Beige Book
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
January 1986
TABLE OF CONTENTS
SUMMARY............................................................
.
First District - Boston.............................................
I-1
Second District - New York..........................................
Third District - Philadelphia......................................
i
II-i
III-1
Fourth District - Cleveland..........................................
IV-1
Fifth District - Richmond..........................................
V-1
Sixth District - Atlanta............
..............
.................
VI-
Seventh District - Chicago.........................................
VII-1
Eighth District - St. Louis.......................................
VIII-1
Ninth District - Minneapolis........................................
Tenth District - Kansas City........................................
IXX-1
Eleventh District - Dallas.........................................
XI-1
Twelfth District - San Francisco...................................
XII-1
SUMMARY*
This month's commentaries on regional economic activity suggest that
the economy is growing at a moderate pace on balance.
Several Banks, includ-
ing Philadelphia, Richmond, Minneapolis, Kansas City, and San Francisco,
pointed to signs of improving business activity in their respective Districts.
Most other Banks reported little change.
Dallas reported that its economy
remained sluggish, and St. Louis noted a continuation of the conflicting
signals reported earlier for its region.
Chicago pointed to continued weak-
ness in its District and indicated that it expected business activity there to
lag the national economy in 1986.
The economic picture is uneven across sectors.
Consumer spending
appears to have been moderately strong during the Christmas season in most
regions, although Chicago reported that sales were disappointing.
Construc-
tion activity was also reported to be relatively strong, especially in the
residential sector.
Manufacturing activity, however, is mixed, ranging from a
boom in military electronics in the San Francisco District to activity that
remains in the "doldrums" in the Cleveland District.
Elsewhere, several
reports noted continuing problems in agriculture, including declining livestock prices (Minneapolis and Dallas), rising delinquencies on farm loans (St.
Louis), low orange prices (Atlanta), and low tobacco prices (Richmond).
Several pockets of strength in the agricultural sector were mentioned,
however, including poultry, almonds, and winegrapes.
CONSUMER SPENDING
Much of the comment on consumer spending focused on sales during the
Christmas season.
Most of the reports indicated satisfactory sales despite
the shorter-than-normal selling period between Thanksgiving and Christmas.
*Prepared at the Federal Reserve Bank of Richmond.
Sales were 5 to 10 percent higher than last year in the New York District.
They were up 3 to 7 percent in the Philadelphia District, and were described
as relatively strong in the Kansas City District, above expectations in the
Dallas District, and either level or up moderately in the Boston, Atlanta,
Chicago, St. Louis, and Cleveland Districts.
Retail inventories appear to be
under good control for the most part; they were variously described as relatively low, satisfactory, or well-balanced.
Profits of retail merchants were
reported to be well above the year-ago level in most districts, due to reduced
price competition this Christmas.
St. Louis, however, reported that profits
were about equal to 1984 levels.
Automobile sales have apparently responded to the latest round of
interest rate incentive programs.
Cleveland, for example, noted that sales in
early January were up as much as 30 percent from year-ago levels.
Dallas,
however, reported that sales have recently weakened and that inventories of
domestic cars were excessive.
There were mixed views of the outlook for consumer spending.
While
sales are generally expected to increase, some of the reports suggest the
increase may be modest in some regions.
For example, Kansas City reported
that sales are expected to increase only slightly, and Philadelphia indicated
that most retailers expect flat sales in the first half.
MANUFACTURING
Manufacturing shipments and orders, on average, appear to be growing
at a slow rate, while manufacturing employment continues to decline.
tions vary widely, however, across industries and regions.
Condi-
Philadelphia noted
that orders and shipments are up in its District, but that employment is
steady.
Boston reported that orders are flat, or increasing modestly, while
iii
employment is being cut by attrition.
Cleveland indicated that employment had
fallen substantially at more than half of the establishments it had surveyed.
Atlanta and San Francisco reported that defense spending had stimulated industrial activity in their Districts, particularly in the electronic
equipment and shipbuilding industries.
Richmond and Atlanta reported that
activity in the textile industry, hit hard in recent months by imports, had
recently stabilized, albeit at a low level.
San Francisco and Dallas stated
that the output of lumber and wood products in their areas had continued to
decline.
Several Banks noted little tangible response to the recent decline in
the foreign exchange value of the dollar.
Richmond,however, indicated that
several District manufacturers had recently reported renewed contacts with
former customers.
Also, Boston reported that sales to European buyers had
picked up quite markedly in the second half of 1985 due, at least in part, to
the dollar's decline.
MINING
Dallas reported that the drilling rig count was at its lowest level
since 1976, and that the seismic crew count was continuing to fall.
Minneapolis also noted declining oil and gas activity but mentioned that a
San Francisco indicated that mining activity for
copper mine was reopening.
metals such as copper remained depressed, but that gold and silver mining were
expanding.
CONSTRUCTION AND REAL ESTATE
Seven districts reported moderate to strong increases in residential
building activity.
Dallas, however, painted a bleak picture of construction
activity in its District.
It indicated that the value of both residential and
nonresidential construction contracts had fallen in each of the last three
months.
Atlanta reported that office construction had outpaced leasing
recently, and Cleveland reported concern that speculative construction of new
office space was excessive in some midwestern cities.
AGRICULTURE
Several Banks mentioned low farm prices and the resulting low farm
incomes.
Richmond reported low tobacco prices, Atlanta noted low orange
prices, and Minneapolis and Dallas found falling livestock prices.
Dallas
also reported a continuing decline in foreign demand for cotton, and San
Francisco noted generally weak farm prices.
The reports on agriculture were not uniformly bleak, however.
Richmond indicated that the demand for poultry was strong, and San Francisco
found that the lower dollar had aided producers of almonds and winegrapes.
Chicago and Minneapolis stated that recent increases in some farm commodity
prices were a positive factor.
Also, Kansas City reported that excellent crop
yields and higher livestock prices had produced a better than expected farm
loan situation.
BANKING AND FINANCE
Several Banks reported that both household and business loan demand
were strong.
Kansas City, however, indicated that loan demand in its District
was flat, and Dallas noted that both consumer and business demand were below
the year ago level.
Only two Banks mentioned the removal of minimum balance
requirements on Super-NOW accounts, and both reported that the removal had not
yet produced any significant change in deposit pricing policies in their
Districts.
FIRST DISTRICT-BOSTON
The First District economy held steady through the end of 1985.
Retailers report a generally satisfactory holiday selling season with fewer
price markdowns and higher profits than a year earlier.
Inventories are in
reasonably good shape and merchants are optimistic about 1986.
Some
manufacturers are seeing modest improvements in orders, others report that
orders remain slow; most of those contacted expect 1986 to be a better year
for sales and earnings than 1985, but still not particularly good.
Banks
in the District continue to perform well.
Retail
New England retailers report level or modestly increased sales
during the holiday period.
A week shorter selling period between
Thanksgiving and Christmas contributed to weak November results, but
December sales at several stores were substantially above 1984.
For the
fiscal year ending in January 1986, most of those contacted expect to
attain double digit sales growth; while below the previous year's
increases, these results are not at all disappointing when retailers
compare results with affiliates in other regions.
Inventories are generally close to planned levels.
this as one reason for a less "promotional" Christmas:
Contacts cited
having learned from
last year, they anticipated overall demand more conservatively (and more
accurately) this year.
