Beige Book
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
May 1986
TABLE OF CONTENTS
SUMMARY ......................................................... i
First District - Boston.....................................
-1
Second District - New York...................................II-1
Third District - Philadelphia..............................III-1
Fourth District - Cleveland.................................IV-1
Fifth District - Richmond.....................................VSixth 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*
Virtually
all
districts
report continued moderate economic growth.
With the exception of Dallas, which is plagued by problems related to falling
oil and gas prices,
no
district reports general stagnation.
Energy sector
problems, coupled with problems in agriculture and some manufacturing sectors,
have
led
to
Minneapolis
unbalanced
districts.
growth
in the Kansas
City, Boston,
Cleveland,
and
New York, Philadelphia, and Richmond report a more
general improvement.
Consumer
spending--particularly
strengthening lately.
for
housing--appears
Active housing markets in almost
to
have been
all districts
have
generated much construction activity, boosted the demand for building materials, and caused a spurt in mortgage lending.
Sources of weakness include the energy and agriculture industries and
some manufacturing sectors.
Oil and gas price declines have led to drastic
cutbacks in drilling activities and related supplies and spending.
Low prices
still hinder many farmers' attempts to return to profitability.
While many
districts mention that manufacturing output has been steady or rising, a few
point out that manufacturing employment is still falling.
Consumer Spending
Most
districts
say
that
retail
sales of general
merchandise have
registered gains, with San Francisco noting particular strength.
Kansas
City say
that
sales
have been improving--in
significantly in recent weeks.
Richmond and
the Richmond district,
New York has seen greater strength in sales at
* Prepared at the Federal Reserve Bank of Minneapolis.
stores
that
cater to
high-income
shoppers.
Inventories
have
rarely
been
excessive.
Auto sales, though, have leveled off lately.
Kansas City, Dallas,
and Philadelphia all say that vehicle sales have fallen off.
But Boston has
received mixed reports, and Cleveland believes that sales have been high, but
flat.
Most districts
report very active housing markets--as one New York
contact says, in this industry "business is booming."
trict
reports the opposite.
Chicago mentions that housing permits are 40
percent above their level last year at this time.
except
Only the Dallas dis-
in New Orleans and Jackson, single-family
Atlanta also adds that,
home sales
throughout the
Southeast are higher than a year ago.
Atlanta and Richmond report healthy levels of tourist spending.
Some
districts are looking forward to more of the same, fueled by lower gas prices,
the lower dollar, and citizen concerns about overseas travel.
Construction
Housing activity has led to a lot of construction in most parts of
the country, particularly of single-family homes.
Several districts, inclu-
ding New York and San Francisco, see signs of strength in commercial construction as well.
Nonresidential construction contracts in the St. Louis district
increased in the first quarter.
The Boston and Chicago districts report much
Atlanta notes
that
Southeastern industrial space construction is beginning to accelerate.
But
demand
for
commercial
space
in
their Reserve
cities.
Richmond notes that high vacancy rates have been hindering urban office construction there.
Manufacturing
Reports
from manufacturers are mixed. While Chicago notes that auto
and steel production plans are being cut back some, Cleveland reports that
sales
of Ohio-made
based products is
Hondas have been particularly
also strong.
cardboard box plants,
high.
strong.
Demand for wood-
Chicago reports "near-boom conditions" at its
while Minneapolis
notes
that waferboard production
is
Aerospace manufacturing--both commercial and defense--is a welcome help
in the San Francisco and Dallas districts.
Among the weaker sectors, computer equipment production has remained
sluggish in the Boston district.
turnaround
Both San Francisco and Dallas haven't seen a
in the faltering electronics
times may be behind it now.
industry, but they think the worst
While apparel production has remained steady in
the Richmond district, Dallas reports a big layoff, but hopes that modernization and marketing efforts will help this sector.
Resource-Related Industries
Mixed
conditions
also
characterize
the
resource-related
Drilling activities have plunged with oil and gas prices.
down 50 percent
from a year ago in the Dallas district,
The rig count is
40 percent in the
Kansas City district, and substantially in North Dakota and Montana.
reports
highest.
that
this
has
made
Louisiana's
unemployment
sector.
rate
Cleveland points out that coal prices are down, too.
the
Atlanta
nation's
But Richmond
and San Francisco note growing lumber demand driven by housing starts.
Agriculture
With a few noteworthy
tions
aren't good.
exceptions, the nation's agricultural condi-
Low grain prices are hurting Minneapolis and St.
Louis
district
farmers.
St.
Louis
observes
that
reached their lowest level in nine years.
corn
futures
prices
recently
Winter wheat has suffered substan-
tial winter-kill in the Chicago district, and dry weather is hurting springplanted crops in the Atlanta district.
and cattle
ranchers
Demand for Kentucky horses is down,
in the Minneapolis and Kansas City districts are upset
about the aftermath of the government's dairy herd buy-out program.
Francisco
reports
that
production
of many
fruits
and vegetables
But San
is
still
profitable, while Atlanta says that poultry production is more profitable than
last year.
Finance
Lending
activity
mortgage lending.
appears
to
be
fairly
country.
picking up
Leading
the way
is
In Cleveland, for example, mortgage lenders report that
lending increased 100 percent over last year.
the
good.
Regional
differences
have
Home refinancing is up across
occurred
in
commercial
lending--
in Boston, Philadelphia, and San Francisco while falling off in
Cleveland, Atlanta,
and
Dallas.
increased consumer loan growth.
Only Boston
and San
Francisco also
note
More agricultural loan losses are foreseen in
the Dallas and St. Louis districts.
I-1
FIRST DISTRICT-BOSTON
Expansion in the First District remains unbalanced.
Manufacturing
activity is generally slow but some firms report encouraging signs.
Retail
sales are growing modestly, with upscale merchants doing better than
discounters.
Financial markets are active; real estate and businesses
associated with homebuilding are robust and likely to continue so.
Outside
the real estate sector, prices are generally stable as both consumer and
producer markets remain highly competitive.
Retail
Sales results in the First District were mixed but generally
satisfactory in March and April.
Several department store chains report
"very good" increases of 6 to 10 percent over last year; another is
disappointed with "sluggish" growth in comparable store sales - below plan
but 6 to 8 percent ahead of last year.
report excellent performance.
Hardware and building supply stores
Retailers doing well cite a combination of
factors that leave more money in consumers' pockets, including falling oil
prices and lower interest rates.
One discount chain with slow sales
suggested that home mortgage refinancing is a more positive factor for high
and middle income customers; among those contacted upscale merchants are
more upbeat than those serving low to moderate income customers.
Inventories are a little heavier than planned in a number of
stores, but not a source of concern.
In some cases, the pace of restocking
has been slowed; others prefer to wait before they take action to see if
the situation corrects itself.
Several contacts said they are having difficulty hiring sales help
in stores or clerical workers in the home office.
Labor markets are
reportedly tightening even outside the region's major urban areas.
Prices are generally steady, except for an upward trend in lumber
and plywood.
Department store buyers report that foreign prices are rising
and that they will therefore substitute some domestic goods for imports.
According to one contact, consumers don't see much price change because the
marketplace is still very competitive and promotional.
Retailers expect the rest of 1986 to be strong in New England "not a boom but good solid demand".
These expectations derive from the
factors mentioned above, plus reports by those stores with national
affiliates that New England again outpaces other areas.
Automobiles
Reports of sales activity from automobile dealerships are mixed for
both imports and domestics.
