Beige Book
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICT
October 1985
TABLE OF CONTENTS
SUMMARY......................................................................
First District - Boston.....................................
.
i
...........
I-
Second District - New York..................................... .............
II-1
Third District - Philadelphia...............................................
III-i
Fourth District - Cleveland..............................................................
IV-1
Fifth District - Richmond....................................................
V-1
Sixth District - Atlanta.....................................................
VI-1
Seventh District - Chicago..................................................
VII-1
Eighth District - St. Louis.................................................. VIII-1
Ninth District - Minneapolis.................................... .............
IX-1
Tenth District - Kansas City.................................................
X-1
Eleventh District - Dallas...................................................
XI-1
Twelfth District - San Francisco............................................
XII-1
SUMMARY*
This month's commentaries by the twelve Federal Reserve Banks suggest that
the economy has advanced slightly since the end of summer and is poised for
further growth.
Representatives from the retail trade sector say auto sales
have been strong and sales of general merchandise, though lower than expected,
are still well ahead of last year.
Retailers expect a good fourth quarter and
continued strength as the economy resumes growth.
Bankers say loan volume
continues to expand, with strong gains in consumer and real estate loans leading
the way.
Residential construction, especially of single family houses, is also
up in early fall.
Sales of homes are brisk and are expected to remain so.
Nonresidential construction also remains healthy, and, although some signs
suggest a slowdown may be starting, projects already underway should provide
momentum to keep the industry going at least through the first quarter of 1986.
In the manufacturing sector, industrial activity remains unchanged, but
manufacturers are more optimistic about the outlook for 1986.
The sector with the most significant problems and the bleakest outlook
remains agriculture. Farmers continue to face financial distress in many areas
of the country.
Crop farmers in particular may find themselves sinking deeper
as near-record crop yields depress already low farm prices further.
MANUFACTURING AND MINING
Business conditions in the industrial sector appear to be holding steady in
October with most districts reporting mixed or unchanged manufacturing activity.
*Prepared at the Federal Reserve Bank of Philadelphia.
Specific indicators, such as new orders and shipments, vary among geographic
areas and among industries, but reveal no clear trend.
Employment also varies
across districts and businesses, but little change is noted.
Producers'
inventories appear to be at acceptable levels, except in electronics, where some
involuntary accumulation has resulted from the slump in that industry.
Prices
are generally steady; some districts report some downward movement.
Among the stronger industries are autos, auto related products, defense
products, and aerospace products.
building materials are mixed.
Housing related items, chemicals, and
The paper industry, one of the strongest in this
expansion through 1984, is starting to show signs of weakening according to
reports from Atlanta, Minneapolis, and San Francisco.
Steel, electronics, and
farm equipment are reported to be the biggest drags on the industrial sector at
this time.
The energy industry is also lagging far behind, with Dallas
reporting the lowest oil rig count in Texas since 1976.
Looking ahead, some districts report a slightly better outlook for
manufacturers for 1986, which is reflected in increased capital spending plans
for the coming year.
In many cases, however, planned increases will only
replace spending originally scheduled for 1985 and then cancelled.
Moreover,
according to indications from Boston and Richmond, most of the expenditure on
plant and equipment will be for cost containment, productivity enhancement, and
the introduction of new products, rather than for capacity expansion.
Cleveland reports that coal mining remains very depressed in many areas,
with unemployment in many mining counties running in double-digits.
Richmond
also notes that coal production is down from last year, although many mines are
producing at high levels.
CONSUMER SPENDING
Cut-rate financing arrangements provided by auto manufacturers gave auto
sales a strong boost in September and helped overall retail sales to turn in a
Sales of general
good third quarter performance in most parts of the nation.
merchandise, while still posting gains on balance, have slowed from their
pre-Labor Day pace and are behind retailers' projections in some areas.
Some
merchants say general sales might have been stronger and on target, but were
weakened by bad weather conditions in many areas and a surge in spending on
autos.
Reports of retail inventories range from slightly tight to a little
heavy; overall stock levels appear to be about where retailers want them, and no
significant change is planned aside from the fourth quarter seasonal buildup.
Merchants' near-term outlook is generally optimistic, with renewed economic
growth expected to result in continued strength in sales.
Many store managers
expect the fourth quarter to be good, with year-over-year gains in the 5-to-10
percent range, despite a shorter shopping season and growing concern over the
consumer debt burden.
FINANCE
Total loan demand remains strong in most areas, with loan volume outstanding
at major U.S. banks running 8-to-9 percent ahead of a year ago and nearly 1
percent higher than in August.
San Francisco notes that small banks are
experiencing greater loan demand than are large banks, as many customers of
larger institutions have turned to the commercial paper market and have reduced
bank borrowing.
Loan categories posting the biggest gains include real estate and consumer
loans.
Consumer loans might have been even stronger were it not for special
financing deals offered by auto manufacturers. A major portion of the demand for
real estate loans results from refinancing of existing mortgages.
performance is observed in agricultural loans.
The weakest
Farm loans are falling in many
districts, as banks both cut back borrowing and increase write-offs.
Deposit growth is strong in most areas.
Bankers in Philadelphia say they
have been able to meet time deposit targets without aggressive pricing.
Kansas
City reports that many thrifts have yet to lower minimum balance requirements on
MMDAs and SuperNOWs.
REAL ESTATE AND CONSTRUCTION
Residential construction is reported to be stronger in September, except in
Kansas City and St. Louis, where homebuilding is continuing at the same rate as
in late summer.
The most significant gains are being posted in single family
housing construction, while multi-family construction is holding steady in some
areas and weakening in others.
No shortages of either labor or materials are
reported, except in parts of New York where Hurricane Gloria caused substantial
damage.
Residential sales are strong in most areas, spurred by stable mortgage
rates at just over 12 percent, rising incomes, and the availability of
subsidized mortgage money in some states.
House prices are reported to be firm
and new listings strong.
Nonresidential construction is generally weaker than residential building,
but still healthy in many regions.
There is some evidence that new construction
may be slowing slightly, but projects already underway should provide continued
strength. Many observers are surprised that nonresidential construction has not
already lost steam, in view of rising vacancy rates and a general feeling that
the office market is already overbuilt.
Chicago notes that some projects have
been started recently so that they will be grandfathered under the current tax
code and thereby protected from future tax changes.
Office leasing activity is mixed, with vacancy rates at suburban locations
generally higher than in downtown areas.
As a result, rents in suburban areas
may hold steady or even fall in coming months.
AGRICULTURE
While livestock farmers have gotten some measure of relief recently from
higher livestock prices, crop farmers remain in financial stress in many areas,
and may find their plight worsening.
Harvests currently underway are likely to
yield bumper crops that will drive farm prices and revenues even lower.
Many
farmers are storing their harvest under Commodity Credit Corporation loans.
Others, however, are selling at current prices in order to get cash to pay off
loans and stave off foreclosure.
Farm land values dropped further in the third quarter.
Kansas City reports
that a great deal of farm land is for sale, but that very little is actually
changing hands.
Credit has become tighter and many suppliers have become less
willing to deal in terms other than cash.
FIRST DISTRICT-BOSTON
Business conditions in the First District have changed very little
in recent months.
Most manufacturers and retailers report incoming orders
or sales below plan but above last year.
Inventories are not excessive.
Capital spending budgets reflect both merger activity and moderate optimism
about the remainder of the year and 1986.
Although slower than several
months ago, the real estate market remains healthy.
Retailing
Growth in retail sales in September was generally weaker than in
August, partly because an early Labor Day shifted some back-to-school sales
Taking the two months together, sales in most stores
to the earlier month.
ran below plan but well above last year.
reports, is also below plan.
