Beige Book
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
AUGUST 1986
TABLE OF CONTENTS
SUMMARY. . . . . .
. ... . . . . . . . . .
.
. ...
. .
.
First District - Boston. . . . . . . . . . . . . . . .
. .
.
. . ..
.I.
Second District - New York . . . . . . . . . . . . . . . . . ... .
Third District - Philadephia . . . . .
. .
i
. . . . . . . . . ...
IIIII-
Fourth District - Cleveland. . . . . . . . . . . . . . . . . ... .IV-1
Fifth District - Richmond. . . . .
. . . . . . . .
. . . .. ...
Sixth District - Atlanta . . . . . . . . . . . . . . . . ...
.
.
Seventh District - Chicago . . . . . . . . . . . . . . . .....
..
VI-1
.
VII-1
Eighth District - St. Louis. . . . . . . . . . . . . . . . . ... .
Ninth District - Minneapolis . . . . . . . . . . .
V-1
VIII-1
. . . . . ... .
IX-1
. . . .
X-1
Tenth District - Kansas City . . . . . . . . . . . .
. . .
Eleventh District - Dallas . . . . . . . . . . . . . . ..
.
. . .
Twelfth District - San Francisco . . . . . . . . . . . . . . ..
.
.XI-1
XII-1
SUMMARY*
information
suggests
that
Reserve districts,
although
conditions
Available
Federal
both
sectors
Retail
regions.
and
growth
slow
vary
substantially
to
appear
sales
in
continues
be
most
across
modestly
growing
overall, with substantial regional variation, and domestic automobile sales
also show a mixed performance.
most
prices
has
hurt
manufacturers
in
sharply
contrasting
some
areas,
with
the
decline
The
in
addition
in most
strong
areas,
real estate activity remains
demand
grown
has
in
Southeast.
drought-plagued
although some districts
to
in
in
oil
energy
in
most
the doldrums
districts,
Homebuilding
report
weakening
Commercial construction and
from the frenzied pace of the spring months.
loan
weak.
remains
strong
Agricultural producers in the Midwest expect high crop yields,
producers.
continues
activity
Manufacturing
areas.
traffic appears
Summer tourist
Total
in many areas.
with
residential
real
bank
estate
portfolios showing particularly strong growth.
Trade and Services
sales
Retail
variation across
June,
but picked
Cleveland,
and
shown
have
in the
Chicago
growth
Boston reports
regions.
up
modest
beginning
report
of
that
overall,
considerable
sales were weak in May and
July.
relatively
with
New
strong
Minneapolis, Kansas City and Dallas report weakness.
York, Philadelphia,
sales
growth,
Atlanta, St.
while
Louis,
and San Francisco report that their sales performances varied considerably
in
different
parts
of
their
districts.
inventories appear under control.
Prices
generally
are
flat,
and
All districts reporting on tourism cite
it as a source of strength.
*Prepared at the Federal Reserve Bank of San Francisco
ii
Chicago and Minneapolis report that sales of domestic automobiles are
outpacing last year's, while the Kansas City and Dallas districts have seen
reduced
report
sales during the past year.
improved
sales
in
recent
Philadelphia, Cleveland, and Atlanta
weeks
although
sales
remain
below
last
year's levels.
Manufacturing
Manufacturing activity remains flat or down slightly in most parts of
Aerospace industries are providing a boost to the Boston and
the country.
San
electronics
Atlanta
but
districts,
Francisco
has
not
district
in
both
districts
yet materialized.
report
that
Prime
orders
new
expected
the
defense
have
upturn
contractors
fallen,
although
in
in the
defense
In the Philadelphia
spending continues to bolster that region's economy.
district, manufacturers report marginal improvements in orders and business
volume.
Cleveland reports that threatened labor disputes. are hurting steel
orders.
Weakness in energy
related
the Chicago and Dallas districts.
cut
costs
and
retool
are
industries has
Many districts
crucial
to
hurt manufacturers
in
that efforts
to
report
maintaining
profitability
in
the
current competitive climate.
Mining
Problems
producing
coal
risen
related
parts of
the
to
low
to
hot
weather,
prices
continue
In Virginia and
nation.
production reportedly is
due
oil
up because
and
because
demand
new
to
plague
most
energy
West Virginia, however,
for electrical
emphasis
on
power has
environmental
protection has increased the demand for low-sulfur coal.
Agriculture
Favorable weather conditions in the Midwest should result in excellent
crop yields in that region.
In contrast, extreme heat, drought, and insect
iii
problems are causing severe crop damage along the eastern seaboard as far
north as Delaware.
In the Southeast's inland regions, the damage
is less
acute, and in some areas late rains could salvage crop production.