Those doing well claim that tax refunds, low
gasoline prices, and warm weather are responsible.
Dealers with
disappointing sales suggest that large scale incentive programs late last
year captured potential buyers from this spring.
Domestic car purchases
are shifting somewhat from compact to full-sized models.
Truck sales are
consistently strong.
Manufacturing
Manufacturing performance continues to be mixed in the First
District.
Firms producing computer-related items report sluggish sales and
orders with some exceptions in the office automation area, while producers
tied to homebuilding and other activities responding directly to consumers
show signs of picking up.
Tools, equipment, and other operations related
to the oil industry are down.
Some firms dependent on the capital spending
of industries other than energy have seen orders improve but others report
their industrial customers continue to postpone decisions about new
equipment.
No major improvements are yet occurring as a result of the decline
in the U.S. dollar.
Several firms note the increased dollar value of sales
made in foreign currencies, and one reports shifting some export production
work from offshore facilities to its U.S. plants.
A contact in the
computer industry attributes the lack of real improvement in overseas sales
to two factors:
first, most of their competitors in Europe are other
American manufacturers; second, declining prices create an incentive to
postpone purchases in anticipation of further declines.
Inventories are in good shape and head counts are also lean.
Capital spending plans are generally unchanged, and reflect programs to
improve productivity, not to expand capacity with bricks and mortar.
The outlook is hazy.
Firms are moderately optimistic, but in some
cases this means they hope 1986 will be level with last year.
Current
order rates provide no indication that activity levels will shift
significantly in the near future, but inquiries and proposals have picked
up noticeably for two computer-related concerns.
Real Estate
The residential real estate market in New England is flourishing,
with overall activity very high.
Demand is outpacing supply; prices are
climbing at a rate similar to last year and many homes are being sold at
asking price.
While the majority of those buying are upgrading to larger
homes, low mortgage rates may also have brought additional first time
I-4
purchasers into the market.
Condominiums are maintaining their
attractiveness in urban centers, but are weaker in some suburban areas.
Activity in the commercial real estate sector is healthy.
Absorption rates are high.
Prices for retail space in Boston are
reportedly escalating, but prices for commercial space elsewhere are rising
only slightly.
Finance
Consumer lenders in the First District report increased activity.
Home equity loans, generally being used to pay off debt incurred at higher
interest rates, are up the most; automobile and personal lending are also
increasing.
Residential mortgage activity is at its highest level in several
years, causing extensive processing backlogs.
Most residential mortgage
loan applicants are refinancing existing higher-rate loans.
Interest rates
are reportedly expected to continue declining, keeping activity at a high
level.
Commercial loan demand continues to be strong, especially for
commercial mortgages.
Contacts report that businesses are refinancing
existing debt as well as borrowing for expansion, and both of these
activities are likely to continue at high levels.
II-1
SECOND DISTRICT--NEW YORK
In general,
the Second District's economy has continued
improve since the last report.
to
Retail sales showed over-the-year gains,
particularly at higher income levels, and inventories remained in line.
The spring homebuilding season was off to a good start, and the demand
Business activity was stable to
for office space continued to increase.
somewhat
improved.
Demand
commercial mortgages
for
increased
has
at
small District banks as a result of declining interest rates.
Consumer Spending
Retail sales, although higher in general, have not shown equal
strength
for
all
income
January-February period,
groups
retail
or
sales
in
all
regions.
After
a weak
in stores serving higher
income
Most of
consumers downstate and in New Jersey grew strongly in March.
these stores reported over-the-year increases of 10 to 15 percent (well
above plan), and early April figures suggest that sales are continuing
strong.
However, sales at department stores in western New York and at
lower-priced stores
throughout
the District showed more modest
gains.
Over-the-year increases in March and early April of 6 to 7 percent were
somewhat
below
expectations.
stratification" of the market.
Some
retailers
mentioned
an
"economic
Higher income households appear to have
the discretionary income to continue generating strong sales growth.
low and middle income
debt, appear
But
consumers, feeling the weight of high consumer
hesitant to increase spending.
Despite some difficulty in predicting sales, District stores
were generally able to keep inventories
in line with desired levels.
II-2
Most retailers planned promotions
and sales similar to earlier years,
though some higher-priced stores had more spring promotions this year.
Sales of apparel and housewares--highly advertised items--were especially
strong.
Business Activity
Economic
conditions
stabilize in recent weeks.
in
the
Second
District
have
tended
to
More than 80% of purchasing managers surveyed
in Rochester and Buffalo reported unchanged or improved conditions in
March.
Inventories at the majority of these firms held steady as well.
Plans for several plant expansions and relocations
District have recently been announced.
renovation
and modernization
into the
These included an $11 million
at a Buffalo
food
plant,
a $6 million
expansion of a ceramics and brick plant in Niagara Falls, and the move to
central New York of some frozen food operations from an Iowa location.
In addition, an electronics firm that invested $14 million at its Long
Island plant last year plans even larger capital outlays at that location
in 1986.
Offsetting these developments, however, were announcements of
some
further
layoffs
and
plant
closings.
In
the
Buffalo
area,
Westinghouse announced plans to close a factory, idling 800 workers by
year's end.
Layoffs associated with the recently announced production
cutbacks at General Motors
and further restructuring at Union Carbide
could also have a negative impact on the District's employment.
Thus
far, however, the unemployment rates for March of 6.7% in New York and
4.2% in New Jersey remained below the national average.
Construction and Real Estate
The new homebuilding season is reportedly off to a good start
in the Second District.
"Business is booming," according to one contact,
II-3
and builders in general are busy, fulfilling contracts negotiated this
winter as well as negotiating new ones.
part by
the sharp
Strong buyer interest, fueled in
drop in mortgage rates,
has led many builders to
anticipate a repeat of last year's lively pace.
were noted, however.
Some possible deterrents
A growing shortage of suitable land was cited as a
major factor behind rising home prices in several areas.
short
supply
of
subcontractors
and
other
skilled
In addition, a
labor
could
throw
homebuilders behind schedule in the months ahead.
The commercial real estate market remained relatively strong
in the Second District, and the demand for office space has increased
further in several areas.
The pickup in office leasing activity was most
evident in Fairfield County, in northern New Jersey, and on Long Island.
Nonetheless,
conditions
generally
continue
to
be
characterized
as
favorable to tenants, and rent concessions have been widespread in some
areas.
New York City's efforts to expand its office market to the outer
boroughs were recently rewarded.
British Airways announced that it will
move its U.S. headquarters to Queens, and a stock exchange subsidiary
plans to relocate its corporate headquarters to downtown Brooklyn.
Financial Developments
With the continued decline
in interest rates, small Second
District banks have seen an increased demand for commercial mortgages.
At some banks this demand has been mainly for refinancings of both fixed
and adjustable rate loans, while at others almost all requests have been
for
new
loans.
refinancings.
Prepayment
penalties
at
some
banks
may
discourage
Currently, some banks are incorporating floors into their
variable rate loans.
There is also some preference for shorter terms to
maturity, in general in the 3 to 15 year range.
Expectations are that
demand for both new loans and refinancings will continue to increase.
III-1
THIRD DISTRICT - PHILADELPHIA
The Third District economy appears to be generally healthy in April.
Retail sales, except for automobiles, have been strong, and bankers report that
overall loan growth in the first quarter was not as fast-paced as last year, but
still good.
Mortgage lending is surging due to both refinancings and sales.
The manufacturing sector is holding steady, although order backlogs have dropped
and employment has declined.