October, according to early
Several contacts said Hurricane Gloria had a
dampening effect on nonfood shopping.
In several department store chains, furnishings, linens, and
household goods are performing quite well, but apparel is weak.
Several
merchants also cited surprisingly strong toy sales, mostly in traditional
lines.
Inventories, while higher than planned in some stores, are not a
source of concern.
Price increases are generally moderate.
Most chains are planning to open their "usual" number of new stores
in the next 15 months.
Some expansions of warehouse and distribution
facilities are also planned.
In spite of low unemployment rates in
New England, two merchants serving small towns reported no trouble hiring
"high quality and steady" staff for new stores.
Some retailers have revised downward their expectations for the
remainder of the year in light of recent performance, but others remain as
confident as they were earlier.
The consensus forecast is quite
comparable store sales are expected to be 9 to 10 percent
optimistic:
higher in the fourth quarter of 1985 than a year earlier.
Manufacturing
Manufacturing activity does not appear to have changed much in the
past several months.
Respondents report that incoming orders for most
products are holding steady at rates somewhat below plan.
The auto
industry remains a very important source of strength; although there has
been little change in recent months, a variety of automotive products are
said to be doing well.
strength.
Defense spending is another source of ongoing
Demand for housing-related products has picked up according to
one respondent, but others in this industry see no change.
Reports from
capital goods manufacturers also vary; improvements appear related to the
introduction of new products.
A majority of manufacturing respondents are budgeting more for
plant and equipment in 1986 than they spent in 1985, although not always
more than they originally budgeted for 1985.
In addition to normal
replacement spending, the emphasis is on product development and cost
containment.
Several respondents commented that their capital spending
plans are being shaped by their involvement in mergers and acquisitions.
I-3
In some cases new affiliations are resulting in higher levels of spending,
but in others they are constraining capital expenditures.
Inventories are said to be in reasonably good shape.
Electronics
may be an exception; according to one respondent, the computer industry in
its boom period a year ago double and triple ordered and suppliers still
have not worked down the resulting excess.
Respondents have not seen any
sizable increases in the prices of materials and components.
Several
mentioned that it is very difficult to increase their own prices.
Manufacturers are looking for demand to strengthen slightly in the
fourth quarter; 1986 is expected to be much the same as 1985, possibly a
little better.
Real Estate
After a very busy summer, realtors in New England report slightly
slower but healthy activity in residential markets.
A majority of those
contacted throughout the region still face a sellers' market and many
houses are sold at asking price.
However, prices in most markets are
rising less rapidly than several months ago even though mortgage rates are
steady or down slightly.
Condominiums are selling well in urban areas, but
buyers of vacation homes are demanding at least three bedrooms.
Vacancy rates for commercial real estate remain low in downtown
areas, especially Boston.
Yet in smaller urban areas and many suburbs, new
commercial and industrial space has not been absorbed.
II-1
SECOND DISTRICT--NEW YORK
Some
signs
of a pickup
in
economy have
report that August sales were the
Retailers
appeared in recent weeks.
District
the Second
best in several months, and they attribute the slowdown in September to
unseasonably warm weather and Hurricane Gloria.
Business activity
is
generally described as stable or improved, despite continued layoffs by
some
manufacturers
District.
who
are
operations
consolidating
outside
the
Commercial leasing activity has increased in most areas, but
Throughout the District the
office availability rates are still high.
Small banks in the District report
demand for new homes remains strong.
a decline in car loans due to lower cost financing by auto manufacturers.
Consumer Spending
Retail
sales in August averaged 9% above year-earlier levels,
the first substantial advance after a prolonged period of sluggishness.
Brisk back-to-school business and a better-than-expected response to new
fall
As a result, some stores
fashions were cited as major factors.
posted
their
first
sales
above-plan
figures
in
several
months.
Preliminary data indicate some slowing during September, but this was
generally attributed to summer-like weather and the impact of Hurricane
Gloria.
level
of
another
However,
one
consumer debt
discount-chain
contact
is hindering sales
retailer speculated
of
suggested
that
the high
its durable goods,
that auto promotions have
and
reduced general
merchandise sales.
After
several
months
of
heavy
promotional
activity,
most
department stores had trimmed their inventories to desired levels by the
end of July.
Inventories have remained on target, and District retailers
II-2
Some
are generally optimistic about the fall and holiday seasons ahead.
are already stockpiling possible hot-selling items such as Cabbage Patch
dolls and robot transformers.
Business Activity
Economic activity in the Second District was stable to somewhat
In both Buffalo and Rochester, for example, an
improved in recent weeks.
increased
percentage
of
managers
purchasing
that
reported
conditions were either unchanged or better during August.
business
Inventories
In other parts of New York State and
there remain at comfortable levels.
New Jersey, conditions were also described as generally stable although
some
manufacturing
firms
consolidating operations
more
competitive.
continue
laying
off
regional
workers
and
outside the District in an attempt to become
Passaic, New Jersey was a major exception
to this
pattern of stability: a widespread fire in its industrial area recently
destroyed 62 small plants which employed 2200 workers.
While
national
the
average
September
in
rates
unemployment
New York
State
and
below
remained
New Jersey,
the
some employment
cutbacks are expected in the District as a result of restructuring plans
recently announced by AT&T
Information Systems and Union Carbide.
addition,
an
the
redesign
of
automotive
plant
in
New
Jersey
In
will
temporarily reduce employment in that sector by 4200 workers over the
next 12-16 months.
The
overall
effect
on
employment
is difficult
to
project,
however, since other firms continue to move into and expand within the
District.
a
Major investments recently announced included the purchase of
former Western
Electric plant
in New
Jersey for
conversion
to an
industrial park, the approval of the $15 million first step in the Port
Authority of New York and New Jersey's $500 million waterfront project in
II-3
New York City, and the purchase by local investors of two Buffalo area
assuring
plants
the
retention
of
at
least
2200
jobs
and perhaps
the
addition of others.
Construction and Real Estate
District homebuilders report no letup in the busy pace of their
Demand for new homes remains strong and the rush is on to
activity.
as
complete
addition,
much
as
work
possible
and
in Connecticut
Long
arrives.
cold weather
before
where
Island
Hurricane
In
Gloria was
especially damaging, the demand for skilled labor and building supplies
has increased even more.
have
repairs
As a result, extensive delays in rebuilding and
noted
been
there.
Most
District
homebuilders
expect
residential construction to continue strong at least through early next
year.
However, they anticipate a somewhat less hectic pace than in 1985.
Nonresidential
District.
increase
leasing
Observers
in
leases
inquiries
leasing activity has picked up
in Westchester
and Fairfield
Counties report
signed, and in northern New Jersey
is rising.
In many areas,
office space still greatly exceeds demand.
in much of
however,
the
an
the number of
the
supply of
Opinion is divided about the
direction of the downtown Manhattan market.
Although the availability
rate there has increased, it remains among the nation's lowest.
Financial Developments
The special incentive financings offered by auto manufacturers
have reduced car lending activity at small District banks, especially in
August and September.
recently for
Since the cost of raising funds has not declined
small District banks, they were unable to match the rate
reductions offered by finance companies.
Although some banks noted that
lending has begun to pick up, a new round of incentive financing on autos
is expected soon.
III -
1
THIRD DISTRICT - PHILADELPHIA
Economic conditions in the Third District in early October are
substantially the same as they were in September.
The pace of manufacturing
activity has not changed significantly since late summer and loan growth at
commercial banks has been nearly flat.