With lower inventory carrying costs and fewer
markdowns, profits were stronger this season.
Some individual product
lines, of course, performed better or worse than expected.
Video cassette
recorders, televisions, tapes and records were widely cited as strong
sellers, while reports on toys were mixed.
Projections for 1986 are upbeat.
to be as good as or better than 1985.
Merchants expect the coming year
A recent survey of analysts cited
New England's low unemployment rate and high per capita income as reasons
for the region's retailers to continue to outperform their counterparts in
the rest of the country.
Manufacturing
First District manufacturers report that recent orders have been
fairly flat or increasing modestly.
Several respondents commented that the
commercial aircraft business is improving, albeit slowly.
However, sales
to the auto companies, which were very strong in 1985, are expected to
weaken in 1986.
remain depressed.
Sales to the farm equipment and machine tool industries
High tech contacts have seen slight increases in orders
for some products, but the semiconductor business continues to be very slow.
Several of the firms contacted have been reducing employment for
some time and are continuing to do so.
However, these staff reductions are
occurring through attrition rather than layoffs, as was the case in earlier
months.
Respondents plan to invest as much or more in 1986 as they did in
1985.
The importance of keeping abreast of technology and the need to
develop new products were cited as motivations for capital spending.
Several contacts mentioned new product introductions as critical to sales
increases expected in 1986.
I-3
According to several firms, sales in Europe picked up quite
markedly in the second half of 1985.
This improvement is attributed, at
least in part, to the decline in the value of the dollar from the highs of
last spring.
For high tech producers, sales in the Far East were strong
throughout 1985 and remain vigorous.
A regional business magazine recently surveyed securities analysts
regarding the prospects for major New England firms in 1986.
In general,
the analysts expect substantial improvements in the sales and earnings of
firms in the traditional metals and machinery industries.
For high
technology companies as well, 1986 is expected to be a better year than
1985, but earnings prospects vary considerably from one firm to another.
According to the analysts, the outlook is more promising for computer
companies than for firms involved in the semiconductor business.
Banking
Banks in the First District enjoyed strong earnings in 1985, with a
couple of large institutions reporting fourth quarter earnings that
surpassed the expectations of security analysts.
According to a recent
survey of analysts, the growth in bank earnings will be more moderate in
1986.
SECOND DISTRICT--NEW YORK
Almost
modest
gains
Christmas
all sectors of the Second District
since
season
the
met
last
most
inventories
were
Residential
construction has
weather.
In
Consumer
retailers'
generally
addition,
report.
at
low
economy experienced
spending
conservative
levels
going
during
the
expectations
and
into
the
are
Nonetheless,
On
the
mixed
the
about
year.
continued strong, in part because of mild
long-awaited
pick-up
in
office
activity appears to have started in northern New Jersey.
reports
new
the
strength
of
current
leasing
In contrast,
business
activity.
the outlook for early 1986 is generally viewed favorably.
financial
side,
small
District
banks
report
a
sharp
rise
in
business loan demand.
Consumer Spending
Consumer spending during the 1985 Christmas season was 5 to 10
percent above last year's disappointing level, and most stores had sales
close to plan.
New Jersey merchants posted larger than projected gains,
while New York City retailers generally experienced modest growth in line
However, stores in western New York tended to report
with expectations.
increases somewhat below plan.
hardy
shoppers,
weakness
but
Severe snowstorms may have inhibited less
store officials
some
in that area's economy.
the most part, department stores
For
fared better than discount houses and low-priced stores.
of
consumer
debt
was
cited
as
a
the continued
also mentioned
deterrent
by
The high level
stores
catering
to
blue-collar and lower-middle income shoppers.
In
year
general,
retailers
that had necessitated
avoided
the
inventory problems of
substantial price-cutting to reduce
last
stocks.
II-2
Most merchants entered this holiday season with much lower inventories
than
a
year
throughout
and
earlier
the
period.
stocks
maintained
Because
they
were
to
close
able
to
levels
planned
stick
to
planned
promotions and pricing policies, they anticipate higher profits than last
year.
Construction and Real Estate
Residential
respondents
construction
found no
November housing
remains
strong
in
the
District,
and
evidence in their areas of the sharp drop-off in
starts
reported
for
the northeast.
In
the Syracuse
area, for example, November starts were virtually unchanged from a year
earlier,
and
starts
through
the
first
full-year record set there in 1978.
builders
pace.
11 months
of
1985
equaled the
Due in part to mild weather, home
in various parts of the District began the new year at a good
Most now expect
activity in 1986
least through late summer.
to equal
or surpass 1985,
at
However, they said that rising interest rates
or unfavorable tax legislation could change this scenario.
While
northern New
office
Jersey
market
conditions
increased
leasing
were
activity
generally
and
a
slowing
projects have taken some of the slack out of the market.
City,
additional
firms
financial
are
stable,
new
In New York
outside
expanding
of
in
Manhattan.
Citicorp proposed construction of an office complex in Queens that would
be the largest ever built in the outer boroughs.
At the same time, a
second financial services firm has announced plans to locate some of its
operations in an area now under development in Brooklyn.
Business Activity
Economic
activity
direction in recent weeks.
purchasing
managers
in
the
Second
District
showed
no
clear
While a much higher percentage of Rochester
reported
proportion in Buffalo declined.
improved
conditions
in December,
the
Inventories remain under control in both
II-3
areas,
though,
and
the
near-term
outlook
is
generally
described
as
favorable.
Very few industrial developments of major significance have been
announced
recently.
Of
considerable
concern
in
the
Rochester
area,
however, is the likely impact of a recent court ruling that Eastman Kodak
must
terminate
its
instant
workers in that operation.
in
Piedmont
business
because
of
patent
At the time of the ruling Kodak employed 800 full-time
infringements.
workers
photography
Also, Avon announced cutbacks of almost 500
the New York metropolitan area.
Aviation plans
to
center
its
On
a more positive note,
northeastern operations
in the
upstate New York communities of Utica and Syracuse.
In the Buffalo area,
a
the
group
of
local
investors
recently
completed
purchase
of
a
metal-working firm, preserving almost 900 jobs.
The
good.
in
unemployment
picture
in
District
the
relatively
remains
December unemployment rates were 6.3% in New York State and 5.8%
New
Jersey,
unemployment
down
slightly
from
November.
For
1985
as
a
whole,
and in New Jersey 5.7%, rates
in New York State was 6.5%
These were also the lowest levels since the
below the national average.
mid-1970's.
Financial Developments
Business
at
small
Second
Explanations
loan demand rose sharply during November and December
District
(and at
for the increase varied.
seasonal borrowing
retailers
banks
to meet
particularly
commercial
One bank suggested
end-of-year business
strong.
banks nationwide).
Other banks
that it was
needs, with demand by
indicated that loan demand
was not limited to any particular type of borrower or single purpose.
In
fact, an upstate bank noted that the large volume of loan requests was
continuing into 1986, although it thought that the strong demand would
not persist.
III-1
THIRD DISTRICT - PHILADELPHIA
Economic conditions in the Third District in January are generally
improving.
A pickup in manufacturing activity that began last fall is
continuing, although factory employment has not benefited from the recent
gains.
Retail sales for the holiday shopping season showed the expected 3-7
percent improvement over 1984, and profit margins improved as well.