The outlook in the Third District business community is for steady or
improving conditions in the near term.
Manufacturers expect business to
improve, but they do not foresee gains in employment.
Retailers expect current
strong department store sales to continue into the summer.
Bankers anticipate
steady growth in commercial and industrial loan demand, but believe that growth
in consumer loans will depend on further interest rate reductions.
MANUFACTURING
Manufacturing activity in the Third District is steady, according to the
latest Business Outlook Survey.
Of the industrial firms surveyed in April, 71
percent report no change in the pace of their business compared to March, 11
percent say business improved, and 16 percent indicate declining activity.
Nondurable goods producers appear to be doing slightly better than producers of
durable goods.
Most measures of industrial activity eased in April.
Shipments increased,
but new orders leveled off, pulling down backlogs of unfilled orders. Factory
employment fell as well; one-third of the companies contacted for the April
survey reported payroll cuts, while just 12 percent added to workforces.
Prices
III-2
of industrial goods in the region are stable.
More than three-fourths of the
survey respondents reported no change in the prices of either the goods they
purchase or the products they sell.
Despite this month's pause in growth, Third District manufacturers are
optimistic about the future.
In their outlook for the next six months, over 40
percent of the firms participating in the April survey expect a pickup in new
orders and a matching increase in shipments.
Employment, however, may decline;
although half of the firms polled intend to maintain current payrolls, 30
percent expect to reduce workforces.
The rate of capital spending by
manufacturers in the region is expected to show little change over the next six
months.
RETAIL
Third District retailers say recent sales trends have been good.
Department store officials report that February and March sales were above
year-ago levels by healthy amounts--more than 10 percent for some stores.
Discount store sales have been better than expected.
Some of this improvement
is attributed to growing sales of appliances and home furnishings coincident
with more house sales in recent months.
Clothing and children's items are also
mentioned as particularly strong areas.
Automobile sales have fallen, and
dealers say a rebound is unlikely in the absence of even greater manufacturers'
incentives.
Although household debt is high by historical standards, Third District
merchants believe that consumers are in sufficiently good financial condition to
continue the current rate of spending into the summer.
They expect sales to be
buoyed by rising real income, lower finance charges, and improved cash flow as
mortgages are refinanced at lower interest rates. Further gains in sales of
appliances, furniture, and home furnishings are expected in the wake of
III-3
continued strength in the housing market.
FINANCE
Total loan volume outstanding at major Third District banks in early April
was approximately 13 percent higher than a year earlier.
In commercial lending,
the retail and services sectors account for a major share of new loans at this
time because financing needs are growing as business expands.
Loan demand in
the manufacturing sector is not as strong, and bankers note a fall-off in
equipment financing as manufacturers postpone capital spending commitments while
changes in rules on depreciation and investment tax credits are being considered
by Congress.
Lending officers expect overall C&I loan demand to remain strong
and say that the current 10-14 percent annual growth rate is sustainable.
Real estate and construction loan volume is above year-ago levels at Third
District financial institutions.
Residential mortgage refinancing activity is
brisk, as is mortgage lending for house sales.
Bankers say they are continuing
to lend for commercial and residential construction to developers with
successful records and substantial financial resources, although concern is
growing about possible increases in office vacancy rates later in the year.
Third District bankers report that consumer lending is growing, but at only
about half the rate at which it started the year.
The large amount of financing
supplied by automobile manufacturers in recent months is cited as one factor in
this slowdown, but area bankers generally report a substantial drop in the
growth of credit card balances as well.
credit card outstandings since March.
Some banks have had no increase in
Lending officers and bank economists do
not think that consumers have reached their debt limits; they believe that
consumers may be delaying credit purchases in anticipation of interest rate
reductions.
Most Third District banks cut their prime rate to 8.5 percent in late
III-4
April.
Commercial bank economists think that the prime rate will stay at this
level for the rest of the year.
As for other interest rates, most bank
forecasts call for a drop of 25-50 basis points along the yield curve during the
second quarter, followed by rising rates as the economy and inflation accelerate
in the second half of the year.
IV-1
FOURTH DISTRICT - CLEVELAND
Summary.
The Fourth District economy continues
sectors
of
weakness
remain.
General
to expand
merchandise
while new car sales are high but flat.
slowly, but significant
sales
are rising slowly
The unemployment
rate
is falling.
Manufacturing output and orders are rising, but manufacturing employment is
falling.
Price behavior appears mixed.
are down.
are
Problems continue in agriculture.
robust
industrial
Oil and coal prices and production
as
is
loans
mortgage, refinancing
are
down
and
House construction and sales
activity.
expected
to
remain
Bank
commercial
weak
while
and
consumer
installment lending is growing slowly.
Consumer Spending.
Retailers
in
this
District
report
generally
small
spending
increases
during the first quarter, particularly during the month of March.
merchandise sales
in current dollars,
chains, were roughly 4-6 percent
merchandise
as
reported by
above year-ago
inventories have risen since
General
three major District
levels.
Although
general
year-end 1985, none of the chains
expressed concern over current inventory levels.
Auto dealers in the District are showing high, but relatively flat sales
trends.
Total domestic new-car sales in the Northern Ohio region during
first quarter were up only 1.4 percent from the year-ago level.
the
Unlike the
IV-2
national experience, imported new-car sales in the Northern Ohio region have
Sales of Ohio-made Hondas
been accelerating in recent months.
(included as
have been particularly strong this
"imports" by local reporting agencies),
All of the domestic auto dealers contacted report new-car inventories
year.
were well above average at the end of March.
Labor Market Conditions.
The
unemployment
in Ohio averaged 8.4 percent (sa) in
rate
the first
three months of 1986, down 0.5 percentage points from a year earlier.
national
unemployment
rate
remains
lower
but
fell
only
0.25
The
percentage
points over the period.
Manufacturing.
Output of manufacturers in this District continues to increase, but the
rate of expansion has slowed.
than
increasing
employment.
Despite
paid
raw
for
continue to
and
materials
transaction prices for manufactured
than at any
time
in the
gain, more
Raw material and supply
while finished good inventories
prices
this
be
inventories are
drawn down.
supplies
products sold
last 12 months.
firms are reducing
are
Firms
falling
report
slowly
are rising more
flat
but
rapidly
Incoming orders are rising at an
increasing pace.
A
major
food
manufacturer
Paper prices are up.
and die business, but
prices
have
reports
product
prices
are
declining.
in
the tool
the plastic molding business is improving.
Aluminum
There have been some production cutbacks
risen because inventories
demand has improved.
his
have been reduced
substantially
and
IV-3
Energy.
sharply, and a major oil
Oil exploration activity in this District is off
firm
is
shutting down
stripper wells.
Coal
production
is
slowing,and the
price of coal is weakening.
Agriculture.
The horse
is weak.
sale.
industry in Kentucky is
in the midst of a shake-out as demand
Many horse producers are overextended and many large
Grape
and
potato
producers
in
this
District
farms are for
have
not
been
as
adversely affected as agricultural producers in other regions.
Housing and Construction.