The housing and retail sectors remain
buoyant although a major newspaper strike in Philadelphia may restrain retail
sales in the city and its suburbs this month.
The prevailing outlook among businesses in the Third District is positive.
Manufacturers foresee improving business conditions and bankers expect increased
commercial borrowing in the fourth quarter; some report a pickup in loan
approvals already.
Retailers are generally pleased with recent sales experience
although some are becoming apprehensive about the effect on future sales of
growing consumer debt.
MANUFACTURING
The pace of industrial activity in the Third District in October is about
the same as it was in September, according to the latest Business Outlook
Survey.
This marks the seventh time in the last 10 months that the majority of
firms responding to the survey have reported no change in the rate of their
production.
Conditions appear to be about the same for both durable and
nondurable goods producers.
With respect to particular measures of current manufacturing activity,
survey respondents indicate fractional increases in new orders and shipments but
slight declines in unfilled orders and employment.
Industrial prices in the
III - 2
Third District are stable; the majority of survey respondents report no changes
in the prices of either raw materials or the products they manufacture.
In general, Third District manufacturers remain optimistic in their outlook
for the next six months.
Forty-three percent of the October survey respondents
expect business conditions to improve over the next two quarters while only 22
percent anticipate a worsening climate.
however.
Expectations vary across industries,
Durable goods manufacturers do not foresee as much improvement as do
makers of nondurables.
For the manufacturing sector as a whole in the Third
District, participants in the October survey forecast moderate gains in new
orders and shipments, and a slight increase in capital spending; but they
anticipate a marginal decline in payrolls.
RETAIL
The improvement in retail trade in the Third District that began in the
late summer appears to be continuing in early October.
Store officials are
sticking with their earlier prediction of a year-over-year increase of
approximately 8 percent in third-quarter sales.
The back-to-school selling
season was generally in accordance with expectations and all lines of
merchandise shared in healthy sales during September and early October. Looking
ahead, retailers cite the growing burden of consumer debt and a shorter holiday
shopping season this year as factors that might limit fourth-quarter sales,
although they expect total sales for 1985 to top 1984 levels by as much as 10
percent.
A matter of concern to Philadelphia area retailers is a strike which has
kept the city's two largest newspapers out of circulation since September 7.
Although it is too early to quantify the impact of the strike on the retail
sector, Chamber of Commerce representatives say that many specialty and
III - 3
department stores in the newspapers' circulation areas are experiencing lagging
business which they attribute to the loss of these major advertising mediums.
FINANCE
Total loan volume at major Third District banks in late September is
virtually unchanged from its level in August.
Commercial and industrial loan
amounts outstanding in September, while 18 percent above a year ago, are
substantially the same as in August.
However, some bank commercial lending
officers say that the number of loans approved in recent weeks has increased and
a rise in outstandings will follow.
Consumer loan volume in late September is also 18 percent above its level
in September 1984 but has fallen slightly from August.
Some Third District
bankers say that demand for consumer credit at banks may have slackened in
recent weeks because consumers are now becoming reluctant to increase their
installment debt burden substantially.
Moreover, those households that are
borrowing to finance automobile purchases are taking advantage of the incentive
financing offered by the manufacturers.
Real estate lending by commercial banks is increasing after a summer lull,
and outstanding loans are now rising toward their September 1984 levels.
Mortgage lenders report continued strong demand for fixed-rate mortgages at the
current interest rate of 12 percent.
Local bank economists expect economic growth to accelerate in the fourth
quarter, bringing greater demand for credit, especially from the commercial and
industrial sectors.
Predicting a less accommodating stance from the Fed, they
have raised their interest rate forecasts.
The prevailing view is that the
federal funds rate will be near 9 percent and long-term Treasury bonds over 11.5
percent by year-end.
III - 4
Demand deposits at major Third District banks are up approximately 13
percent from a year ago, little changed from the year-over-year increase
experienced since June.
Nontransactions deposits exhibit a similar pattern.
Bank asset/liabilty managers in the District say that they have been able to
meet targeted levels of time deposits in recent weeks without aggressive
pricing.
IV-1
FOURTH DISTRICT - CLEVELAND
Summary.
The
District's
The
improvement.
in
some
remains
while
store
sales
levels
weak
manufacturing
are
following
the
major
Ohio.
plant
The
steel
end
closing
industry
recently
further strengthening.
albeit
and
of
with
pockets
of
and is exceptionally high
high
employment
disappointing
Manufacturing activity is increasing
northeast
overall
remains
rate
unemployment
areas,
Department
typical
economy
continues
auto
sales
special
to
have
financing
decline.
fallen
to
programs.
in the Cincinnati area but declining in
continues
announced.
in
The
difficulty
housing
with
industry
is
another
showing
Commercial bank loan demand has picked up somewhat.
Labor Market Conditions.
Labor
market
unemployment
from
a
year
manufacturing
rate
conditions
was
9.4%
in
(s.a.)
ago.
Manufacturing
firms
report
they
the
in
District
September,
employment
are not
remain
soft.
up
percentage
0.2
continues
laying
off
but
to
are
The
decline.
not
Ohio
points
Some
replacing
workers who leave.
Retail Sales.
Major Fourth District department stores
six weeks were disappointing.
in
September,
which
report
that sales
over the last
Retailers point to exceptionally warm weather
discouraged
shopping,
and
an
early
Labor
Day,
which
IV-2
the
shortened
shopping period, as
back-to-school
One analyst asserted that
record
financed,
store
hurt department
disposable
income available
improved sales in
auto
sales,
sources of
most
of
sales because monthly
for
other
the fourth quarter,
spending.
sluggishness.
were
which
heavily
car payments
All major
reduce
stores
expect
and therefore are not worried about
the moderate inventory accumulation from recent slack sales.
Auto dealers report that, as expected, sales fell during the first week
of October as special financing on 1985 models ended.
However, this decline
was not as severe as many had expected and sales are described as "typical"
for October.
Expectations for the rest of 1985 are mixed, with some dealers
building inventories in anticipation of strong sales through November, while
others expect an immediate sharp decline in demand.
Several dealers express
confidence that major manufacturers are likely to re-establish low financing
rates on virtually all models soon because bank loan rates for car purchases
are far above the banks'
cost of
funds and these
spreads are unlikely to
diminish much in the near term.
Manufacturing and Mining.
Manufacturing
depressed.
activity
Manufacturers
production
and
declines
in
continue
to
slight,
probably
new
is
in
the
orders,
inventories.
report declines
In
in
the
Cincinnati
slight
increases
contrast,
District
area
in
and
report
mining
solid
employment,
manufacturers
in
remains
gains
and
in
small
northeast
Ohio
in production, new orders, and employment, and
involuntary,
manufacturing firms
uneven
increases
in midwestern states
in
shows
inventories.
A
survey
of
incoming orders falling for
consumer non-durables but rising for consumer durables and capital goods.
IV-3
Purchasing managers generally report slight declines in prices paid for
materials
and
and
components
in
for
received
prices
describe the current situation as a buyers' market.
finished
goods,
and
They expect no increase
in inflation in the next six months.
Demand
is
improving
fabricated aluminum products business,
in the
but
ingot aluminum prices are very low and continue to decline because of excess
world smelting capacity.
A major aluminum producer recently announced plans
to diversify away from supplying the primary aluminum market.
The steel
industry continues
competition from abroad.
to face weak demand and prices and strong
A major producer recently announced plans to close
a 1,200 employee plant by yearend 1985 because of strong import competition
and weak domestic demand for seamless tube.
A strike continues
at a major
steel producer that is in Chapter 11 bankruptcy.
High labor costs are claimed to be hampering some other firms.