Recent
surveys suggest that deterioration in farmland prices is continuing in the
Minneapolis district,
slowing in the Chicago district, and accelerating in
the Dallas district.
Prices of most farm products remain low, and Kansas
City reports that a shortage of
storage
space for corn
could reduce corn
prices further.
Construction and Real Estate
Most districts report strong homebuilding activity, with single family
construction
stronger
substantial
variation
St. Louis,
and San
than
multifamily
among
building.
regions.
Francisco report
There
Although
a recent
is
however
Cleveland,
Atlanta,
slowdown in housing
strength remains and is expected to continue.
starts,
Some areas, however, report
weak homebuilding activity, including New Orleans, Montana, parts of West
Virginia, and the Dallas district.
Nonresidential
areas,
and
construction and leasing activity are
concessions
to
tenants
Despite the widespread weakness,
report
strength,
including
New
are
becoming
slowing in most
increasingly
common.
particularly in the oil belt, some areas
York
City,
Atlanta,
Birmingham,
Jackson-
ville, and Tennessee.
Financial Sector
Total
loan demand grew in many districts.
In the
Dallas
district,
however, loan volume is down due to an absolute decline in non-real estate
loan volume.
Mortgage loan demand is particularly strong in most regions,
although the rate of growth
rate
of
growth
in
is slowing in some areas.
installment
loans
is
positive
but
In most areas
falling,
the
although
iv
Kansas
City reports
Commercial
and
an
absolute decline
industrial
loan
activity
districts, showing little or no growth.
in
demand
is
for
consumer
relatively
weak
credit.
in
most
FIRST DISTRICT - BOSTON
The
Economic activity in the First District remains unbalanced.
manufacturing sector is in the doldrums.
Retail sales were disappointing
in May and June, but picked up in July.
Both manufacturers and retailers
report vigorous price competition.
mixed.
Reports from the real estate sector are
The Boston area is experiencing a seasonal slowdown in home sales,
while other parts of the region continue to experience very strong sales
activity.
Retail
Department store sales in several New England chains were below
plan in May and June and even lower than last year in some cases.
The
first few weeks of July, however, look much better, lending support to
retailers' optimism about the second half of the year.
Inventories are
somewhat high but still not a source of concern, according to those
contacted.
Prices are stable but margins appear to be shrinking.
After lackluster sales in May and June, department store
representatives reported a noticeable pickup in early July, attributed at
least in part to July's bad weekend weather.
Sales of TVs, VCRs, and
microwaves are strong in stores aimed at moderate income customers, while
an upscale chain's strongest departments are men's and women's sportswear.
Sales of home repair and building supplies remain very strong.
There is
considerable geographic variation in sales results within the region, but
respondents attribute this more to the competitive conditions of specific
stores than to differences in the strength of local economies.
I-2
Inventories are higher than expected in a number of stores, largely
because of failure to attain sales plans.
Markdowns, especially for
apparel, have been used to keep inventories in check.
Aside from
promotional reductions, prices are generally steady; several contacts
reported, however, that intensified competitive pressures have increased
promotional activity and eroded margins for the industry as a whole.
Disappointment with sales gains in recent months has not yet caused
retailers' plans for the second half of the year to be revised downward.
Merchants remain confident that consumers will continue to be a buoyant
force in the economy.
Manufacturing
Manufacturing respondents in the First District report that
business is "flat" or "mixed", continuing a pattern that has persisted for
several months.
Recreational equipment, aerospace and housing-related
products are said to be doing well.
Some respondents report strong demand
from the auto industry, but others have seen a slowing in what has been,
until now, a very strong market.
weak.
Demand for industrial components remains
The electronics industry, which had seen signs of a pickup a few
months ago, has experienced a levelling off.
Two major First District
computer firms recently announced layoffs.
None of the manufacturers contacted has seen an increase in exports
attributable to the decline in the value of the dollar, although one
representative of the metalworking industry thinks import pressure may be
starting to ease.
Respondents are continuing with current capital spending
plans; plans for 1987 will probably be similar to 1986.
None of the firms
I-3
contacted has seen any significant increases in prices from suppliers;
several noted that they cannot raise their own prices.
Manufacturing
respondents are very noncommital about future prospects; if pressed, they
expect a continuation of current conditions.
A couple hope to improve
profits through cost saving measures, most notably through consolidations
and the sale of excess capacity.
Real Estate
Reports of sales activity in the New England housing market are
mixed.
While areas close to Boston are experiencing a seasonal slowdown
(brokers are optimistic that the vacation season is responsible for the
reduced number of buyers), other parts of the region are enjoying a booming
pace similar to that in the spring.
Listings are said to be plentiful, and
the attractive properties are still turning over at a very rapid rate.
Price experience is varied:
prices are stabilizing in some areas, but
continuing to climb in others.
their asking prices.