The high
major builder in
25
percent
minor
sold
and
up
50
construction
shortages
materials
shortages.
the strong
will
The
may
percent
be
occur, but
builder
so
many
are
homebuyers
some markets.
far
also reports
adding
and new orders are up
that traffic
in
unabated,
pace to persist through year-end.
escalating
is up 10 percent from a year ago
because
in this District continues
the District reports
overall
house
that
housing activity
participants expect
and market
A
level of
so
the
The builder
rapidly
firm
has
experienced
increase
amenities now that
important
that
only
price on homes
that its average
despite no
fears
in
list
prices,
financing costs have
fallen.
report
Realtors
inventory of
new
to
listings is
listings.
shift
buyers,
toward
up
that
In
this
closings
falling to
region,
first-time
from 30
percent
the
surged
in
March and
April
and
low levels because of a severe
composition of homebuyers
buyers
who
a year
ago.
now
constitute
The
trend
over
that
drop
the
in
has continued
40
percent
of
toward shorter-maturity
IV-4
mortgage loans is growing stronger, as more buyers demand
loans.
The
period
from
application
to
closing
increased from a normal range of 30 to 45 days
of
15-year mortgage
mortgage
loans
has
to 45 to 90 days, because of
increased volume.
Mortgage lenders
over
100
percent
represent
as
in
this District report
from
much
as
a
80
year
ago.
percent
At
of
that
some
mortgage
mortgage
lending
is
up
institutions,
refinancings
volume.
lenders
Few
are
actively marketing their adjustable rate mortgage loans.
Commercial Banking.
Loan demand appears to have weakened at District banks recently.
loans
outstanding at
industrial
lending
loans
inched
were
up.
large banks fell over the past month.
down,
while
Growth of
real
consumer
estate
and
installment
Total
Commercial and
consumer
lending
installment
continues
to
taper off and is now at less than a 6 1/2 percent annual rate at large banks
in this District.
Contacts acknowledge the softness in loan demand and do
not expect much improvement in the immediate future, despite the recent cut
in
the
prime
rate.
One
contact
reports
underlying
weakness
lending and expects it to continue over the next several months.
in
business
FIFTH DISTRICT - RICHMOND
Overview
Business conditions are reported to be stronger than a few weeks
ago by most retailers and manufacturers, although weakness persists in the
textile and shipbuilding industries and in mining.
Residential construction
continues
a leveling
very
strong
with
some
indications
commercial building is slowing somewhat.
of
off,
while
According to our sources, banks are
liquid and S&Ls are busy, agriculture is in the midst of a relatively normal
spring, the regional ports are experiencing increased activity, and summer
tourism is expected to be very good.
Consumer Spending
Retailers report significant increases in activity in recent weeks.
Most
attribute the
surge
in
sales
to declining
interest rates.
Major
department stores report strong to very strong durable goods sales that are
expected to remain robust along with the housing boom.
especially apparel, are also moving well.
Nondurable goods,
Ski areas enjoyed their best
season on record, and summer tourism is off to an excellent start.
Resort
bookings are running above optimistic expectations, and major tourist areas
are
revising
their
forecasts
upward
due
to
lower
gasoline
prices
and
decreased interest in traveling abroad.
Manufacturing and Mining
Regional manufacturing activity is up by some measures and down by
others this month, according to our survey of business conditions.
Fifty-two
percent of the responding firms report increased shipments and 19 percent
V-2
report no
change over last month.
although the backlog of orders is
responding firms.
The volume
of new orders
is
also up,
reported to be down by 48 percent of the
Inventories remain mostly unchanged
or reduced but are
still judged too high, especially in light of the reduced backlogs.
For this
reason, perhaps, 32 percent of the responding firms report fewer employees
and 27 percent report declines in hours worked as compared with a month ago.
Within this environment, the majority of firms believe that business activity
in their immediate market areas and the production of their own firms will
pick up during the next six months.
Within
the
manufacturing
sector,
shipbuilding
and
ship
repairs
remain bleak, with foreign competition cited as the main problem.
Apparel
executives express concern over imports, especially those
although
production
remains
steady
in
both
the
from the Orient,
textile
and
apparel
industries.
The
regional
export shipments.
ports
show
increased
activity
in both
import
and
The lumber industry continues to grow along with housing.
Mining output remains steady although slightly below a year ago.
Construction
The residential real estate market remains very strong, with the
number
of
District.
market
units
sold
running
A decline in
also
attests
sharply
the length of
to
the
year-ago
above
time property
robustness
of
levels
across
is remaining
current
sales
the
on the
activity.
Construction of new residential units is generally up, although reports of a
leveling off are coming from some areas.
Prices
are moving upward almost
everywhere in the District, but the size of the increases varies widely.
V-3
Commercial and office construction is generally perceived to be
slowing somewhat.
Vacancy rates for office buildings in urban areas remain
high and are generally regarded to be a primary factor limiting more new
construction.
Financial
Members of our Small Business and Agriculture Advisory
Council
report that banks are highly liquid and eager to make good loans at low
rates.
S&L executives report very high volume in mortgage financing and
refinancing.
Mortgage rates are being held up artificially, they say, to
reduce applications.
Agriculture
Spring planting
Small
District.
cooler-than-normal
is
grains
progressing
and
at a normal pace
pastures
weather, but recent
have
rains have
been
throughout
the
back
by
held
alleviated
the moisture
shortage experienced during March and the first half of April.
Livestock
producers are currently facing some downward price pressure but lower feed
costs should assist them in maintaining profit margins.
Agriculture in the
other areas of the nation.
values
have
remained
Fifth District
remains stronger than in many
Recent data indicate that the region's farmland
reasonably
stable
over
the
multi-year downward trend may be nearing the bottom.
past year;
possibly
the
VI-1
SIXTH DISTRICT - ATLANTA
Important economic sectors of the southeastern economy strengthened in the
first quarter.
However, the adverse employment impact of declining oil prices on
Louisiana's economy and that of other energy-producing parts of the region has masked
current and expected improvements.
With few exceptions, construction activity is
strong, and the activity and outlook for tourism has improved.
Consumer spending
increased in March following a lull in the beginning months of the year. In agriculture,
dry weather has slowed the progress of crops thus far this growing season.
Employment and Industry. The region's unemployment rate edged upward from
January to February, and available state estimates hint at a further slight rise in
March.
Weakness in the energy sector has pushed Louisiana's oil-based economy to the
highest unemployment rate in the nation with little prospect for improvement in the
foreseeable future.
Mississippi and Alabama also are suffering from the drop in
petroleum prices, with a refinery in Mississippi temporarily closed in reaction to falling
oil prices. Florida and Georgia continue to post unemployment rates significantly below
that of the nation, while Tennessee's rate is about on a par with the nation's.
More job losses are expected as a result of falling oil prices. The rig count for
Louisiana has dropped to the lowest level since 1975, resulting in further layoffs by
companies that service the dwindling number of offshore oil platforms. The offshore rig
utilization rate has dropped to 40 percent from 79 percent in early December, with
exploration at a standstill.
More positively, some small towns in the region have been able to attract new
industry and diversify their economies out of textiles by taking advantage of the labor
pool of workers displaced by imports or automation. Furniture producers are starting to
note moderate backlogs and some overtime work.
They, along with lumber producers,
are optimistic that falling interest rates will continue to stimulate their industry but are
concerned by growing low-cost imports.
Several leading furniture manufacturers are
VI-2
discontinuing production of certain items and are instead importing them for resale. The
defense-related aerospace industry continues to bolster many local economies throughout
the region.
The District's year-over-year
retail sales growth in
January-February 1986 was slightly below that of the nation.
March and early April
Consumer Spending.
retail sales were compared favorably to year-ago levels by merchants in all District
states except Louisiana, where weak activity continues. Retailers attributed improving
sales in March to Easter season apparel purchases.