A major
manufacturing firm recently cancelled a $185 million planned renovation of a
mill because
moving
a
its union refused to make any
plant
out
of
this
area
concessions.
because
it
is
unable
Another
to
firm
obtain
is
any
concessions from its union.
The
coal
mining
relief in sight.
industry in the District
remains in distress with no
Unemployment rates in the teens are common in coal mining
counties in this District.
Housing.
More optimism is evident in midwestern
because of
lower mortgage rates,
state-subsidized mortgage money.
strong
gains
in
housing markets
strong income gains,
A major builder in
house contruction
than last month
and availability of
this District reports
in August and September, and
if fourth
IV-4
quarter
1985.
earnings
Despite
are
only fair,
the gains,
the
firm will
post
record
the firm recently reduced slightly its
for housing demand in the fourth quarter and into 1986.
houses
have been strong
earnings
Sales
for
forecast
of existing
in Dayton and Columbus, Ohio, encouraging builders
there to begin again to construct houses on speculation.
Asking prices on
new houses are reported to be much higher than on equivalent existing houses.
A major
real estate
firm reports new listings
remain
very
should sustain strong real estate broker activity into 1986.
strong
and
In Pittsburgh,
lower interest rates have boosted existing home sales but it is
still very
much a buyers' market.
A large mortgage lender in this District reports that as mortgage rates
have
fallen to what many borrowers view as
incidence
of
mortgage
refinancings
has
the
interest
increased.
rate
Mortgage
trough, the
refinancings
represent one-third of total mortgage volume at this mortgage lender.
Commercial Banking.
District loan demand has picked up somewhat.
major
categories
at
large
banks
Loans
outstanding in all
increased over the past month.
report some pick up in business loan demand and expect a small
commercial
weakness
and
industrial
in auto
lending
lending
due
to
during
the
the
fourth
availability
of
Contacts
increase in
quarter.
cut-rate
Despite
financing
through auto companies, banks posted healthy gains in overall consumer loan
volume during September.
Unless these
special
financing deals are resumed
on a broad scale, bankers anticipate further strength in consumer loans over
the next few months.
FIFTH DISTRICT - RICHMOND
Overview
Once
Employment
the District
Some
of
those
and do not reflect
measures of
several
economy
is
giving
off mixed
signals.
is growing on balance, but losses continue to occur in several
industries.
factors
again,
job
losses,
however,
are
related
unexpected gains.
special
the state of business activity per se.
activity in the manufacturing sector are
cases suggest
to
an end of
also mixed,
Other
but
in
persistent past declines, and even some
In particular, the textile and furniture industries seem
likely to have added jobs in recent weeks in response to some improvement in
orders and shipments.
The manufacturing sector may have turned a corner, at
least in terms of no longer representing a drag on overall activity.
The
retail sector is generally holding the gains it posted throughout the year,
but
further
gains have
been more
modest
of
late.
Construction
remains
consistently and uniformly strong, as do sales of houses.
Manufacturing
There
steadily
are
declining
scattered
segments
reports
of
the
of
gains
recent
manufacturing
in
sector.
some
hitherto
Notably,
the
furniture and textile groups appear to have increased employment in recent
weeks, reversing a protracted decline.
On the other hand, some industries
which had formerly been sources of strength may have given ground recently.
In this category would be some types of building materials, chemicals, and
electrical machinery.
tors.
Also, there is some seasonal weakness in some sec-
Declines attributable to current or expected business conditions do
not account
for all of this weakness, however.
Some chemical plants
are
V-2
restricting activity because of the fear of leaks, and one major manufacturing employer is phasing out production in anticipation of relocating
the
facility.
On
balance,
the
sector
appears
to
be
gaining
since
reports
of
improved order and shipment performance outnumber reports of deterioration.
For
the most
Recent
part,
evidence
however,
suggests
activity
that
many
levels
are reported to
manufacturers
still
find
be
stable.
plant
and
equipment capacity excessive, and that they are reluctant to undertake any
expansion
effort.
Investment
projects
that
are
getting
under
way
are
productivity enhancing rather than intentional additions to capacity.
Total coal production continues to lag behind last year's record
levels,
although consumption by electric utilities is well ahead of last
year's pace.
the
Lower inventories and increased imports are making up much of
difference.
Nonetheless,
some
areas of
the District
are
currently
producing at very high levels.
Consumer Activity
Gains in consumer activity, at least as indicated by retail sales,
have not matched those of August by early indications.
compared to early in the year, but
tations.
Sales remain strong
still fall short of retailers' expec-
There appears to be little inclination on the part of dealers to
build stocks, although there is little apparent concern over current inventory levels.
Automobile sales remain an area of considerable strength, and
tourist spending, at
good year.
least in some areas, seems to have turned in a very
V-3
Housing and Construction
The entire private construction sector is still lending substantial
strength to the District economy.
Commercial construction already under way
is sufficient to boost the economy for some months to come.
Our impression
is that perhaps fewer projects are getting under way than during most of the
last several years, but it is certainly not clear that that is the case.
The housing sector, in any event, is taking up whatever slack there may be
New construction
elsewhere.
has
shown no
signs
of
slowing,
and
houses
coming on the market continue to move well, extremely well in some areas.
Agriculture
Crop
favorable
is well
harvesting in the Fifth District
weather
conditions
during
August
and
under way
September.
due to
While yield
levels on most major field crops are not expected to match the record levels
being
forecast
expected.
for
Price
agricultural
the
U.S.
for
levels
commodities
such
overall,
field
as
relief expected in the near term.
large
crops,
tobacco,
harvests
as
as well
remain
are
nevertheless
prices
depressed
for
with
other
little
Cash receipt levels are likely to fall
below those of 1984 causing continued stress to the financial position of
District farmers.
The Financial Sector
By and
continued
large,
responses
from
the financial
across-the-board strength in lending
institutions
activity, and most
suggest
insti-
tutions apparently look for continued activity at or slightly above present
levels.
One interesting
point made by
several respondents concerned the
V-4
effects
of
the
recent
activity
in
the
automobile
markets.
Respondents
suggest that auto loans at financial institutions have been exceedingly weak
as a result of the financing arrangements available from dealers and manufacturers
in
consumer-oriented
desired levels.
to
recent
months.
institutions,
As
result,
loan-to-deposit
at
ratios
least
have
in
some
fallen
below
In any event, institutions seem confident of their ability
fund loan demand even at current
strong.
a
levels, since deposit flows
continue
VI-1
SIXTH DISTRICT - ATLANTA
Broadly-based yardsticks of economic activity indicate a mixed performance of
the Southeast economy in late summer.
growth,
reducing
the
Employment growth exceeded labor force
region's jobless rate.
Manufacturing employment
showed a
respectable increase in August, with transportation equipment responsible for much of
the growth. Consumer spending is up from a year ago.
However, September retail sales
were up only moderately from August as consumers gave a lukewarm response to sales
promotions.
Construction of single-family housing is strong but signs of weakness have
surfaced in multifamily, commercial and office construction. The pace of loan demand is
slackening despite an uptick in business loans in September.
somewhat around the region.
Tourism has flattened
While carpet mills are increasing employment, owing to
strong demand and low susceptibility to imports, weakness persists in other textiles and
apparel, petrochemicals, and agriculture.
Employment
summer.
and Industry.
Labor markets
conditions improved since mid-
Employment growth exceeded labor force increases in August, and the District
unemployment rate fell 0.4 percent from July to 7.9 percent.
and
trade
Chemicals
sectors
and
have
textiles
more
than offset
manufacturing
employment
have
accounted
Job gains in the services
declines
for
the
in manufacturing.
most
job
losses.