In general sellers are getting close to
Condominiums, from the very affordable to the
luxurious, are selling well.
Vacancy rates for office space are up slightly in some parts of the
region as new buildings have recently come on line.
Rental incentives are
being offered, but agents are confident that there will be little problem
filling the new space.
II-1
SECOND DISTRICT -- NEW YORK
across
sectors.
levels
during
uniform,
on
rates
and
however,
the
in
business
at
loans
consumer
July,
early
activity
Leasing
strong.
and
at
reported consumer spending
Retailers
June
in the Second District varied
the economic expansion
In recent weeks,
and
demand
were
remained
housing
market
not
was
Delinquency
also mixed.
banks
District
small
new
estate
real
commercial
conditions
for
or above planned
national
the
mirrored
trend, leveling off in the first quarter following the earlier increase.
Consumer Spending
In
consumer
general,
early July was
reported
influx of
at
growth
in
spending
the Second
between
10
and
percent
14
June
and
Most New York City retailers
above planned levels.
or
during
District
over
last
year
as
the
large
tourists for the July 4th Liberty Weekend contributed to gains in
New York City that were above the District average.
Higher-priced
retailers
in
growth
registered
in
the
with gains
increases
year-to-year
stores
stores
between
New
substantially
York
below
experienced
its
6
to
from 8 to
ranging
generally recorded gains
Western
continued
region
10
and
15
percent,
of 4 to
7 percent.
only
1
expectations.
a
Plant
report
percent
closings
the
greatest
Discount
percent.
medium-priced
while
However, one
increase
and
in
recent
store
sales,
layoffs
reportedly have reduced consumer demand in that area.
Consumer
growth
demand.
in
durables,
spending.
especially
furniture,
accounted
for
Sportswear and athletic footwear were
much
also
of
the
in strong
With sales in line with expectations, most merchants were able to
keep inventories under control.
II-2
Business Activity
Business
direction
in
conditions
in
the
recent weeks.
Second
District's
unemployment
year-earlier levels.
have
A higher percentage of
both Rochester and Buffalo reported some
the
District
rate
is
shown
clear
purchasing managers
improvement in May.
below
no
the
in
In addition,
national
average
In June, New York's unemployment rate fell
and
sharply to
5.9 percent from 7.4 percent in May, while New Jersey's rate of 5.0 percent
was
half
a
corporate
G.E.
percentage
reports
announced
Schenectady
Kodak's
have
lower
raised
that
(idling
layoffs
point
it
continue
concern
will
1400),
in
in
phase
two
in
than
areas
small
plants
Rochester.
However,
several
out
Syracuse
May.
about
turbine
have
Moreover,
disappointing
the
production
recently
a
future.
closed,
Buffalo
auto
in
and
supply
firm stated that increased employment there due to the popularity of a new
windshield wiper will be shortlived.
Production is soon to be shifted to a
plant currently under construction in Mexico.
Construction and Real Estate
As the homebuilding industry moves
for new housing remains
areas
that
are
plumbers,
are
times
being
are
the District,
upward
currently
of
to
strong throughout the District.
workers,
in
short
lengthened.
some
pressure on
expected
number
skilled
In
such
supply
as
carpenters,
and as
an attempt
to
a
home
prices.
through
starts
in
The high
recruit
year-end
some
at
areas.
level
Reports
of
least,
Future
from many
electricians,
labor
from outside
thereby adding
building
resulting
activity
and
completion
consequence,
builders are offering premium wages,
continue
housing
into its peak summer period, demand
activity
in
may
a
to
is
record
also
be
II-3
brisk.
complex
Plans
in
were
recently
the
Brooklyn,
announced
to
a
build
condominium
unit
development
private housing
biggest
2200
in
there
25
years.
in
Conditions
been mixed.
District commercial
the Second
very
have
estate market
Leasing activity has been strong in New York City and on Long
Island, where construction of new industrial
been
real
In
active.
contrast,
and commercial
pace
the
of
leasing
in
space also has
and
Fairfield
persists
Westchester counties has
been more moderate, and some sluggishness
in northern New Jersey.
Few new construction projects are being started in
Fairfield County and New Jersey where vacancy rates remain relatively high.
Throughout
much
of
the
region,
to
concessions
tenants
continue
to
lower
occupancy costs.
Financial Developments
Small
banks
the
in
Second
District
that
report
delinquency
rates
consumer installment loans have mirrored the national trend: rising in
and
early
and
1985,
Delinquency rates
national
at
banks
had
attributed
the
borrowers'
income
Several
banks
some
recent
and
added
off
in
the
the
improvement
credit
to
history
they
are
the
quarter
national
expanded
and
first
banks had
first
below
fallen
that
through
small District
However,
average.
surveyed
leveling
to
raising
quarter
been running
of
1986,
1986.
at
Most
for
1984
above
rates
average.
facilities
of
on
the
all
banks
verifying
enhanced
collection
efforts.
credit
standards,
lowering
ceilings on revolving loans, and purchasing better quality loans.