In March, Louisiana and Mississippi
were the only states in the region that mirrored the nation's depressed sales of non-auto
durable goods. Through mid-April, 1986 car sales remained weak throughout the region.
Construction.
With the major exceptions of New Orleans and Jackson,
construction and sales of single-family homes are above last year's levels throughout the
Southeast.
Lower mortgage rates are stimulating sales to both first-time buyers and
families upgrading their housing; favorable weather for building has reinforced the
positive interest rate impact. However, apartment markets in many metropolitan areas
are experiencing softening rents, and condominium prices continue to fall in south
Florida. Southeastern industrial space construction is beginning to accelerate, while low
interest rates are said to be triggering some "high risk" office, retail, and hotel
construction.
Office vacancy rates are high and rising in all major cities except
Birmingham,
with suburban rates generally higher than those in downtown areas.
Available retail space and lodging vacancy rates also are rising as a result of rapid
increases in supply.
Financial Services.
Total loan growth at large District banks continued its
year-long slide in February and March. Real estate lending exhibits stronger growth than
either consumer or business loans, but its growth rate also has been declining steadily.
The Mississippi legislature has passed and sent a bill to the Governor that would allow
interstate banking after a period for statewide expansions and consolidations.
In
VI-3
Louisiana, the remaining state in the region that prohibits interstate banking, enabling
legislation is expected to be introduced in the current legislative session.
After more
than a year of active interstate banking in the District, merger and acquisition activity
has enabled seven bank holding companies based in the region-up from five a year ago-to rank among the nation's 40 largest.
Tourism. Figures for visitor registrations and national park attendance through
February show strength across the District.
Most states are experiencing double-digit
growth over last year for both of these measures. Some of this increase in activity has
been attributed to already lower gas prices, and there is widespread expectation that
summer tourism will grow at an even faster clip. In Florida, attendance records were set
at major attractions in March, and expectations for the remainder of the year are very
high.
Lower airfares have stimulated passenger traffic through most airports compared
to a year ago, with double-digit growth experienced by most major airports.
Agriculture.
A prolonged period of dry weather has severely limited growth of
forage for beef and dairy animals and has retarded the progress of spring-planted crops.
Rainfall deficiencies also threaten water supplies that are likely to be needed for
intensive irrigation during the summer.
Prices received by farmers remain well below
year-ago levels, with orange, vegetable, grain, and peanut crops showing especially large
declines. At the same time, poultry producers are reaping favorable returns with market
prices comparing favorably with year-ago levels, and feed costs have been declining.
VII-1
SEVENTH DISTRICT--CHICAGO
Summary. Most contacts at District companies report improving conditions, continuing a
trend toward somewhat greater optimism. District payroll employment has shown some expansion,
but still trails the U.S. performance. Purchasing managers in Chicago and Milwaukee noted
increasing production and orders in March. Other contacts note growth in real estate
transactions, residential construction, and higher shipments of paperboard, cement, concrete,
gypsum board, basic and specialty chemicals, household appliances, and oil products. There is
increasing evidence of favorable results from the lower dollar. Lower than expected sales of
some auto models have led to inventory accumulation and new sales incentives. Heavy truck sales
also are down, but sales of light and medium trucks remain strong. Sales of RVs and tourism are
expected to increase substantially, boosted by the sharp drop in gasoline prices. Mechanical
capital goods remain depressed, but there has been some rise in lighter construction equipment.
Slower growth of federal spending and flat capital spending, with weakness in oil/gas, electric
utilities, steel, and most machinery, are tending to offset at least part of the positive
effects on activity of lower energy costs, reduced interest rates, and the depreciation of the
dollar. Analysts see increased evidence that the 5-year slide in District farm real estate
values will end later this year.
Paperboard. District analysts report "near-boom conditions" in the cardboard box
industry. Strength in this sector is not matched elsewhere. Supplies are tight and operating
rates high. Exports of linerboard are well above last year, attributed to the lower dollar and
renewed economic expansion in Europe. Price increases of about 10% have been announced by
leading producers, with 6-7% expected to "stick."
Motor Vehicles. Auto production plans have been revised down in light of excessive
inventories, but remain near last year's levels. Some assembly plants have been closed
temporarily in Michigan and Wisconsin. Light-duty truck sales have softened slightly but remain
near record levels and output schedules are still above last year. Orders for medium trucks
have increased slightly in recent weeks. An industry analyst expects sales of heavies to be
VII-2
down about 10% this year, but sees sales of mediums about even with last year, rather than down
as expected earlier. Foreign competition is increasing for both medium and heavy trucks.
Steel. Orders for sheet steel have slipped, after strengthening in the first quarter,
because of cuts in auto production schedules. Production at Chicago and Detroit area mills,
through mid-April, is ahead of a year ago, but still at low and unprofitable levels. The market
for sheet is being supported by continued relatively high demand for most autos, light trucks,
and appliances. Demand for structural steel and activity at service centers are vigorous.
Orders for machinery are weak. Shipments to the oil and gas industries are virtually "at a
standstill," except for pipelines.
Capital Goods. Weakness in capital spending is evident in electric utilities, machinery,
steel, railroads, and water transport. A major electric utility is seeking regulatory approval
of higher rates which would allow conversion of a stalled nuclear power plant to gas. No pickup
is evident in orders for diesel engines for non-truck markets. A major District farm equipment
producer has scheduled its North American farm equipment output 14% less than its low 1985
level, and plans further cuts in employment. Smaller types of construction equipment,
paper-related equipment, and food processing equipment are picking up moderately. Demand has
revived for electronic capital goods. The sharp decline in capital spending by oil companies
has less adverse effect in this District than elsewhere.
Nonresidential Construction. Office building is slowing in the Chicago suburbs, but
bidding volume continues strong in downtown Chicago, with large new projects announced.
Commercial mortgages are readily available, with rates under 10%, down about 150 basis points
since the beginning of the year. Life insurance companies are seeking more commercial
mortgages. Construction of industrial buildings in the 40-50,000 square foot range is picking
up. Ground was recently broken for an auto assembly plant in Illinois, a joint venture of an
American and a Japanese auto maker.
Residential Construction. Demand for new and used housing is vigorous, spurred by low
mortgage interest rates. Permits for new housing construction, for 3 months, are up 40% or
VII-3
more from year ago in the District. Fixed-rate, 30-year mortgages are available below 10%.
Most borrowers want fixed-rate loans. New loans together with a huge volume of refinancings
have caused delays in processing loan applications. Appropriately priced homes sell quickly,
and home prices have risen substantially in favored suburban areas.
Consumer Spending. A large general merchandise chain reports improved sales in recent
weeks, helped by mild weather. Inventories are described as flat. Analysts are optimistic
about demand through the rest of this year, partly because of gains in spendable income
associated with lower energy prices and reduced mortgage payments.
Credit sales have not kept
pace with total sales recently, and delinquencies are approaching 1980 highs. The strong
housing market, for new and used homes, is boosting sales of appliances and home furnishings.
Two large national oil companies are abandoning retailing in the Chicago area.