According
to loan officers at large Third District banks, consumer lending is strong and
commercial loan demand is rising after a flat second half in 1985.
Expectations for the first half of 1986 vary.
Manufacturers have mostly
positive views on overall business conditions; however, they expect employment
to be stagnant or even to edge downward in coming months.
lackluster first half as consumers work off debt.
economic growth in the region.
Retailers forecast a
Bankers look for continued
They expect business loan demand to be strong
early in the year and to rise further in the second half.
MANUFACTURING
Industrial activity in the Third District is expanding, according to the
latest Business Outlook Survey.
Thirty-seven percent of the manufacturers
replying to the January survey say they have stepped up operations while only 11
percent say their business is off.
Manufacturers of both durable and nondurable
goods indicate improvement.
Third District manufacturers report gains in new orders and shipments, but
note that employment is only holding steady.
also unchanged.
Backlogs of unfilled orders are
Prices of most industrial goods in the region remain stable.
III-2
Three-fourths of the manufacturers surveyed say neither input costs nor output
prices have changed this month.
Manufacturers are generally optimistic about the first half of 1986,
according to the survey.
Half of the respondents predict continued growth, and
project gains in both new orders and shipments; one-third plan to increase
capital expenditures.
Prospects for improvement in factory employment remain
poor, however; based on responses to the January survey, some workforce cuts are
likely to be made over the next six months.
RETAIL
Third District retailers report that the dollar volume of sales during the
Christmas season ran 3-7 percent higher than in the 1984 season; this
improvement should hold up overall performance for their fiscal fourth quarter,
which ends on January 31, 1986.
Year-to-year increases above this average were
achieved by specialty stores selling apparel, toys, and consumer electronics,
and by department stores emphasizing these product lines.
Appliances and other
hard-goods were slow sellers due to seasonal factors and a late-December surge
in auto sales, according to retailers.
Discounts and promotional expenses have
been in line with plans, and fourth quarter profit margins are reported to be
better than a year ago.
Most Third District retailers contacted in January expect a flat first half
in 1986.
They believe that debt service requirements will result in a cash
drain on households that will adversely affect consumer spending until spring.
As evidence of consumer retrenchment, they cite the lower than usual ratio of
credit-to-total sales in December.
FINANCE
Total loans outstanding at large Third District banks in December were 13
percent higher than a year earlier.
Despite a pickup as the year ended, loan
III-3
demand was generally weak in the second half.
Consumer loan demand remains
relatively healthy, although it too was weaker in the fourth quarter than it had
been earlier in the year.
Credit card outstandings posted strong gains, with
other consumer installment lending growing less due to competition from auto
manufacturers' low rate programs.
Commercial and industrial loan volume in December 1985 was about 12 percent
higher than the level of December 1984, although virtually all of that growth
came in the first half of the year.
Third District bankers say demand for
business loans is picking up, however, and will probably grow at a 10 percent
annual rate during the first half of 1986, possibly faster later in the year.
Middle market companies -- major commercial customers at Third District banks --
are benefiting from good economic conditions in the region, and bankers note
improved balance sheets among firms applying for credit.
Local bank economists predict that the pace of economic growth will
accelerate during 1986.
They foresee some easing of credit demand as
manufacturers and retailers work down inventories during the next few months and
federal spending is reduced.
Under these conditions, the consensus outlook for
interest rates is stability for the first quarter of the year and a slight rise
beginning by the third quarter.
FOURTH DISTRICT - CLEVELAND
Summary.
This
District's
manufacturing.
up
economy
moderately
Unemployment
from
a
with new orders,
see
little
strong.
ago,
and
incentives.
backlogs,
response
growing
to
slowly
is high but falling.
year
responded well to sales
is
and
early
January
falling,
depreciation.
weakness
in
Holiday retail sales were
new
car
Manufacturing remains
employment
dollar
despite
sales
in the doldrums,
and manufacturers
Housing
have
activity
still
remains
Bank loans outstanding rose significantly in the last month.
Retail Sales.
Despite
the
than usual
District were
large
up
shopping days,
moderately
percent from year-ago
level.
national
from
contacted
retailers
slightly more
levels,
Department
express
sales.
year-ago
store
particularly strong in the apparel and home
the
holiday season retail sales
A
report nominal December
general merchandise chains
roughly 4-6
the
fewer
concern
sales
in
sample
of
current
three
sales increases of
than experienced at
the
District
inventory
were
None of
improvement categories.
over
in
positions,
although many express uncertainty over future sales prospects.
dealers
Area new-car
sales decline.
Most
report
strong
sales
following the
the early
auto dealers report
typical
January sales
holiday
gains,
in
some
cases as much as 30 percent above year-ago levels, are a consequence of
the
nationally
domestic
sponsored
new-car
nonqualifying sales
dealers
interest-rate
have
categories,
also
such as
incentive
noted
a
programs.
moderate
However,
improvement
luxury new-car models.
in
Few new-car
IV-2
dealers
expect
incentive-induced
inventories increased in
note
that
this
sales
gains
to
last.
Local
new-car
late-December and early-January, but area dealers
is typical as they prepare for the anticipated Spring sales
increases.
Labor Market Conditions.
Ohio's
1985
as
labor market
the
September
seasonally
to 8.3%
showed
some
adjusted
in December.
improvement
unemployment
in
the fourth quarter of
rate
fell
from
9.4%
in
Hiring expectations for the entire Midwest
show a slight decline for the first quarter of 1986 compared to the initial
quarters of 1985 and 1984.
Manufacturing.
Manufacturing activity in this District remains
firms
report
manufacturing
increases are matched
Employment
is falling at
firms surveyed.
fallen
for
by
three
an
output
equal
companies
was
unchanged,
number
reporting
and
doldrums.
Most
those
reporting
production
decreases.
substantially more than half of the manufacturing
Manufacturers
consecutive
report
new orders
months.
backlogs, a majority of firms report
their
in the
than 1985:IVQ.
Despite
and
the
order
decline
they expect 1986:IQ
Raw materials
inventories
backlogs
in
have
orders
and
to be better
for
fell sharply at
yearend, and although some respondents say tax considerations contributed
the
decline,
inventories
have
been
on
Finished goods inventories also continued
a
downtrend
to decline,
at this yearend than at other recent yearends.
for
several
to
months.
falling more sharply
Manufacturers report prices
paid for commodities are falling but prices paid for equipment and services
are rising.
IV-3
There
is
still
depreciation.
very
little
indication
of
response
to
dollar
Of eight major manufacturing firms that export and/or compete
against imports, none report having been able to raise their own prices
response to dollar depreciation,
in
only two report any increase in orders or
sales, and the remaining six report having no additional inquiries.
Most steel producers continue to face weak prices and stiff competition
as imports exceed
levels envisioned by the
import
control program.
Major
producers have pruned their operations but more surgery may be needed unless
price increases are obtained.
Nevertheless, some segments of the industry,
such as flat rolled steel used by the auto industry, and specialty steel,
are doing well.
to fall
A steel industry analyst expects domestic steel consumption
slightly in
1986,
offsetting an expected small
decline in imports
and leaving domestic steel shipments unchanged.
Housing.
Realtors,
builders,
and
mortgage
continued strength in their businesses.
lenders
in
Contacts
this
report
District
record
report
profits in
1985, and expect 1986 profits to be equal or better.