Spokesmen for Louisiana's chemical industry now feel that employment may remain
stable for the remainder of 1985.
However, the high comparative value of the dollar
continues to pressure regional textile and apparel producers and employment in apparel
plants is continuing to decline.
adding employees.
In contrast to apparel manufacturers, carpet mills are
The strong housing market and the commerical office building boom
are chief sources of strength for the domestic carpet industry which is somewhat
insulated from imports, owing to high shipping costs and customization.
Orders for
VI-2
Contacts report that
carpets are expected to remain strong through the end of the year.
the region's paper and linerboard industry, unexpectedly weak in the first two quarters of
1985, is expected to strengthen towards the year's end.
spending by
U.S.
paper
mills is expected
in 1985,
A record $8 billion in capital
13 percent above 1984 levels.
Expanding employment at auto and auto-related plants in the region is related to growing
new car sales.
Retailers report moderately higher sales in September
Consumer Spending.
compared to a year ago.
lukewarm,
Although consumers' response to recent sales promotions was
merchants report inventories to be leaner, but at desired levels.
department stores continue
sportswear
and
sports
to exceed the sales pace nationally.
equipment,
and
furniture
best-selling items during the early fall period.
sales
growth
to
match
last
year's
increase
and
Sales at
Women's apparel,
housewares
have
been
the
Most retailers polled expect Christmas
despite
fewer
selling
days between
Thanksgiving and Christmas this year. Car sales strengthened throughout the region in
September, and industry contacts are optimistic about the demand for cars for the
remainder of 1985.
Construction.
remains good.
The general outlook for single-family sales and construction
Declines in mortgage rates have boosted demand amid only modest
advances in home prices. August building permits were up from the previous year by 26
percent in Nashville, 20 percent in Atlanta, and 13 percent in Miami. In the multifamily
sector, by contrast, there is a large unsold inventory of condominiums and prices have
been falling, especially in the south Florida market.
Reflecting the surplus of condos,
building permits for apartments are down sharply from last year.
office markets have surfaced in Atlanta and Miami.
Signs of slowdown in
Below-normal absorption for the
first half of 1985 and a significant volume of new space expected to enter the market in
VI-3
the fourth quarter, are likely to push up vacancy rates and place downward pressure on
rents.
Financial Services.
evident.
Although loan demand remains strong, a slowing trend is
A slight uptick in business loan growth in September cushioned the slowing
growth rates in real estate and consumer loans.
About one-third of current real estate
lending reflects mortgage refinancing. Bankers were smarting over substantial losses in
auto loan volume to special low-rate dealer financing during September.
Tourism.
After good growth during the summer, tourist activity seems to have
waned a bit. Air travel was mixed in August. While most regional airports have reported
healthy increases in passengers in 1985, some, including Atlanta's Hartsfield, have
experienced slower growth in August. Visitor center registrations in September fell in 3
of the 4 states for which data are available. Hurricanes adversely affected the region's
coastal areas during the month.
Although occupancy levels at hotels and motels in
overbuilt cities such as Orlando, Miami, and New Orleans remain weak, performance
continues to strengthen in many other southeastern cities.
Agriculture.
Crop prospects are generally favorable throughout the region and
indicated yields are significantly above the average for the past five years.
However,
crop prices averaging 29 percent below year-ago levels indicate sharp reductions in
income from 1985's increased production. Farm loans outstanding, as of mid-1985, were
below year-ago levels reflecting both reduced lending and increased write-offs of bad
loans.
Loan write-offs will increase as a result of further reductions in crop income in
1985.
The livestock sector, and especially broiler and turkey producers, will fare better
than crop producers because product prices have not weakened as much as crops and feed
costs have dropped with grain prices.
On balance, southeastern farmers are doing
somewhat better than farmers elsewhere in the country.
VII-1
SEVENTH DISTRICT--CHICAGO
Summary. Business activity in the Seventh District continues to lag the nation, with
Illinois and Iowa, the leading agricultural states, particularly weak. Total employment
in District states has risen more slowly than in the U.S. over the past twelve months, and
since the turn of the year. Manufacturing employment has fallen more sharply in this
region since the January peak than in the nation. Production of autos and light trucks,
the only strong segments of manufacturing in the region, will do well to hold at current
levels after the turn of the year. Chain store sales are somewhat improved, but still
disappointing. Construction backlogs indicate that spending will stay near this year's
much improved levels into 1986. Office overbuilding and uncertainties related to possible
tax changes overhang these markets. Steel and most lines of mechanical capital goods
remain depressed. Prices in most wholesale markets are under downward pressure.
Inventories are generally low. So far, the decline in the dollar has not significantly
increased demand for the region's manufactured goods, but analysts believe that a further
significant decline will have the desired effect. District agriculture continues under
severe financial stress. Large harvests will keep farm prices down.
Employment. Job markets in the District remain weak. In August, nonfarm payroll
employment in the five-state region was 1.9 percent above last year, compared with a 3.3
percent rise for the nation. Illinois was up less than one percent and Iowa was down
slightly. Manufacturing employment has declined, particularly in Illinois, Iowa, and
Wisconsin.
Motor Vehicles. The unsustainable surge in auto deliveries from mid-August through
early October, mainly in response to cut-rate financing, largely eliminated the overhang
of 1985 models. Production plans remain strong through year-end. Major automakers have
extended less generous programs of below-market financing into November. Analysts expect
very competitive markets for motor vehicles over the next several years, with imports and
domestic production of foreign producers taking a larger share of the U.S. market. The
VII-2
decline in the value of the dollar since February has somewhat reduced but far from
eliminated the foreign producers' cost advantage. Sales of medium- and heavy-duty trucks
have softened, and are expected to be down next year. Mediums have held up this year
better than heavies. Several producers are scheduling 5-6% reductions in output for
October.
Steel. Producers of steel continue to operate at unprofitable levels. The
District's share of U.S. output has climbed somewhat in recent months. OECD exporters to
this country are adhering to restraint agreements, but some others are not. Prices remain
weak. Rising investment by steel producers is to cut costs, improve quality, and meet
demand for particular types of steel, not to add to overall capacity. Strongest markets
for steel include autos, appliances, office furniture, building components, and store
fixtures. Most lines of machinery remain weak. A larger share of steel is moving through
service centers, which aids user efforts to keep inventories low.
Business Equipment. Demand for most types of heavy capital equipment, including
those important in the Seventh District, remains weak. Railcar orders are low, though
orders for auto carrying cars have increased. The farm equipment market is dismal, and
more layoffs of production workers have recently been announced. Machine tool demand has
improved, particularly from auto makers and the defense industry, but remains far below
good levels reached in the 1970s. Sales of pumps, widely used in numerous industries,
have increased from recession levels but remain well below the 1981 peak, and have
flattened in recent months. A substantial further fall in the dollar's value in foreign
currency markets is estimated to be needed to provide much help to makers of many lines of
machinery. However, the rise in the Japanese yen reportedly has spurred interest of
potential buyers in construction equipment of a major Seventh District producer.
Nonresidential Construction. Office building continues vigorous in the Chicago area,
particularly downtown and in rapidly growing suburbs, despite widespread concerns about
overbuilding. Construction of stores and rehab work also remain strong. Some of this
activity is believed to reflect efforts to grandfather projects under existing tax
VII-3
incentives. Backlogs indicate continued strength in nonresidential building well into
1986. Activity on large projects is limited by availability of skilled workers and
capacity to pour ready-mix, reduced during the last recession. District-wide,
nonresidential building contracts this year have continued to recover from their 1982 low,
but remain well short of peaks reached in the late 1970s. Highway work is at high levels
in District states. Contract lettings in Illinois earlier this year were the largest
ever.