Agriculture. The District's winter wheat crop--which ranks a distant third to corn and
soybeans in terms of crop marketings--suffered considerable winterkill damage. Wheat farmers
will be able to offset some of the loss by replanting other crops or using seriously affected
acreage to meet set-aside requirements. Favorable weather has permitted District crop farmers
to get an early start on spring fieldwork, which may reduce subsequent weather stress. Bids
from dairy farmers that account for 5.4% of the District's milk production, versus 8.7 percent
nationwide, have been accepted for the government's whole-herd dairy buy-out program. These
dairy farmers must liquidate their entire dairy herds within 18 months. Anticipation of
increased dairy cattle slaughter undermined livestock prices in recent weeks. District farmland
values, on average, declined nearly 3% during the first quarter, to 17% below a year earlier,
and 45% below the 1981 peak, but analysts increasingly believe the land market will bottom later
this year. Transactions in farm real estate are up, from very low levels a year ago. But with
heavy surpluses likely to continue in agriculture, no bounceback in land values is expected.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Summary
The Eighth District indicators of real economic activity were
higher than national figures over the most recent period.
Expansion of
both goods- and services-producing industries contributed to substantial
employment growth in recent months.
Retail sales have been strong this
year with growth surpassing that of the nation.
Respondents expect
mortgage refinancing to result in increased disposable income that may
boost future consumer spending.
Spurred by mild weather in the region,
construction activity in the first quarter also exceeded national
figures.
Financial and agricultural indicators are less encouraging,
with commercial and consumer lending slowing in the first quarter and no
change in the forecast of low prices for District farm products.
Employment
Eighth District nonagricultural employment grew at a 1.2 percent
annual rate in February, trailing the 1.9 percent national rate.
In the
three-month period ending in February, however, the 10.7 percent growth
rate of District nonagricultural employment exceeded the nation's 3.6
percent rate.
District manufacturing employment increased at a 4.8
percent annual rate in the three months ending in February compared with a
2.1 percent rate for the nation.
Despite these strong employment
figures, even faster growth in the labor force raised the Eighth District
unemployment rate in February from 7.7 to 8.0 percent.
Consumer Spending
District retail sales growth continues to exceed the national
pace.
January sales in the region were 10.9 percent above year-ago
VIII-2
levels while nationally
sales increased by 6.2 percent.
District retail
sales grew at a 1.3 percent annual rate for the three months through
January while the nation's sales declined slightly during the period.
Some District retailers have suggested that spending would be
higher were it not for the "up-front" closing costs incurred when
consumers refinance home mortgages.
The results of a survey of 11
District financial institutions, however, suggest that mortgage
refinancing has not restrained consumer spending and, in fact, should
result in improved cash flows that could lead to further growth of
consumer spending.
Most indicated that the overwhelming majority of
refinancers have been able to include the closing costs in the new
mortgage and still enjoy lower monthly payments.
Construction
Spurred by good weather, first quarter construction activity
grew faster in the District than in the nation.
Contracts for District
residential construction grew by 8.5 percent (simple rate) from the
previous quarter, while a 1.9 percent decline was posted for the nation.
District nonresidential construction contracts increased by 4.3 percent
in the first quarter while the national figure declined by 15.2 percent.
Banking
Total loans at large District banks grew at a 9.7 percent rate
for the first quarter.
This increase represents a considerable slowing
from the 19.3 percent annual rate of growth recorded for the first three
months of 1985.
Commercial lending continues to be sluggish, increasing
at a 6.6 percent rate, compared with a 16.0 percent rate of growth for
the first quarter of last year.
Over the most recent three months,
VIII-3
however, month-to-month growth rates have been accelerating.
Compared
with recent experience, the growth of consumer lending is slower than
that for the same period last year.
Consumer lending expanded at a 15.8
percent rate, while a 24.1 percent rate of growth was recorded for the
first quarter of 1985.
The Missouri interstate banking bill has received both Senate
and House endorsement and now awaits the Governor's approval.
The bill
provides for a reciprocal agreement with eight neighboring states and
contains no provision for full nationwide banking.
Agriculture
The price outlook for major District crops remains depressed as
futures prices for this
old crop prices.
season's crops have fallen to levels well below
Corn futures prices, for example, are at a nine-year
low while fall cotton futures are 38 percent below current prices.
Farmland values are expected to continue falling in tandem with crop
prices as they have over the last four years.
Bank data indicate similar
farm lending trends in the District and the U.S.
Loans outstanding to
farmers declined in 1985 by 10.2 and 12.3 percent, respectively, at banks
in the nation and the District.
The percent of overdue farm loans at
agricultural banks increased from 2.9 percent in 1983 to 5.5 percent in
1985 in the District and from 2.9 percent to 4.2 percent in the nation.
Because loans that are eventually written off first appear as overdue
loans, these increases in overdue loans suggest that agricultural loan
losses will continue to rise in the future.
IX-1
NINTH DISTRICT - MINNEAPOLIS
Since
District.
year's
end,
Early in the
conditions
haven't
changed
much
in
the
first quarter, employment grew slightly.
consumer spending growth was
modest, with the exception of
Ninth
Overall,
large gains in
housing.
Resource-related industries remained mixed, with good performance in
the wood
products
sector
but
poor conditions
agricultural outlook has not improved.
in
the
energy
sector.
The
Agricultural banking issues dominated
the district's finance sector.
Employment
Overall, district employment conditions stopped deteriorating early
in
the first
regions.
quarter, but
they may
now be declining
in the
oil-producing
In February, district states' unemployment rates hardly changed at
all, and total employment grew in Minnesota, the Dakotas, and Montana during
that
month.
falter.
In
But
employment
Minnesota,
equipment manufacturing.
this
in
was
durable
largely
goods
due
manufacturing
to
a
downturn
continued
in
to
computer
Due to recent declines in oil prices, North Dakota's
unemployment rate rose in March.
Consumer Spending
Retail purchases
of general merchandise grew moderately.
Although
two department store chains in the district sold more than planned during the
first quarter, sales at both slowed early in April.
The chains' credit sales
have been growing rapidly and are now being scrutinized for signs of deteriorating
quality.
discounters
report
Inventories were not
good sales
excessive at
generally throughout
either chain.
the
district.
Two big
However,
Bank directors say sales have been spotty outside the Twin Cities metro area,
with flat sales in parts of Montana and western North Dakota but growing sales
at a large shopping mall in Duluth, Minnesota.
IX-2
Sales of motor vehicles have leveled off and may even be below yearearlier levels.
running 16 percent below last year's,
cent
district car sales were
For one large domestic manufacturer,
since a year ago.
while its
truck sales were down 4 per-
New car sales were weak in
Bismarck, North Dakota,
but were good
both western Montana and
in Fargo, North Dakota, and Pierre,
South Dakota.
Housing activity has been generally quite strong.
Realtors report
that more homes were sold during March in the Minneapolis-St. Paul area than
during
any other previous month.
Requests for FHA appraisals
Cities were also higher in March than ever before.
also
been
spurring
home
sales
in
other
parts
in the Twin
Lower mortgage rates have
of the
district,
including
western Wisconsin.
Tourist
Business
winds.
at
spending
some big
at
Montana
district
ski
resorts
resorts
was
harmed
was
by
mixed
late
this
winter.
starts and
high
Resorts on the Upper Peninsula of Michigan also had a less-than-desir-
able season, according to a Bank director.
But another director says a resort
in northeastern Minnesota that usually loses money actually turned a profit
this winter.
In preparation for the summer season, many Minnesota resorts are
expanding their facilities.
Resource-Related Industries
Conditions among the district's resource-related industries remained
mixed.
The wood products industry has been doing well.
One Bank director
notes that waferboard production has been going strong and that its price has
firmed; another mentions that a new fiberboard plant on the Upper Peninsula of
Michigan should eventually employ 300 workers.