Mortgage
lending
in
the
District
softened in recent weeks because
basis points.
remains
strong,
although
Home loan refinancings represented
loan activity in December.
has
secondary market rates have climbed 65-70
One major mortgage lender's 1985 mortgage volume
on a year-to-year basis.
it
was up 50%
50% of
their
The firm expects a 25% increase in its mortgage
loan applications in 1986.
Realtors'
transactions
record profits in 1985.
volume
rose
10%
above
1984
levels,
bringing
One major realtor expects another profit record in
IV-4
1986.
Although his new listings are showing signs of slowing, he plans to
increase staff 10% in 1986.
A major builder in the District reports record 1985 earnings, despite a
small drop in orders.
This builder reports a recent surge in traffic, with
fewer lookers and more serious
building,
and
pre-selling
of
buyers.
homes
There is
has
become
little
a
speculative house
common
practice
among
builders.
Construction.
A major real
estate developer reports
that speculative construction of
office space seems to be excessive in some midwestern cities.
the excess
He attributes
to the easy availability of construction loans and is concerned
that in six to twelve months the developers may find too few tenants and no
long-term financing.
Commercial Banking.
Loan demand at District banks is picking up.
Total loans outstanding at
large banks rose significantly over the past month, but much of the increase
was due
loans
to seasonal
more
installment
than
offset
lending
decreasing rate.
Gains
factors.
declines
remains
in
business
in real estate
quite
strong
it
and
consumer
loans.
has
been
installment
Although consumer
increasing
at
a
Contacts expect consumer lending to continue to expand at
a double-digit but slower pace.
Contacts also expect business
loan demand
to improve in the first quarter, as more firms begin to rebuild inventories.
V-1
FIFTH DISTRICT - RICHMOND
Overview
Overall economic conditions in the Fifth District remain strong, although
the average conceals substantial differences among the sectors of the economy
and differences among the states within the District.
Consumer spending
during the Christmas season was generally satisfactory, with further gains
expected in 1986.
Manufacturing compares favorably with mid-1985.
The
agricultural outlook, however, remains poor.
Consumer Spending
Consumer spending remained strong in most areas of the District.
Sales
during the Christmas season were characterized as satisfactory or acceptable
by several retailers.
Those retailers noted that volume increases were
moderate when compared to year ago figures.
Retail profits were reported
strong, however, due to much less price promotion in 1985.
Inventories at the
beginning of the year were reported to be moderate, due in part to restraint
in placing orders earlier in 1985.
Automobile sales appear to be strong in many areas.
It is difficult to
determine the extent to which that strength is due to national incentive
programs that lower buyers' contract interest rates.
The outlook for early 1986 is positive, with employment growth in certain
areas leading to predictions of robust consumer spending.
Some pickup has
been noted in particular areas, such as furniture and home furnishings.
Manufacturing
Despite the recent decline in the foreign exchange value of the dollar,
many manufacturers in the Fifth District continue to be very concerned about
foreign competition.
Textile manufacturers, who have reduced production,
V-2
capacity, and employment over the last eighteen months, now report some room
for optimism in the short-term outlook, with orders not weakening any further
and inventories declining.
Certain markets for textiles, such as carpets and
home furnishings, were reported looking particularly attractive; others, such
as apparel, were holding steady.
Several manufacturers reported improved morale due to recent declines in
the dollar.
Reports of renewed contact with former customers were received
from several producers.
Most of the reports of higher morale, however, also
indicated that the lower dollar has not yet led to higher sales, orders, or
production.
Reports from manufacturers generally noted improved conditions
relative to earlier this year.
Construction
Survey participants reported that commercial real estate vacancies in
metropolitan areas of the District were generally not above average, based on
the last decade's experience.
Several did report unusually low rents for
particular projects, however.
Respondents reported moderate to strong
single-family house sales in almost all areas; the single exception was the
Charleston, West Virginia area, in which weak sales and a large inventory of
unsold homes were reported.
Also in that area, office buildings were reported
to have a vacancy rate of about 20 percent.
Financial Institutions
The removal of minimum deposit requirements has not had dramatic effects
in this District.
Changes are reported to have occurred at few institutions,
and marketing activities have been low key and scattered.
Concern has been
expressed over high levels of consumer debt, with delinquencies especially
apparent in credit card operations.
V-3
Agriculture
Farm income in the District in 1985 was dampened by low crop prices,
particularly for tobacco.
fell substantially.
Although production expenses declined, net incomes
The outlook, according to state agricultural officials,
is for additional declines in farm income in 1986.
In contrast to other
products, poultry production and prices have been robust, and a good 1986 is
projected.
products.
Also, growing retail demand in recent months was noted for pork
VI-1
SIXTH DISTRICT - ATLANTA
The Southeast economy firmed up early this year, with strength in Georgia and
Florida more than offsetting a stagnating Louisiana economy.
District unemployment
leveled off in October and November, partly due to late-year stability among textile and
apparel jobs. Advances in single-family housing, industrial real estate development, and
tourism bolstered the regional economy, while commercial construction imbalances and
the farm sector weakened it.
Slumping auto sales detracted from otherwise good
consumer buying. Bank loan growth continued to slow.
Employment and Industry.
November's unemployment rate remained unchanged
from October at 7.3 percent, with four of the six District states registering rates below
those of a year ago.
in the Southeast.
Louisiana's jobless rate has leveled off near 11 percent, the highest
At the other extreme was Florida's rate of 5.2 percent.
Although the
region's textile and apparel industry has lost 15,400 jobs in the last year, employment
Tennessee furniture makers are keeping inventories lean
levels have recently stabilized.
but are hoping that the weakening dollar will reverse a rising tide of imports.
Imported
lumber has captured 49 percent of the market in Georgia, 56 percent in Florida, and 10
percent in Alabama,
according
to industry sources.
More positively, new defense
contracts for ship construction are increasing employment rolls in Louisiana and Alabama
shipyards.
In Florida, a backlog of defense electronics orders is expected to stimulate
growth in the sector in spite of anticipated defense spending cuts.
The ambitious
schedule of the space shuttle program (15 launches in 1986) will keep surrounding support
industries on Florida's space coast busy throughout the year.
Consumer Spending.
District merchants reported flat-to-moderate sales gains
for Christmas and the first ten days of January, while year-end auto sales slumped.
Regional sales growth was strongest in Atlanta, Birmingham, the central and southern
VI-2
parts of Florida, and western Tennessee, while much of the region's weakness was in
Louisiana and Mississippi.
Most merchants posted higher profit margins in 1985 because
inventory levels were better managed and increased price promotions boosted sales.
Year-over-year
car sales in the Southeast dropped in November and December after
rising by 11 percent in both the region and the United States in the first ten months of
1985.
Construction.
Single-family residential and industrial activity improved, while
other southeastern real estate sectors are flat or show current weakness.
Atlanta and
Tampa home sales in early January are reported to be stronger than early last year.
Atlanta buyer traffic, an important indicator of near-future sales, is high for January.
Following heavy declines, Atlanta's multi-family building permits increased over 1984 in
September, October, and November as builders rushed to acquire industrial development
bond financing before year-end. In Jackson, apartment building plans are extremely lean,
although absorption is good, causing rents to rise.