Residential Construction. Home and apartment building in District states in 1985 is
slightly ahead of a year earlier and nearly double the recession low in 1982. The rise
this year has been most pronounced in southeast Michigan, reflecting continued strength in
motor vehicles. Apartment construction in the Chicago area is stimulated by low vacancy
rates and proposed reduction of federal tax incentives. Activity is also up in
Indianapolis, but has been flat to down somewhat from 1984 in most other areas. Tighter
FNMA regulations on mortgages are believed to be constraining new construction somewhat.
Despite improvement since 1982, the pace of residential construction in the District is
less than half of the 1978 peak. In contrast, sales of used housing are nearer to
pre-recession levels. One of the largest Chicago-area realtors reports a record volume of
resales in recent months. Prices have probably averaged between flat and up 3 to 4
percent over the past year (no good statistics are available), but with wide variation
among areas.
Consumer Spending. Chain store sales in September and early October have been
disappointing but somewhat better than prior to mid-August. Demand for durables has
picked up. Apparel is slow, and would be helped by cold weather. Inventories are normal,
possibly somewhat tight in some lines, in contrast with excesses which developed in late
1984 and early 1985. A high proportion of sales are on credit. Delinquencies are high
but are not deteriorating further. A large area retailer reported that the decline in the
value of the dollar will not be reflected in higher prices charged to consumers until
mid-1986. Costs are "locked up" through spring. Japanese exporters are absorbing about
VII-4
half of the impact of the lower dollar in narrower margins.
Agriculture. Farm commodity prices remain very depressed, but crop prices may be at
or near harvest-season lows. Livestock prices have recently recovered somewhat. Farm
credit conditions continue to deteriorate. Farmland values declined sharply again in the
third quarter, according to preliminary results from our latest survey of District
agricultural bankers. A recent action by the governor of Iowa allows judges in that state
to delay foreclosure proceedings against farm real estate mortgages for one year. Whether
such a moratorium can be used against foreclosure proceedings initiated by Federal Land
Banks, the leading supplier of farm mortgage credit to farmers in Iowa, is under debate.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Summary
District indicators suggest a slowing of economic activity
during the third quarter of this year.
growth continues to lag national trends.
As in past reports, employment
Evidence of strength in the
retail sectors of the District is supported by consumer lending activity,
which has maintained a pace well above that of last year.
Construction
activity, while strong in certain areas, has been relatively flat for the
District as a whole.
The agricultural outlook finds record-breaking
harvests accompanying historically low commodity prices.
Business Activity
Business activity, as measured by an index of seven indicators,
declined in Arkansas at a 3.4 annual rate in August, after a slight
increase the previous month.
Missouri business activity also declined,
decreasing at a 2.8 percent rate in August after a 5.9 percent increase
in July.
Payroll Employment
Payroll employment continues to expand more slowly in the
District than in the nation.
For the twelve months ending in August
1985, the District growth rate was 2.5 percent compared to a 3.3 percent
national rate.
A 1.9 percent decline in manufacturing employment
contributed to the slower District rate.
Over the same period,
manufacturing employment increased at a 5.1 percent rate nationally.
VIII-2
The seasonally adjusted unemployment rate increased in the
District to 8.2 percent in August from 8.0 percent in July.
August
jobless rates ranged from 6.5 percent in Missouri to 9.4 percent in
Kentucky.
Consumer Spending
District retail sales were 6.4 percent higher in July than
year-ago levels.
Sales were particularly strong in Tennessee, increasing
by 12.5 percent over the period.
July through September period.
Missouri car sales were strong in the
Tax revenues from motor vehicle sales
rose 17.5 percent for the quarter over the same period last year.
A
leading Missouri car dealer expected sales of both domestic and imported
cars to remain vigorous through the end of the year, spurred by lower
interest rates.
A representative of a Memphis area trucking firm
indicated that sluggish replacement of inventories can be interpreted as
a signal of a slow Christmas retail season.
Construction
Construction contracts decreased in the District over the twelve
months ending in August.
from year-ago levels.
Residential contracts decreased 5.0 percent
Analysts have attributed the decline in
residential contracts to the satisfaction of much of the pent-up demand
for housing after higher mortgage rates in past years.
contracts in the District declined slightly.
percent lower than year-ago levels.
Non-residential
August figures were 0.4
VIII-3
Banking and Finance
Total loans at large weekly-reporting District banks, although
growing at a 5.5 percent annual rate during the third quarter, increased
at a considerably slower rate than that recorded over the same period in
1984.
Consumer lending continues strong with third quarter activity
increasing at a 25 percent rate.
Consistent with earlier periods,
commercial lending remains sluggish.
For the three months ending
September, commercial lending fell 11 percent over second quarter
levels.
Real estate lending, although strong during July and August,
slackened during the final month of the quarter.
Real estate loans grew
at an 8.1 percent pace as compared to an 18.8 percent rate over the same
period last year.
Agriculture
Reports from the District have consistently supported the
national trends of high yields, record harvests, and prices far below
historical norms.
The rice harvest is nearly complete, and early
indications show that some new varieties have produced yields 50 percent
larger than conventional varieties.
One rice exporter, however,
indicated that due to the price floor provided by the CCC loan rate, U.S.
rice is overpriced by $200 per ton relative to rice produced in Thailand.
Other information confirms continuing stress among farmers.
Recent reports, however, indicate a large number of financially strong
farmers expect to be acquiring the assets of failed farmers when the
prices of those assets fall to levels consistent with the returns they
generate.
IX-1
NINTH DISTRICT - MINNEAPOLIS
Ninth
indications of
remained
sales,
District
economic
significant
stable
between
growth
advancement
July
appears
in
have
its pace.
and August.
Aside
strength has not generally been evident
spending.
to
in
steadied,
Employment
from
solid motor
vehicle
key components of consumer
Manufacturing performance has been spotty.
state of Ninth District farmers,
no
conditions
While livestock prices
have improved substantially, major crop prices have remained poor.
the sorry
with
agricultural bankers
Reflecting
report that
their farmer clients' plights haven't eased.
Employment
The most recent unadjusted employment data show stability in overall
employment
around
conditions.
5 percent
During August,
unemployment rates continued to hover
in Minnesota and the Dakotas.
between July and August in
Employment remained steady
Montana and the Upper Peninsula of Michigan.
Bank director notes that Sioux Falls and Rapid City,
for most of the monthly
employment growth in
South Dakota,
that state,
which is
A
accounted
suffering
from a slack rural economy.
Large, divisive strikes in the food processing industry have continued to plague Austin,
developments
include
Minnesota,
the
and Sioux Falls,
announcement
of
future
South Dakota.
layoffs
in
Other labor
some
iron
ore
processing plants in northeastern Minnesota and the hiring of nurses (who were
in excess supply last year) in Rochester, Minnesota.
IX-2
Consumer Spending
Retail
sales
large retailer reports
speculates
that
that some of its
during August.
Falls,
of general merchandise
sales
have
varied quite a bit.
in September were
normal September
One
less than expected and
business may have already come
A Bank director notes that while sales slowed at some Sioux
South Dakota, retail
facilities,
sales
picked up again
in October.
Another director notes the continuing lackluster performance of small agriculturally dependent Main Street retailers.
However,
good September sales--better than expected.
another large retailer had
Among retail goods,
products have been selling particularly well.
home-related
Credit sales appear to be much
stronger than cash sales, causing some concern about speed of payback.
District sales of motor vehicles continued strong throughout September.