However, wood suppliers for
such plants are receiving low prices for their products.
Low prices are also
IX-3
plaguing
the
district's
energy
are almost
nonexistent
drilling rigs
sector.
in
As
a
result,
active
oil and
North Dakota and Montana.
gas
Although
coal production in Montana has increased, coal prices have dropped.
Agriculture
Conditions remained poor in the agriculture sector.
March
survey
optimism.
of
The
farmland values
rural
bankers
in
surveyed bankers
say
fell
index
didn't
early
field work in
later.
below
district
their
year-earlier
rise from its
Drought
the
low level
found
customers'
levels.
The
in February.
little
cause
for
farm earnings
and
Minnesota
farm
Wet weather has
Minnesota, although the moisture
conditions
net
This Bank's late
price
impeded
should help crops grow
affecting the wheat-growing area
of northeastern
Montana have eased.
The
U.S.
agriculture
department's
dairy
herd
buy-out
program
has
received much attention.
Nearly 10 percent of Minnesota's
dairy farmers will
be
million
for at
paid
a
total
The
years.
director.
of
$145
participation
The buy
rate
to
was
shut
lower
down
in
operations
Wisconsin,
according
least
five
to a
Bank
out spurred many farmers to sell off their cows, at least
temporarily lowering cattle prices and infuriating ranchers.
Finance
Agricultural
sector.
A
group
of
banking
seven
issues
rural
Minnesota
reducing interest rates on farm loans
legislature enacted an
pation has been
out.
banks
in
the district's
announced
secured by real estate.
a
finance
program
for
The Minnesota
interest buy-down program for farm loans, and partici-
so heavy that
However, Minnesota's
program.
predominated
the program's budgeted
governor has
funds have already run
promised continued
funding
for
the
TENTH DISTRICT - KANSAS CITY
Overview.
Recent improvements are reported in economic activity and the
economic outlook in the Tenth District, apart from the agricultural and energy
sectors which remain depressed.
General retail sales are improving and
retailers are optimistic about the rest of 1986.
Auto sales are weaker,
however, and dealers expect lagging sales throughout the year.
Both retailers
and manufacturers' purchasing agents expect reduced inventory purchases.
Housing activity is expected to remain strong, except for some soft local
markets.
Much of the increased mortgage demand is for refinancing.
Loan
demand at commercial banks remains mixed, and deposits are higher.
Agricultural lenders report somewhat tighter credit conditions than a year
earlier.
Retail trade.
positive.
The outlook for retail sales and prices is generally
Retailers report that sales remain higher than a year ago and
recently have been improving.
Sales of men's and women's apparel were
particularly strong over the last three months.
sales will stay above year-ago levels.
Retailers are optimistic that
Prices have been steady and are
expected to change little over the rest of the year.
Because inventory levels
range from satisfactory to high, leading retailers expect steady to slightly
reduced inventory purchases for the remainder of 1986.
Automobile sales.
ago.
Auto sales typically are down compared with a year
Although financing is readily available, favorable credit conditions
have not stimulated sales.
Most dealers report their inventory levels are
acceptable to slightly high.
Dealers expect that automobile sales will
continue to lag behind 1985 levels throughout the remainder of the year.
Purchasing agents.
Most purchasing agents have seen little or no change
in the prices of their major inputs compared with a year earlier.
Moreover,
X-2
no substantial price changes are expected for the remainder of 1986.
Most
firms have been trimming their materials inventory levels and plan to continue
this process through the rest of the year.
Purchasing agents generally are
experiencing no problems with the availability or delivery of materials.
Housing activity and finance.
Tenth District housing activity varies
widely depending on the strength of the local markets.
In some areas
experiencing economic hardships, the demand for new houses has dropped
dramatically and is expected to remain at a low level for the rest of the
year.
However, homebuilders in most areas report that starts of single-family
dwellings have increased over the year-ago period, while multifamily starts
have declined.
These builders expect that housing starts will remain
relatively strong over the rest of this year.
Builders report good
availability of housing materials and no delivery problems.
Most materials
prices are steady, though some builders are encountering higher lumber prices.
Savings and loan institutions have experienced reduced savings inflows
relative to a year earlier, but give mixed reports about their expectations
for the months ahead.
Mortgage activity continues to increase mainly because
of the strong demand for refinancing.
In areas where homes are selling,
mortgage demand is expected to increase further over the next few months.
Mortgage rates have been declining along with rates nationwide.
Most
respondents expect mortgage rates to fall a little more but feel that
increases could occur later in the year.
Energy.
The downward slide in crude oil prices and a persistent surplus
of natural gas have led to lower exploration, development, and production
activity in the Tenth District.
The average weekly number of operating
drilling rigs fell from 550 in January to 327 in March.
Production from high-
cost stripper wells has been curtailed and substantial further cuts are
expected if crude oil prices remain in the $12 to $15 per barrel range.
X-3
Banking.
For a second month in a row, total loan demand was mixed and
total deposits were higher at Tenth District banks.
Residential real estate
loans were generally up while consumer loans were mixed and commercial and
industrial loans, agricultural loans, and commercial real estate loans were
constant to down.
Roughly half of the bankers surveyed lowered their prime
rate during the last month, and a majority expected further declines even
before the latest discount rate cut.
Nearly half of the respondents lowered
their consumer loan rates during the last month and another half look for
declines in the near future.
Total deposits rose at Tenth District banks,
with categories other than large CD's and passbook savings all generally
registering gains.
Agriculture.
the Tenth District.
A good winter wheat crop is reported throughout most of
Due to the relatively mild winter weather, the crop is
progressing on schedule.
But a fairly dry spring for many winter wheat
regions may soon cause the crop to begin to show signs of stress.
With the
dry mild weather conditions, field work for planting other crops is running on
schedule or ahead of schedule.
District lenders are completing their spring loan arrangements.
In some
areas up to 10 percent of borrowers have been denied credit, though about 5
percent seems to be more representative.
Even lenders not denying credit to
clients report that conditions are somewhat tighter than last year, and the
number of marginal borrowers is up from a year ago.
The dairy herd buy-out program has provoked strong emotional responses
from cattlemen in the Tenth District.
Weakened cattle prices are being
blamed, wholly or in part, on the buy-out.
Though bankers in a few areas
report that cattle may have been withheld from the market in response to the
lower prices, most indicate that markets have not been disrupted.
XI-1
ELEVENTH DISTRICT--DALLAS
The decline in the price of oil has brought economic expansion in
the Eleventh District to a standstill.
The drilling rig count continues to
plunge and there is no sign that the bottom has yet been reached.
Contract
values for both residential and nonresidential construction are down.
Falling demand from the energy and construction sectors has led to reduced
sales by manufacturers.
Retail sales are soft, especially in the
energy-dependent areas of the District.
Auto sales have begun to slow from
the rapid pace of the previous two years.
The recent flat loan demand at
the District's large banks reflects the sluggish economy.
In agriculture,
credit problems are becoming more serious.
Sales in manufacturing have been depressed by problems in
construction and in the energy industry.
Glass producers note a decline in
orders that is tied to the downturn in nonresidential construction, but the
output of lumber and wood products is stable as a result of strength in
orders from outside the District.
Primary and fabricated metals producers
are adjusting to a drop in orders from the construction and energy sectors,
but respondents indicate that past efforts to diversify their product lines
should shelter them from serious weakness.
Sales of oilfield machinery are
sliding because of weakening drilling activity.