In New Orleans, apartment vacancy
rates are approaching 25 percent, and rents have declined by over 10 percent since last
year. South Florida condominium sales are weak, prices are falling, and repossessions are
accelerating, but, in central Florida, condo markets are prospering on demand from
middle income families.
Office construction continues to outpace leasing, even though incentives are
liberally employed in most regional markets.
Commercial developers cite uncertainty
about future tax law changes as discouraging many investors.
Rising vacancy rates are
applying downward rent pressure in both Miami and New Orleans.
But Atlanta real
estate agents view the office market as strong in spite of its 16 percent vacancy figure.
Retail construction is described as tentative in Orlando and Tampa, as new space is
accumulating and leasing is sluggish.
The Tampa and Nashville industrial markets seem
set for expansion due to low vacancy rates and growing industrial bases locally.
VI-3
Financial Services.
Total lending activity at large District commercial banks
continued to grow, albeit at a slowing rate, throughout 1985.
Southeastern commercial
bank stock prices took a roller coaster ride last year but largely turned up in Alabama,
Florida, and Mississippi in the fourth quarter. Regional thrifts report increased mortgage
sales in the secondary market. Louisiana's sagging economy continues to be reflected in
its weakening financial services industry.
For Louisiana thrifts, regulatory net worth
declined by 32 percent in the third quarter of 1985.
Tourism.
Last year ended on a fairly strong note for the southeastern tourism
industry, and prospects for 1986 are deemed bright by those contacted. Auto travel rose
in December in Alabama and Florida after falling in four of the six District states in
November.
Traffic was up at most regional airports in November, but advance
international bookings are not as strong as earlier. Hoteliers in southeastern convention
cities report strong advance reservations. However, New Orleans contacts foresee some
tapering off by March. Southeastern vacation travel in the first quarter, limited largely
to Florida, is expected to grow despite a mixed performance at the end of 1985.
Agriculture.
Moderate price increases are occurring for most District crops as
supply pressures from harvest season surpluses recede somewhat. But the gains are not
sufficient to substantially improve farm income prospects.
Animal product industries
continue to benefit from low feed costs. Orange prices, high in recent years because of
freeze-reduced crops, have fallen substantially in past months as a result of large
inventories of processed products,
ample imports from Brazil, and prospects for
increased Florida production. Growers whose freeze-damaged groves are producing only
partial crops face especially severe income reductions.
VII-1
SEVENTH DISTRICT--CHICAGO
Summary. Analysts in the District generally expect further moderate economic
expansion, nationally, in 1986. Our information on District conditions suggests that this
region will continue to trail the U.S.
Auto and light truck output will remain strong
early in 1986. Heavy truck sales and production have declined. Steel production
continues weak overall, but may be helped by tighter restraints on imports. Weak demand
has persisted for most types of mechanical capital goods produced in the District.
Construction, residential and nonresidential, continues vigorous in the District relative
to recent years, but well below good levels of the 1970s. Backlogs will support
nonresidential building activity near recent levels well into 1986. Consumer spending for
general merchandise, through early January, is viewed as disappointing.
Although the
District's agricultural situation remains bleak, farm commodity prices have risen in
recent months from low levels, federal farm income and price support programs have been
extended, and the rate of decline in land values has slowed.
Outlook for the District. Recovery in economic activity in the District has
generally trailed the U.S. over the past 3 years. This pattern appears likely to continue
in 1986. The star performer in the District, since the end of recession in 1982, has been
motor vehicles, but further expansion in this sector in 1986, if any, probably will be
small. Surveys suggest that investment spending for capital goods produced in the
District will be sluggish in 1986. Steel production, heavily concentrated here, may
benefit somewhat if import restraints are tightened.
Motor Vehicles. Auto production plans for early 1986 suggest a good level, about
the same as last year. But strong car sales increasingly are dependent on cut-rate
financing and other inducements, as in the current round. One respected District analyst
expects a small decline, about 2 percent, in total unit auto sales in calendar year
VII-2
1986. Domestic makers may experience greater pressure than this if the Japanese
"voluntary" quota on auto exports to the U.S. is enlarged or ended after March 31. Truck
sales have been setting records, but strength is mainly in light trucks, with imports up
most strongly. Sales of heavy trucks have weakened in the last half of 1985, but may have
stabilized.
Steel. With inventories reduced to very low levels and imports below last year,
steel prices have been firming. The lower value of the dollar and efforts to curb imports
seem to be having some effect. Demand for steel remains generally slow, with 1986
expected to be similar to 1985. Strength is concentrated mainly in motor vehicles, light
construction, and service centers.
Capital Goods. Demand for most types of mechanical capital goods has remained weak,
but did not deteriorate further in 1985. An exception is farm equipment, which continued
to decline. In 1986, cuts in capital spending are expected for electric power generating
equipment, mining equipment, and oil and gas development. Sales of food processing
machinery have picked up slightly. A new wave of paper plant construction is reported to
be getting underway.
Nonresidential Construction. Construction activity in the District was hampered
more than normally in November and December by bad weather. Contract backlogs for
commercial buildings, highways, and apartments are large in the Chicago area. This work
is proceeding in 1986. Demand for Chicago-area smaller manufacturing buildings has about
exhausted the overhang of good, well-located unsold units. Among District states, the
rise in nonresidential construction contracts in 1985 was strongest in Michigan, while
Iowa showed essentially no growth. Nonresidential construction in the District is still
well below levels of the late 1970s, compared with an increase in the U.S.
Residential Construction. Housing construction continued to increase in most
District centers in 1985, while the U.S. probably was flat to down slightly. But the pace
of residential construction in the District as a whole is only about half of good levels
VII-3
of the late 1970s. In recent months, expansion has been strongest in Michigan, while
activity has slipped further from low levels in Iowa. Existing home sales have been
vigorous in the Chicago area, with little price appreciation.
Fixed-rate, 30-year
mortgages are being quoted by Chicago-area lenders with nominal interest rates as low as
10 1/2 percent, low compared with levels of the past 6 years. Adjustable-rate loans are
being offered with first-year rates down to around 8 1/2 percent.
Consumer Spending. Large District retailers report that December sales, on a
same-store basis, were flat to up slightly. An industry analyst described December and
early January sales as disappointing and slow. Inventories have been kept low, and sales
may have been hampered as a result. Catalog stock-outs were high (in-store sales lost due
to low stocks cannot be measured).
Appliance sales have been strong, especially home
laundry, ranges, and refrigerators.
Sales of microwave ovens, which have soared in recent
years, are believed to have peaked in 1985. Inventories of appliances are in good balance
except for a sizable stock of room air conditioners left over from a cool summer. Airline
fare wars have intensified, with little response in terms of added traffic.
Agriculture.
Recent developments have cast a more favorable light on an otherwise
bleak picture for the District's agricultural sector. Federal legislation enacted
December 23 extends farm income and price support programs for five more years and paves
the way for financial assistance to the troubled Farm Credit System. Problems in the most
troubled district of the FCS--Omaha, which serves Iowa--apparently have eased. Farm
commodity prices, although still at low levels, have been on an uptrend in recent months.