Two
domestic
Year-to-date
car
Inventories of
manufacturers
and truck
sales
have only a
handful of
continue to
1986 vehicles are at
extremely
1985 models
surpass year-earlier
left.
levels.
low levels, however, causing
problems for dealers.
Housing activity wasn't bad in the Minneapolis-St. Paul area, but was
spotty
elsewhere.
September than
Sales
last.
in
both Minneapolis
Residential
percent higher this August.
building contracts
Paul were higher this
in Minnesota were
And while home sales have slowed in
South Dakota, a recent housing bond
about 244 apartments in
and St.
Rapid City,
14
Sioux Falls,
issue will finance the construction of
South Dakota.
A Bank director notes that
sales of existing homes have also been slow in Rochester, Minnesota.
IX-3
Manufacturing
Manufacturing
firms,
performance
has
been
mixed.
Among
Sperry Corporation laid off 70 workers at its
ban St.
Paul.
Control
computer plant in
Data Corporation announced
including some mandatory unpaid vacation days.
major high
further
austerity
tech
suburmoves,
And 3M Company announced that
it plans to temporarily shut down its industrial and medical supplies plant in
Aberdeen,
South Dakota,
one day per week.
Bank directors note that pulp and
paper operations in northern Minnesota and the Upper Peninsula of Michigan are
slowing
from their
full-capacity output
material manufacturers
expected to open
in
report
earlier
that business
South Dakota:
is
this year.
good,
But
building
and two new plants are
a plant to manufacture
equipment
for the
transportation industry in Watertown and a meat packing plant in Pine Ridge.
Agriculture
Two
dramatic
bright
improvement
million in
wheat
Bank director is
rose
about
spots on
sink further,
dark agricultural
in livestock prices
from South Dakota,
horizon
have been
and Taiwan's agreement
Montana,
to buy
and Minnesota wheat farmers.
the
$14
A
relieved to report that cattle prices in parts of Montana
15 percent
remained low.
the
during
the last
month.
But major
crop prices
have
Prices received in Minnesota for corn and soybeans continued to
with soybean prices
in
August hitting their lowest level since
March 1976.
Bank directors
cold
conditions
note that crop harvesting
in parts of
North
is
being hindered by wet,
Dakota and throughout Minnesota.
windy, dry weather is needed to ensure a good harvest.
Some
IX-4
Finance
This
third
banker
district's
quarter reflects
estimates
that
survey of agricultural
the continuing
bankers at the end of the
farm crisis.
The median respondent
3 percent of her or his farmer clients went out of
business in the past six months.
Demand for refinancing farm loans remained
high, while the rate of debt repayment remained low.
TENTH DISTRICT--KANSAS CITY
Economic activity in the Tenth District is improving somewhat, apart
from the weak farm sector.
especially strong.
stable.
Retail sales are growing, with new car sales
Prices at retail and for factory inputs are generally
Inventories of industrial materials and retail goods are generally
viewed as satisfactory.
across the district.
Residential construction activity varies widely
Inflows to thrifts are increasing, with mortgage demand
mixed to slightly higher.
Loan demand at commercial banks is off slightly and
deposits have increased slightly.
Retail trade.
Retailers report a slight increase in sales this year over
last year, and sales have been improving in the past three months.
Clothing
sales have been strong while home furnishing sales have been weak.
Sales are
expected to increase seasonally with the coming holidays.
and are expected to remain so through year-end.
Prices are stable
Retailers have been trimming
inventories but expect to add stocks in anticipation of seasonal sales
increases.
Automobile sales.
Automobile dealers report strong sales and large
reductions in inventories of 1985 models, due largely to financing incentives.
Inventories of 1986 models are beginning to grow.
Some dealers are
apprehensive about sales following the end of the interest rate incentive
programs, but generally express optimism for 1986 model year sales.
Purchasing agents.
Most purchasing agents report that input prices have
remained nearly constant from a year ago and 3 months ago, and they generally
expect input prices to remain constant through the end of the year.
Few
difficulties in obtaining materials are reported, and few new problems are
expected to arise.
Most firms report either that materials inventories are
satisfactory or that they are reducing stocks.
large for the rest of the year.
Changes are not expected to be
X-2
Housing activity and finance.
Homebuilders report that starts of single
family houses have remained flat, but give mixed reports about multi-family
housing starts.
Most area homebuilders expect starts for the remainder of the
year to follow current trends.
Sales of new homes, prices of new homes, and
the inventory of unsold homes vary widely across reporting areas.
Prices of
materials are generally steady and material availability is good.
Most savings and loan associations report a significant increase in
savings inflows relative to last year.
Several institutions reporting strong
inflows also report aggressive campaigns to attract funds.
expects the current trend to continue.
Respondents also report mixed to
slightly higher mortgage demand and commitments.
expected as winter approaches.
to remain so.
Each respondent
Somewhat lower demand is
Mortgage rates are constant and are expected
Most institutions have not reduced to $1000 their minimum
deposit on money market deposit accounts, Super NOW accounts, and 7-31 day
certificates of deposit.
Those that have reduced their minimum deposit
believe that deposits have grown as a result.
Banking.
Respondents at Tenth District banks report loan demand has
fallen slightly while deposits have risen slightly, on average, in the last
month.
Commercial and industrial loans and residential and commercial real
estate loans fell slightly.
Agricultural loans fell more sharply.
loans, on the other hand, increased.
nearly all of the banks surveyed.
near term.
Consumer
The prime rate remained unchanged at
No change in the prime is expected in the
A majority of respondents report lower consumer lending rates.
Although some respondents expect further easing in these rates, most report
they did not anticipate any near term change.
on average, during the last month.
Deposits were slightly higher,
Demand deposits, conventional NOW
accounts, Super-NOW accounts, IRA and Keogh accounts, and small time deposits
X-3
increased slightly.
greater increases.
Agriculture.
Money market deposit accounts and large CD's showed
Passbook savings accounts were down slightly.
Most areas in the district have more farm land on the
market this fall, but very little appears to be changing hands.
values continue to drift lower reflecting the weak farm economy.
Farm land
Some of the
increased amount of land for sale results from higher foreclosure rates.
Many
lenders believe farm business failures will continue to run well above normal
over the next six months.
Bankers report that Farm Credit System outlets are
adhering to fairly strict loan review guidelines, apparently leading to the
sale of more farm assets.
Fall grain harvest is underway in the district following a good wheat
harvest.
District farmers expect excellent corn, milo, and soybean yields.
Nearly all farmers who are eligible are choosing to store their grain under
Commodity Credit Corporation loans.
In some areas, however, the number of
farmers selling grain on the cash market is up somewhat from last fall.
Though not a preferred option because of depressed grain prices, some farmers
are pressed for cash to pay outstanding loans.
Winter wheat is being seeded in the district, though planting is behind
in some areas due to wet weather.
In general, district wheat growers are not
having serious problems obtaining credit, although conditions are somewhat
tighter than a year ago.
A higher percentage of growers in Oklahoma and
Missouri are having problems than in other district states.
input suppliers are unwilling to provide inputs on credit.
In most cases,
XI-1
ELEVENTH DISTRICT--DALLAS
The Eleventh District economy remains sluggish.
activity is flat.
Drilling remains depressed with little hope of a
resurgence owing to price instability.
growth.
Manufacturing
Auto sales are extremely brisk.
Retail sales are showing little
Evidence of a decline in
nonresidential construction is becoming apparent, but lower interest rates
continue to fuel a mild recovery in residential construction.
is largely unchanged at the District's large banks.
Asset growth
The agricultural
sector continues to deteriorate owing to low cotton and beef prices.