District refiners have
recently decreased production, but that is a response to a seasonal
downturn in demand.
Refiners expect sales this year to be high owing to
reduced product prices.
On the more positive side, electronics firms
report that their sales have stabilized and are expected to rise, and
aircraft employment and output is up sharply.
Among apparel producers, one
XI-2
major manufacturer has just announced large layoffs, but past modernization
and marketing efforts are beginning to help other firms against foreign
competition.
The extraction portion of the energy industry continues to slide
with little chance of stabilizing in the near future.
The Texas rig count
has fallen to 50 percent of year-earlier levels, compared to a 30-percent
decline during the latter half of 1985.
Well permit applications, a
leading indicator of drilling activity, are 50 percent below a year earlier
in District states.
Another leading indicator, the seismic crew count,has
dropped 30 percent from last year's level.
Reductions in the values of both nonresidential and residential
construction contracts are widespread.
have fallen.
Absorption rates for office space
Vacancy rates in most major cities are high and may increase
further as office space that is now under construction is completed.
Residential construction had been steady, but the value of contracts
plummeted in March, paced by a large drop in multifamily units.
Retail sales mirror the slowdown in other portions of the District
economy.
The nominal level of retail sales in energy-dependent areas has
declined significantly.
Elsewhere, slight gains have occurred.
product lines are moving slowly, especially consumer durables.
All
Respondents
report acceptable inventory levels, but they indicate that continued
sluggish sales may lead to undesired inventory accumulation.
Auto purchases have ebbed in response to weakness in the District
economy and to what dealers say is buyer satiation in the wake of the
special promotions of 1984 and 1985.
Sales declines, compared with a year
earlier, are widespread throughout the District.
Dealers note that
involuntary inventory accumulation has begun to occur.
XI-3
Asset growth at the District's large banks varies widely among
individual institutions; but overall increases are down sharply from growth
rates last year.
Growth in real estate loans has slipped and business
loans have been declining absolutely from year-earlier levels.
of deposits at large banks is little changed from a year ago.
The level
Continued
weakness in energy and construction recently induced the large District
banks to increase their provisions to loan loss reserves.
At thrift
institutions, deposit growth remains strong.
The
Income prospects for District farmers and ranchers are mixed.
impact of low crop prices is likely to be offset by more generous
government programs and reduced grain costs will offset lower beef prices.
Generally, District agricultural prices were lower in March than in
February and they are likely to remain significantly below year-earlier
levels.
District agricultural land values continued to fall modestly in
the first quarter.
Agricultural bankers report that the proportion of
agricultural loans with repayment problems is up from a year ago.
Nearly
10 percent of last year's farm borrowers will not receive operating loans
this year, compared with a reduction of 7 percent in 1985.
Although the
falling price of energy has lowered operating expenses for District
farmers, declines in income from oil and gas royalties are likely to more
than offset these cost reductions.
XII-1
TWELFTH DISTRICT -- SAN FRANCISCO
activity
Economic
improvement
in
during the
from the recent plunge
of
the
past month.
District
Twelfth
Most of the
has
shown
District should
some
benefit
in oil prices, although oil producing regions have
Consumer spending, while no longer growing at its previous
been hit hard.
high rates,
much
remains
high and
shows no
sign of
slowing.
Lower
interest
rates have generated renewed optimism in the construction and wood products
industries,
Weakness
while
the
continues,
Nevertheless,
in
slump
however,
strong
loan
high
in
tech appears
the
volumes
to have
agriculture
suggest
that
and
bottomed out.
mining
the
overall
sectors.
mood
is
optimistic.
Trade and Services
Retail
sales continue strong in much of
the West,
with Idaho, Utah,
and Oregon showing increased strength in sales volume.
in most parts of
the District anticipate
While respondents
improved trade due to lower oil
prices and interest rates, Alaska's oil related problems could hamper trade
in parts of Washington and Oregon, where Alaska is an important market.
most
parts
of
the
District,
retail gasoline prices.
lower
oil
have
prices
resulted
in
In
reduced
Lower travel costs, together with the lower value
of the dollar and fears of terrorism abroad, are expected to boost tourist
spending
Northwest
throughout
expert
British Columbia.
the
West
particularly
this
strong
summer.
gains
Businesses
due
to
the
in
the
World's
Pacific
Fair
in
XII-2
Manufacturing
Aerospace
volumes
While
industries
combine with
the
levels.
strong
electronics
downturn,
employment
continue
to
prosper,
commercial
sector
levels
appears
as
high
aircraft demand
to
have
in many areas
to
weathered
remain
defense
boost activity.
the
worst
recovery
because
many
firms
of
its
below their year-earlier
Employment is unlikely to expand during the initial
industry's
contract
continue
to
stages of
operate
with
the
excess
capacity.
Other
benefit
manufacturing
industries,
from reduced energy costs.
such
In
as
aluminum,
some cases,
are
likely
to
these lower costs could
make previously unprofitable plants profitable for the first time in years.
Resource Based Industries
The
sharp
reduction
in
oil
prices
producing parts of the Twelfth District.
been reduced
substantially.
activity
down
is
between 20 and 80
Alaska,
Utah,
and
sharply,
In
is
wreaking
havoc
rig
counts
in
most
oil
County
(California)
have already lost millions of dollars
report
in tax
that
and
pumping
producing
percent below their year-earlier levels.
Kern
energy
In Alaska, drilling activity has
California and Utah, drilling
with
in
areas
Respondents
their
revenue due to
in
governments
the lower oil
prices.
In
best
contrast,
performance
foreign
exchange
the
in
forest
several
value
of
products
years.
the
U.S.
industry
Lower
currently
interest
dollar
have
rates
boosted
is
and
posting
the
prices
its
reduced
of
some
products to 22 percent above their year-earlier levels, while lumber orders
at
West
March 8.
Coast
mills
reportedly reached
One respondent
reports that
a
record
lumber mill
level
during
the
week of
inventories are at their
XII-3
lowest
level
in
two
years.
Although
lumber
trade
volume
through
some
Northwest ports had not yet picked up in February, industry sources remain
optimistic about future prospects.
Sustained weakness in copper prices continues to be a problem in Utah
and in parts of Arizona.
In contrast, gold mining is a healthy industry in
Nevada, which currently produces more gold than does any other state.
Agriculture continues to show weakness due to low prices and increased
competition
from
abroad.
Despite
the
overall
weakness,
some
crops,
including many fruits and vegetables, continue to be quite profitable.
Construction and Real Estate
Lower
activity
interest
in
most
rates
parts
residential and commercial
have
of
the
spurred
real
Twelfth
District.
construction are all
estate
has
in
the
past
funded
huge
Home
construction
resales
and
strong, although the boom
is not shared by oil producing parts of the District.
government
and
In Alaska, where the
infrastructure
construction
projects, the building sector has been hit particularly hard.
Financial Sector
Mortgage
loan
originations
continue
to
grow,
spurred
by a
rush
to
refinance existing home mortgages taken out when rates were higher, as well
as
by renewed buying
activity.
volumes continue to be strong.
In most
of the
District,
In addition, commercial loan volumes have
picked up, apparently spurred by low interest rates and,
improved economic outlook as well.
consumer loan
in Oregon, by an
Cite this document
Federal Reserve (1986, May 19). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19860520
@misc{wtfs_beige_book_19860520,
author = {Federal Reserve},
title = {Beige Book},
year = {1986},
month = {May},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19860520},
note = {Retrieved via When the Fed Speaks corpus}
}