Crop prices in particular have been buoyed by record movements of grain under federal
price support loans and by weather-related crop setbacks in the Southern Hemisphere. Land
values in the District continued to decline in the fourth quarter, but the rate of decline
apparently slowed. Observers increasingly believe land markets may bottom in 1986.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Summary
District indicators show a mixed outlook for the region and a
continuation of the conflicting signals reported in November.
employment growth continues to lag national trends.
District
Residential and
nonresidential construction activity, however, has exhibited strong
growth in the most recent quarter.
Consumer spending also has shown
stronger growth in the District than in the nation.
Banking trends
continue to follow a year-old pattern of sluggish growth in commercial
loans and strong growth in consumer lending.
The health of the local
agricultural economy, as measured by agricultural finance data, points to
continuing stress for farmers and their lenders.
Employment
District nonagricultural employment increased in October and
November at annual rates of 2.5 and 1.4 percent, respectively, trailing
the national rates of 4.3 and 2.2 percent.
Nonagricultural employment in
the District was 1.5 percent greater in November than it was a year ago;
nationally, nonagricultural employment expanded 3.0 percent over the same
period.
The District unemployment rate increased slightly in November to
8.2 percent with decreases in Missouri and Tennessee offset by increases
in the jobless rate in Arkansas and Kentucky.
Construction
For the three-month period ending November, residential and
nonresidential construction contracts grew by 14.7 and 15.8 percent,
VIII-2
respectively.
District residential contracts were 9.5 percent above
year-ago levels, exceeding the national increase of 8.4 percent.
District nonresidential construction, however, grew by only 4.9 percent
compared with a 14.0 percent national increase.
Consumer Spending
District retail sales (seasonally adjusted) remained strong over
the three months ending in October, growing at an 11.9 percent rate while
retail sales nationally grew at only a 1.5 percent rate over the same
period.
Reports from the District, however, suggest some weakness in
November sales.
Interviews of ten retailers in the four major cities of the
District indicate moderate sales increases for the 1985 Christmas
season.
Increases ranging from 4 to 9 percent suggest District sales
growth was similar to, or slightly above, national levels.
sales increases were reported in Memphis and St. Louis.
The strongest
Compared with
last year, retailers kept inventories more in line with sales and avoided
more unplanned price markdowns.
Most respondents reported profits
similar to or slightly above 1984 levels.
Banking
Total loans outstanding at large weekly-reporting District banks
grew at a 10.1 percent annual rate for the fourth quarter.
Commercial
lending continues to be sluggish, increasing at a modest 3.5 percent rate
compared with a 16.7 percent rate of growth for the fourth quarter of
1984.
In contrast, growth of consumer lending has remained strong over
the fourth quarter (25.0 percent) relative to the same period last year
VIII-3
(18.0 percent).
Consumer lending continues to be the fastest growing
component of large District banks' loan portfolios.
Total deposits at large District banks grew at a 10.5 percent
rate for the fourth quarter compared with a 12.1 percent rate recorded
for the same period last year.
This slower rate can be attributed to
modest growth in MMDA's, which increased at one-half the rate recorded
for fourth quarter 1984.
Agriculture
Data for the third quarter indicate that the volume of
agricultural loans outstanding at District banks is 4.3 percent less than
for the same period a year ago.
Kentucky, Arkansas and Missouri
exhibited the sharpest declines, with volume falling by 11 to 12 percent.
Farm Credit System lenders in these states and Tennessee experienced even
sharper drops as farm loan volumes fell by 24 to 28 percent from a year
ago.
The percentage of agricultural loans past due at agricultural banks
has increased steadily over the last two years, rising from 2.4 percent
in 1983 to 3.0 percent in 1984 and to 3.5 percent in 1985.
Due to rising
agricultural loan delinquencies, total loan charge-offs at District
agricultural banks have risen from 0.4 percent of total loans outstanding
in the third quarter of 1983 to 0.9 percent in the third quarter of 1985.
Loan charge-offs at agricultural banks nationwide, however, were even
larger, rising from 0.5 percent to 1.3 percent over the same period.
Missouri's agricultural banks showed the worst deterioration of loan
quality in the District as the percent of loans written-off increased
from 0.5 percent in 1983 to 1.8 percent in 1985.
IX-1
NINTH DISTRICT - MINNEAPOLIS
Some signs of strength were evident in the Ninth District's economy
at year's end.
December.
new,
District consumer spending appeared to be reasonably strong in
Most district states' unemployment rates have stabilized, and some
resource-based employment
is
areas of Minnesota and Michigan.
slightly,
but
not
nearly
enough
opening
up in
Late in
the year,
to
the hard-pressed
northern
crop prices picked up
significantly alleviate
the
district's
rural economic problems.
Consumer Spending
District retail sales of general merchandise in December appeared to
mirror the nation's upbeat performance.
One chain reports that its stores in
the Minneapolis-St. Paul metro area were among its highest gainers over the
holidays.
sales
The discount operations of two other chains experienced very good
growth
which helped
Council
throughout
increase
the
district.
profits
Price markups
further.
A member
on Small Business, Agriculture, and
generally held
firm,
of this Bank's Advisory
Labor thinks that retailers in
larger towns in eastern South Dakota had good holiday sales and that retailers
in smaller towns there did better than expected, though not as well as last
year.
Small
retailers
in
agriculturally
dependent
areas
of
the
district
generally continued to suffer from the effects of low farm income.
District sales of motor vehicles, which were strong throughout 1985,
finished the year on an uptick.
The regional office of a domestic auto pro-
ducer reports that its December sales were well above its goal.
A Bank direc-
tor from Montana notes that car sales there increased by 20 percent between
IX-2
1984 and 1985.
And a former Bank director from western Wisconsin reports that
an auto dealership in that area had its second-best year in 40 years.
Spurred by lower mortgage rates, housing activity in the MinneapolisSt.
Paul
metro area was vigorous at year's end.
During November, housing
permits taken out in the Twin Cities were far greater than a year earlier, as
were
December home
sales
in
Minneapolis.
This
strong
performance
raised
Minneapolis home sales 17 percentage points above the 1984 level.
Tourist
spending,
an
important
district, has been uneven this winter.
snow conditions,
but
early snowfalls
skiing and dogsled racing.
gan
says that
source
of
income
in parts
of
the
Skiing in Montana was hurt by poor
in northern Minnesota
stimulated both
A Bank director from the Upper Peninsula of Michi-
snowmobilers there
are spending lots of money pursuing their
hobby.
Employment
Although
the district states' unemployment
rates worsened
somewhat
late in the year, part of the increase in unemployment rates was surely due to
seasonal variations.
Also,
a
lessening of construction
been due to unseasonably cold November weather.
ally adjust Minnesota's
employment
indicated
employment may have
Moreover, attempts to seasonthat it rose
slightly between
October and November, as did districtwide employment.
Several noteworthy labor developments occurred in hard-pressed northeastern Minnesota.
These
include progress on plans to build a large paper
mill employing 600 workers in Duluth;
the possible reopening of a fiberboard
insulation plant somewhere in the area; and the resumption of operations at
two
taconite
plants
workers to their jobs.
that
will
return
nearly
2,000
temporarily unemployed
IX-3
Resource-Based Industries
Conditions varied among district resource-based industries at year's
end.
Oil
and gas activity in North Dakota and Montana declined from 1984
levels, matching the low prices that caused the condition.
Montana
showed no
increase
during the
past year.