Eleventh District manufacturing is maintaining its weak overall
performance, but more firms report increasing sales than in earlier surveys
this year. Apparel manufacturers say their orders have begun to increase on
a year-over-year basis after a period of slack demand earlier in 1985.
Manufacturers of primary metals report rising demand from the refining
industry, and brisk sales to construction firms working on public works
projects.
Nonelectrical machinery producers note that sales of oilfield
machinery are ebbing but that demand for food-processing equipment remains
very strong.
Chemical and allied products firms report that the general
slump in manufacturing activity is keeping sales flat.
Manufacturers of
lumber and wood products and firms making stone, clay and glass goods
attribute lower absolute sales levels to moderating construction activity.
According to respondents among electric and electronic equipment
manufacturers, sustained high inventories of electrical components continue
to depress sales of semiconductors.
XI-2
Drilling activity in the Eleventh District is still declining in
what respondents say is a reaction to earlier declines in oil prices and
uncertainty over future prices.
The rig count in Texas has recently fallen
below 700 for the first time since 1976.
Leading indicators of drilling
activity, such as well permits and the seismic crew count, suggest that the
current depressed level of drilling should persist.
Retail sales growth is slight.
The weakest sales items continue
to be large appliances and other household goods, although an increase in
home sales is expected to reverse this trend.
selling well, however.
Apparel and accessories are
Retailers report optimism that renewed economic
expansion will accelerate sales expansion in the future.
In the meantime,
employment gains in September were largely attributable to the beginning of
Sunday sales in Texas.
Concessionary financing terms from manufacturers are keeping auto
sales quite brisk.
some dealers.
Inadequate inventories of desired models are hurting
Although many respondents report optimism about future
sales, some are concerned that sales will slow significantly with the end
of the special financing programs.
Nonresidential construction is slowing, although the level is
still quite strong.
For the three-month period ending in July 1985 the
total value of construction contracts in the District states was somewhat
below the three-month period ending in April.
sharper than elsewhere in the District.
The decline in Texas was
Respondents expect the slowing to
continue and offer as evidence a growing number of cancelled and deferred
projects.
XI-3
A slight resurgence in residential construction is occurring.
The
average monthly permit totals during the three-month period ending in July
were 6 percent higher than for the previous three-month period.
Despite
the recovery, the number of permits is significantly below last year's
level.
The number of multifamily permits is holding steady after a long
period of decline.
Growth of total loans and securities at the District's large banks
slid in August from July, but increases were about the same as the average
pace for the second quarter.
Loan expansion decelerated markedly, while
the rate of increase in securities rose.
Consumer lending at large banks
fell absolutely from July to August, in response to the relatively low
interest rates introduced by automobile manufacturers.
The year-over-year
growth in real estate lending continued to slow, but remained strong
overall.
According to lenders, refinancings of existing projects
predominate over loans for new projects.
The demand for energy loans is
increasing as lower prices restrict the cash flow of energy companies.
Respondents note, however, that stricter lending criteria are preventing
many applicants from qualifying for additional loans.
At all member banks,
including large banks, total deposit growth has been very steady.
Estimates of District agricultural income continue to drift
downward as the revenue outlook for cotton farmers and cattle ranchers
deteriorates.
Prices for sorghum, wheat, rice, soybeans, cotton and cattle
are all below the levels of a year ago.
Cotton and cattle generate about
60 percent of District cash receipts to farmers and ranchers.
XII-1
TWELFTH DISTRICT - SAN FRANCISCO
Summary
Although some key sectors of the Twelfth District economy continue to
suffer, others remain strong enough to keep the region's economy generally
healthy.
Problems remain in the forest products, agriculture, electronics,
and oil industries.
continue to grow.
In contrast, defense, aerospace, trade, and services
Interregional differences in economic well-being within
the Twelfth District largely reflect variations in industry mix.
Consumer Spending
Retail sales figures from throughout the Twelfth District suggest that
consumer spending is healthy.
Most stores show year-over-year sales gains
of 5-10 percent, though some are posting relatively small sales decreases.
Available figures indicate high credit card sales volume, which likewise
suggests that consumer spending remains robust.
In most of the District, auto sales have been very strong.
Oregon,
however, posted a decline in August which more than offset July's sales
increases.
Many are concerned that sales will drop sharply when incentive
financing stops.
Mining and Manufacturing
The oil industry slump continues to hurt oil producing regions in the
Twelfth District.
In Southern California, the oil rig count is 21 percent
below its year-ago level, production is down, fewer wells are being
drilled, and little money is being spent on oil exploration.
In Alaska,
reduced oil revenues have led to sharp cutbacks in state construction
activity, which had been a major source of employment.
XII-2
Activity in the forest products industries remains stagnant.
U.S.
producers complain that their competitiveness is compromised by subsidized
Canadian production, as well as cultural and legal restrictions on sales to
Japan.
Although some Oregon firms recently posted profits and are
optimistic about the future, many others remain depressed.
Further mill
shutdowns are contemplated, and for the first time the paper market shows
signs of weakness.
Disappointment is evident in regions that had counted on the
semiconductor and electronics industries to lead employment growth.
Additional layoffs, short work weeks, and salary cuts are announced
frequently.
Defense and aerospace production continue to provide employment growth
throughout the Twelfth District, with California and Washington benefiting
most from these sectors.
Construction and Real Estate
The market for single-family housing appears healthy.
Permits, sales,
and prices are all up in most markets, although increases vary
substantially with location.
In Portland, however, permit activity
remained stagnant in August, while the median existing home price was 4
percent below its July level and 6 percent below the level of August 1984.
Multifamily and nonresidential construction exhibited greater
variation.
Continued commercial construction activity is exacerbating
already saturated markets in the Los Angeles and Orange County areas, while
vacancy rates appear to be falling in California's San Joaquin Valley.
Multifamily residential construction is falling sharply in Utah and Arizona
due to the past overbuilding that has increased vacancies in those markets.
Previously torrid multifamily activity in the San Diego area appears to be
XII-3
slowing somewhat, while in Portland, multifamily permits rose substantially
in August.
Agriculture
Agriculture remains weak.
Growers of most western crops continue to
suffer from low prices induced by increased foreign competition and bumper
crops.
Farmers report that tariffs and quotas on fruit exports to Japan,
and subsidies on European production, compromise their ability to compete
in the world market.
The recent depreciation of the dollar has had little
effect as yet, and some believe that more fundamental changes in production
decisions will be required even if the value of the dollar falls
substantially.
Beef prices remain below the cost of production despite a
recent price increase.
Other crops for which prices do not cover costs
include wheat, cotton, grapes, and potatoes.
Finance
Business loan demand in the West continues strong for smaller banks
but is weaker for large banks.
Larger banks tend to serve larger
borrowers, which can raise money by selling commercial paper and need not
borrow from banks.
Demand for consumer credit continues strong and a bank study in Utah
found that consumer debt relative to income is still only 77 percent of its
1977 peak.
However, September delinquency rates on consumer loans and
credit card purchases remain much higher than a year ago.
Mortgage rates remain essentially the same as last month, with some
banks offering 30-year fixed rate mortgages at rates just above 12 percent.
An Idaho bank reports that through the first eight months of 1985 its total
new mortgage loan originations were 24 percent higher than the same period
in 1984.
Cite this document
Federal Reserve (1985, November 4). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19851105
@misc{wtfs_beige_book_19851105,
author = {Federal Reserve},
title = {Beige Book},
year = {1985},
month = {Nov},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19851105},
note = {Retrieved via When the Fed Speaks corpus}
}