such
as
this
anticipate
inventory
actively
consumer
conscious,
home
an
video
but
service
are
holiday
strategy.
The
sector.
tourism
to
and
fashion
high
season
sales
sales
of
new
are
and
state
the
levels of
of consumer
a year ago.
spending is
has
that
and
clothing.
consumers
Most
cars
provided
luxury
following
used
slowed significantly throughout the District since
are above
report
large-ticket
but
both
program
Retailers
attracted
equipment
strong
promoted
items,
retailers
a
cautious
appear
to
have
last month but generally
Confirmation of the generally healthy
provided by low consumer loan delinquencies,
and steady levels of credit card usage and consumer borrowing.
Manufacturing and Mining
With
healthy
a
but
few exceptions, manufacturing activity in the District remains
with
little
evidence
of
rapid
The
growth.
lumber
and
wood
products industries in the Pacific Northwest appear to be the weakest in the
District,
products
hinge
on
with
continued
plant
remaining below those
a
recovery
of
home
closures
of five
sales
and
production
years ago.
and
some
Hopes
relief
provided by a recently passed
federal
growth of
the electronics manufacturing
industry offers
offering
announced
in wood products manufacturing.
two
thousand
by
one
additional
U.S.
and
four
jobs
foreign
recovery of the economy has slowed but
East
state
and
the
still
strength
generate
agricultural
extremely
low
sectors
at
4.2
of
the
optimism.
and
in
percent.
by
law.
costly
hope of
or
1987
manufacturers.
In Arizona,
Tucson,
Mining
timber
offsetting
Plans for five new plants --
1986
and
some
In Oregon, continued
--
were
In
large inflows of capital
aerospace
for
for this industry
from
contracts
the declines
levels
electronics
growth
Arizona,
activity
the
in
California,
from the Far
industries
continues
in
unemployment
the
recently
District
in
all
rate
the
nonis
remains
XII-3
sluggish
as
prices.
the
of
result
a
However,
new
strong
foreign
silver
competition,
discovery
Shoshone
in
brightens prospects in that one part of the region.
and
lower
County
metals
in
Idaho
The decline in world
oil prices has had a significant effect on western oil producers and states
that rely on severance income.
in
the price of a barrel of
revenue to
the
state.
In Alaska, for example, each dollar decline
oil
in the loss of $150 million in
results
A major railroad reports
generally steady or
slightly declining activity, confirming that despite
only
the variations within
the District and between industrial sectors, the economy of the District is
in something of a holding pattern.
Construction and Real Estate
Construction and
have
slumped
in
sales
recent
activity in residential real estate appear
months
the
throughout
running
below
1983
described
as
levels
Oregon,
and
in
residential
building
permits
Washington,
the home
building
"stalled."
In California, the pace of homebuilding remains above that of
1983
and
architects,
increase in prospects
are
In
District.
to
is
industry
contractors,
and
builders
being
report
an
completely
encouraging
The available home sales reports
for new projects.
suggest a continued slowing despite declines in long-term interest rates and
generally
easier
mortgage
credit.
The
general
weakness
in
demand
is
reflected by the modest increases in home prices experienced in California
this year to date;
prices generally have increased only at or even slightly
below the general
rate of
relatively
Arizona.
of
stronger
throughout
the
Nonresidential
District
and
is
construction remains
extremely
strong
in
However, in Southern California, there is concern about oversupply
commercial real estate
activity.
inflation.
and that
sector is
experiencing a weakening in
In Oregon, the new entry of five electronics manufacturing firms
XII-4
and
the
plans
expansion
of
others
several
expected
are
stimulate
to
construction activity significantly in the Portland region.
Agriculture
The
sector
agricultural
throughout
the
Twelfth
accumulated debt, weak export demand, and large crops.
have
having
These are brought about by a combination of
serious financial difficulties.
the problems
is
District
are particularly acute,
In California, where
the values of Central Valley
farmland
fallen 20-40 percent below that of a year ago and thousands of acres
unable
to
survive
farmers will be
Observers anticipate that many
are on the market unsold.
year
another
of
similar
region, problems are similar but complicated by local
the
Elsewhere in
conditions.
In Oregon,
factors.
for example, although crop yields have not been high, prices have been low
and farm incomes depressed.
Additional problems have been posed by a gypsy
Only the cattle, berry, and potato crops in
moth infestation in that state.
Oregon offer a promising outlook.
been
District have not
cotton farmers
intermountain
are
appears
it is
to
have
remains
the world price
large,
seriously
pressed
region
relative success;
unusually
Similarly, although cotton crops
to
previous
repay
weathered
this
debt.
in the
low and
harvest
year's
reported that farm cash receipts will
the
Only
with
increase
in
that region this year.
Financial Institutions
Commercial banks
in the Twelfth District experienced continued growth
in assets in the third quarter of the year -Much of
the
increase was
attributable
to
at a 7 percent
continued
strength
annual rate.
in
consumer
lending, as commercial, industrial and mortgage lending were generally flat
during
the
third
quarter.
Funding
denomination CDs and other time deposits.
occurred
primarily
through
large
Money market deposit accounts and
demand deposits in general did not register large inflows.
XII-5
A
similar
pattern
of
growth
is
observed
in
the
savings
and
loan
industry, although the financial problems of a large Association generated a
large savings outflow for
total deposits of the Eleventh Federal Home Loan
Bank District in August and September.
in September
Mortgage
although total mortgage lending
level achieved in 1983.
loan commitments
declined
in 1984 to date exceeds
the
There have been declines in profits for the savings
and loan industry as a whole since 1983 as new lending increasingly has been
financed by expensive, consumer time deposits.
Cite this document
Federal Reserve (1984, December 17). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19841218
@misc{wtfs_beige_book_19841218,
author = {Federal Reserve},
title = {Beige Book},
year = {1984},
month = {Dec},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19841218},
note = {Retrieved via When the Fed Speaks corpus}
}