Coal production in
Taconite shipments
from
plants in northeastern Minnesota are expected to be slightly less in 1986 than
they were in 1985.
However, in the Upper Peninsula of Michigan, a big copper
mine that reopened recently plans to add 300 more workers in 1986.
There are
also plans to build a taconite plant in the Upper Peninsula to test a new
cost-reducing technology.
This technology has the potential to significantly
improve the competitiveness of the district's taconite industry.
Agriculture
A
few signs
of
slight
improvement
sector occurred during the fourth quarter.
in
the
district's agricultural
Small improvements in cash prices
for corn, soybeans, and wheat raised the Minnesota farm price index a bit in
November and held it
district
agricultural
majority, expect
fact
that
firm in December.
bankers
found
that
This Bank's most
fewer
recent survey of
bankers, although
farm earnings to decline in the short term.
still a
However, the
fewer of these bankers are seeking new farm loan accounts under-
scores their apprehension about the
farm situation.
Finally, cattle opera-
tions in the district have been hurt by recent price declines and expensive
hay.
TENTH DISTRICT - KANSAS CITY
Overview.
Economic activity in
the Tenth District appears to have
improved slightly around yearend, with further improvement expected in
Christmas season sales,
though not up to retailers'
to a moderate increase in final quarter sales.
expectations,
1986.
contributed
Though auto sales were
sluggish at yearend, dealers are cautiously optimistic
for 1986.
Inventories
of retail goods and industrial materials are generally viewed as satisfactory.
Prices are expected to be relatively stable both for inputs and at retail.
Homebuilders are optimistic for 1986 in spite of some weakness in 1985.
Savings inflows to thrift institutions are expected to increase and mortgage
rates are expected to stabilize.
Total loan demand is stable and total
deposits are higher at commercial banks.
remain a problem, in
Retail trade.
Farm liquidations and foreclosures
spite of some improvement in yearend loan paydowns.
Retailers report a moderate increase in
three months of 1985 over the same period a year earlier.
been strong while home furnishing sales have been weak.
increase slightly through 1986.
remain so.
Clothing sales have
Sales are expected to
Prices have been stable and are expected to
Generally, retailers are satisfied with their inventory levels and
Sales for Christmas 1985 were
expect to maintain them throughout 1986.
relatively strong but not up to retailers'
Automobile sales.
yearend.
sales for the last
expectations.
Auto sales, healthy for most of 1985, slowed by
But new factory incentives and credit market conditions in general
continue to have a positive impact on sales.
optimistic about new car sales in
satisfied with their inventories.
1986.
Dealers are cautiously
Most new car dealers are generally
Colorado dealers report that inventories of
used cars are too high, as factory sponsored financing on new autos has
resulted in a glut of used cars.
Purchasing agents.
Most purchasing agents surveyed had not experienced
price increases in the past three months and expect prices to remain fairly
stable through 1986,
due to an ample supply of materials.
Some firms have
trimmed materials inventory levels in recent months but most report that
current levels are satisfactory.
Housing activity and finance.
Area homebuilders report that housing
activity in 1985 was generally below that of 1984, but they are somewhat
optimistic for 1986.
Housing starts in
1985 were fewer than those in 1984.
Both prices and sales of new homes were generally at or slightly below 1984
levels.
Most area homebuilders expect housing starts, sales of new homes, and
prices of new homes for 1986 to be at or slightly above 1985 levels.
Prices
of most housing materials in 1985 remained close to 1984 levels, with stable
to slightly lower materials prices expected for 1986.
Savings and loan institutions give mixed reports regarding current
savings inflows relative to a year earlier, but they expect savings inflows to
increase in
Respondents report constant mortgage demand and commitments
1986.
and expect little
change.
Mortgage rates have been falling and most
respondents expect them to remain at present levels in
Banking.
1986.
Total loan demand was stable and total deposits were higher at
Tenth District banks compared with a month earlier.
commercial and industrial loans,
generally constant.
Consumer loans,
and residential real estate loans were
Commercial real estate lending decreased at most of the
banks surveyed, while agricultural lending was steady to slightly lower.
Tenth District bankers did not change either their prime rate or their
consumer loan rates during the last month,
rate changes in the near future.
and most did not anticipate any
Total deposits rose at Tenth District banks.
Most respondents report higher levels of demand deposits and MMDA's.
Super
NOW accounts, small time deposits, and large certificates of deposit typically
were constant, while changes in NOW accounts were mixed.
accounts continued their recent pattern of decline.
Passbook savings
Bankers are beginning to
see the usual seasonal inflows into IRA and Keogh accounts.
banks,
in
general,
Tenth District
have not changed the minimum balances on their Super NOW's
and MMDA's in response to recent deregulation.
considering changes in minimum balances,
Several bankers were
however,
though most respondents
doubted significant effects on the kinds of deposits held by bank customers.
Agriculture.
Paydowns on agricultural loans at the end of 1985
generally were reported to be satisfactory in the Tenth District.
For most
banks, 1985 marked an improved yearend paydown situation over a year earlier.
Excellent crop yields and stronger year-end livestock prices accounted for the
better than expected loan situation.
Even so, bankers report that they will
not carry all of their current farm accounts through 1986.
Some borrowers
are being sent to alternative lenders, while in cases of extreme financial
stress bankers are urging operators to liquidate part of their assets.
Voluntary farm liquidations are running above normal in most areas.
Few
bankers are resorting to foreclosure as an immediate solution to failing
loans, though most indicate that foreclosure is a future possibility for some
borrowers.
Farm Credit System (FCS) lenders in some parts of the district
have not had as much foreclosure flexibility as the commercial banks.
FCS
outlets operating under a burden of troubled loans continue to follow strict
loan review guidelines.
legislation has done little
areas.
1985.
Bankers report that the recent FCS bailout
to alter the behavior of the FCS outlets in their
Only a slight upswing in equipment sales was evident at the end of
XI-1
ELEVENTH DISTRICT - DALLAS
The Eleventh District economy remains sluggish.
little overall change in activity.
The weakening of oil prices has led to
significant declines in the drilling rig count.
contracts has begun to fall significantly.
at a slow rate.
Manufacturers report
The value of construction
Retail sales are growing, albeit
Automobile sales are weak compared to the fall, but a new
round of dealer incentives is expected to increase sales.
remains quite slow at the large banks.
Asset expansion
District farmers and ranchers continue
to face weak prices for crops and livestock.
Manufacturers' sales remain flat in the District, with gains in some
sectors offset by lower demand in others.
The weak energy industry and
slowing construction remain the prime sources of declining orders.
Stone,
clay and glass producers note increasing glass demand from the transportation
sector, but they report that sales to the construction sector are slipping.
Demand for lumber and wood products is declining as a result of reductions in
home building.
Decreased import competition and the lagged effects of past
increases in construction contracts have led to recent increases in sales of
primary metals, according to manufacturers.
Fabricated metal producers' sales
to the energy and construction industries are ebbing.
Demand for
nonelectrical machinery, both from other manufacturing industries and from
energy-extraction firms, is sluggish.
Respondents at electrical equipment
firms say orders for their products are increasing due to rising non-energy
demand and because their customers have run down excess inventories of
semiconductors.
Sales are unchanged for chemical and allied products
manufacturers.
Buoyed by strong winter demand, both output and profit
margins at District refineries are said to be high.
XI-2
The outlook for oil prices has forced the drilling rig count to its
lowest level since 1976.
rest of the nation.
The decline has been steeper in Texas than in the
Well permits, a leading indicator of drilling activity,
edged up in Texas in November, but permits dropped in Louisiana.
The seismic
crew count, another indicator of future drilling, continues to fall.
The value of construction contracts has fallen for three straight
months in the District states.
The decline is steepest for nonresidential
building, although residential has also fallen significantly.
The levels for
both categories stand substantially below those of a year earlier.
The
reduction in nonresidential contract values can be seen in most categories of
buildings, but particularly in office construction.
Recent declines in
residential construction are part of an ongoing trend.
Single-family housing
permits were 20 percent below the 1984 level, which was 30 percent below that
of 1983.
Nonbuilding construction continues at a strong level.
Respondents report that retail sales growth in December was slightly
stronger than expected.
Profits were higher than a year earlier, as
discounting was less common than in the previous Christmas season.
Sales of
women's apparel and other soft goods have risen faster than those of big
ticket items, such as home appliances, electronics, and furniture.
Retailers
are keeping inventories low in expectation of slow sales growth in the near
term.
Automobile sales have recently weakened.
Dealers link the current
slowdown to last fall's unseasonally large increase in sales, which occurred
in response to manufacturers' special interest rate incentive programs.
decline is also attributed to buyer anticipations of a new round of
The
XI-3
incentive programs.
The recent ebb in sales has led to excess inventories of
some domestic autos, but import dealers complain of shortages.
Despite an increase in growth over the November rate, total loans at
the District's large banks rose in December at a pace substantially below the
monthly average for the year.
Business loan growth increased slightly in
December, but the average level of business loans for the fourth quarter was
below its year-earlier level.
The value of consumer loans in December
remained below a year earlier, as it did in all months of the fourth quarter
of 1985.
the year.
Real estate loan growth declined in December, as it had throughout
The rate of deposit growth at large banks also declined in
December, continuing a pattern that began in March.
Deposit growth has also
slowed at all District financial institutions.
District agricultural crop prices in December were essentially
unchanged from a year earlier, while livestock prices were 6.5 percent below
their of December 1984.
Foreign demand for cotton continues to fall, with the
current season's exports now projected to be less than half those of a year
earlier.
Despite reduced supplies, lackluster demand kept District livestock
prices, which normally turn up at this time of the year, slightly lower in
December than November.
XII-1
TWELFTH DISTRICT -
SAN FRANCISCO
Summary
The
Twelfth
District
economy
problems in some sectors continue.
appears
most
retailers.
Low
prices
be
improving,
although
In general, urban areas in the West are
more prosperous than are rural areas.
for
to
The Christmas season was a good one
continue
to
trouble
many
agricultural
producers, although the recent drop in the value of the dollar has already
improved
sales
important
defense
Forest
of
almonds
cash crops.
related
firms
products
improvement.
substantial
winegrapes,
Electronics activity
and
industries,
Overall,
and
continuing
while
geographical variations.
of
the
District's
is uneven,
troubles
still
construction
two
for
troubled,
activity
with
remains
Lower interest
a boom
non-defense
show
most
some
healthy,
for
firms.
signs
of
despite
rates are increasing
the volume of mortgage applications, but refinancing appears to account for
much of the increased activity.
Consumer Spending
Preliminary information suggests that most parts of
strong
Christmas
selling
seasons.
In
Oregon,
the District had
Christmas
disappointing, with volume 5 to 10 percent below last year's,
year as a whole Oregon's retail sales grew 20 percent.
sales
were
but for the
Auto sales in the
fourth quarter appear to have been flat or down in most areas.
The reduced
value of the dollar has had little impact on imported car prices as yet,
although an Oregon respondent reports that sticker prices on Japanese cars
have started to climb.
Agriculture
Soft prices continue to cause concern among many farmers and the mood
XII-2
in most agricultural parts of the District remains gloomy.
The situation
is brighter for producers of some specialty crops, including some types of
nuts, vegetables, and fruits.
The reduced value of the dollar has already
provided a boost to almond sales abroad and put a damper on wine imports to
the U.S., which provides appreciated good news to some California growers
but little comfort to farmers elsewhere in the District.
Manufacturing and Mining
industries
Electronics
Despite
district.
orders, many
losses
which
or
recent
Snohomish
profits.
for
County
suffer
defense
in
In
many
of
parts
in
the
semiconductor
announce layoffs and either
contrast,
purposes,
Washington,
in
increases
continue to
semiconductor firms
primarily
to
much-publicized
sharply declining
produce
well.
continue
for
appear
Seattle-area
to
example,
be
is
firms,
doing quite
experiencing
substantial growth in high-tech investments and commensurate growth in its
residential construction activity.
The forest products industries continue to suffer.
the
value of
because
they
the
dollar
compete
is unlikely
primarily
with
the U.S. dollar.
stable vis-a-vis
to
help
Canada,
forest
whose
The recent drop in
products
dollar
Nevertheless, a recent
companies,
has
remained
survey of 60
Oregon forest products companies found that only three were unprofitable in
Many of the profitable firms made only slim profits, however.
1985.
In Nevada, gold and silver mining activity is expanding.
In 1985, 100
million ounces of gold were mined in Nevada, a 100 percent
increase from
1984's
total.
Mining activity for other metals,
such as
copper, remains
depressed.
Construction and Real Estate
Construction
activity
varies
both
among
locations
in
the
Twelfth
XII-3
District
and
among
different
types
of
building.
For
the
most
part,
building is healthier in larger metropolitan areas than in the more rural
parts
of
Central
Twelfth
Valley
residential
District
of
and
states.
California,
centers,
exception
where
nonresidential
particularly urban
One
respondents
building
report
high
are
absorption
rates,
the boom
but
other
continues
regions,
the
agricultural
report
that
healthy.
vacancy
multifamily housing and in commercial space.
Southern California,
is
rates
Many
both
areas,
and oversupply
in
In some such areas, including
despite high
including
vacancies
Salt
Lake
and
City,
low
report
declining activity in response to oversupply.
Financial Sector
Interest
parts
of
areas.
rates
on
the Twelfth
30-year fixed rate mortgages
have fallen
District, and are now close to
Consequently,
the
number
of
mortgage
loan
It
substantially in most parts of the District.
11
in most
percent
in
applications
some
is
up
is not clear, however,
that the increase in applications reflects increased home buying activity.
invariably
Respondents
attribute the
home
entire
being dampened by
reports
are used
that
historically
in
more
only rarely
California,
popular
standards
With
in most
where
than
that
suggest
rates.
default
activity,
refinancing
home
lower
elsewhere,
over
is
in
response
to
although
variable
half
of
rate
one respondent
mortgages
commitments are made through variable rate instruments.
than
activity
rates,
variable-rate
some
buying
instituted
areas,
and
refinancing rather
in applications to
lending
tightened
mortgage
instruments
increase
heavy
Some respondents
purchases.
increased
report
all
have
been
mortgage
Cite this document
Federal Reserve (1986, February 11). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19860212
@misc{wtfs_beige_book_19860212,
author = {Federal Reserve},
title = {Beige Book},
year = {1986},
month = {Feb},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19860212},
note = {Retrieved via When the Fed Speaks corpus}
}