III-1
THIRD DISTRICT - PHILADELPHIA
Business conditions are steady or improving for major sectors of the Third
District economy.
level months.
Manufacturing activity edged up in July, following three
Retail sales in June and July generally met merchants'
expectations of 5-10 percent year-over-year growth.
also.
Automobile sales increased
Total loan volume at large Third District banks in June was above the
level of June 1985, but growth during the month was slow.
Expectations for the Third District economy are generally positive.
More
than half of the industrial firms contacted for the July Business Outlook Survey
anticipate improved conditions over the next six months.
Retailers say the
summer selling season, which went well, is essentially over; they are preparing
for the fall, and are holding to their earlier forecasts for a good year as a
whole.
Commercial bankers believe the Third District economy is fundamentally
healthy, and they expect moderate loan growth during the rest of the year.
MANUFACTURING
Manufacturing activity in the Third District has picked up marginally,
following a three month lull.
Among industrial firms polled for the July
Business Outlook Survey, 25 percent reported increased business since June while
only 16 percent noted a slowdown; 49 percent indicated no change.
Nondurable
goods producers reported somewhat better conditions than did makers of durable
goods.
Specific measures of industrial activity for July were mixed, but indicate
some improvement, on balance.
New orders and shipments were up fractionally,
but order backlogs were unchanged.
Employment in the manufacturing sector was
also steady, and working hours edged up.
Prices of industrial goods in the
III-2
region are stable.
Eighty percent of the July survey respondents say neither
input costs nor output prices have changed since June.
Third District manufacturers have positive views of the future, on the
whole.
More than half of the companies participating in the July survey predict
better business conditions over the next six months while 20 percent expect a
slowdown.
Survey respondents forecast gains in new orders and shipments, but
anticipate an essentially stable employment situation, with steady payrolls and
a slight upturn in working hours.
Local manufacturers plan some increases in
capital spending for the next six months.
RETAIL
Third District retailers generally report good conditions.
Department
store and general merchandise sales met plans in June, with increases in the
range of 5-10 percent above June 1985.
Sales have been holding up in July,
which retailers say is often a slow month.
Merchants say seasonal goods have
sold well, and they attribute this to several weeks of hot, dry weather.
of clothing and furniture are also strong.
Sales
Automobile sales have picked up in
recent weeks, but do not appear to be exceeding the sales rate in the comparable
period of last year.
Third District retailers expect the usual lull in August, but are looking
for further growth in sales in the fall season.
Some major store chains expect
to finish the year with record sales and gains over 1985 near 10 percent.
However, competition among discount stores is increasing as national chains
expand their presence in the District; and some merchants say that profit
margins are contracting slightly.
FINANCE
Reports from major Third District banks indicate that the total volume of
loans outstanding in June was approximately 16 percent above the level of June
III-3
1985.
Since May, however, loans have grown at only a 4 percent annual rate.
Growth has been weakest in the commercial and industrial sector, mainly as a
result of efforts on the part of the bank's themselves.
Some Third District
bankers say they have retrenched in this category in order to maintain loan
quality as demand for funds from more creditworthy borrowers slackens.
In
addition, some bankers have reduced the extent of their participations in
national credits as net interest margins on these loans have narrowed and
reduced their profitability.
Consumer lending is moving up at about the same pace as it has since the
start of the year, but Third District bankers say this momentum may have been
maintained by the marketing of low rate (9-10 percent) loans by some banks.
These promotional rates were discontinued in July, and bankers expect slower
growth in consumer lending for the balance of the year.
Real estate and construction lending slowed somewhat in June, but was still
nearly 10 percent above June 1985.
Construction lending is still strong
although some industry contacts say the pace of building is slowing due to
concern over anticipated tax changes.
Mortgage lenders say they are still
working on backlogs, although the pace of new applications has slowed in recent
weeks.
Total deposits at large Third District banks in June were up approximately
10 percent from a year ago.
The narrowing spread between rates paid on passbook
savings and market-related rate accounts is becoming a matter of concern among
local bankers.
Some say they are beginning to think about possibly reducing
passbook rates in order to maintain the customary differential.
AGRICULTURE
With the exception of farms in Delaware, and especially those in the
southern half of the state, the agricultural sector of the Third District
III-4
economy is generally healthy at this time.
Dairy, livestock, and poultry
farmers in Pennsylvania and New Jersey are holding their own, with profit
margins widening as a result of stronger prices and lower feed costs.
Dry
weather still prevails in most parts of the area, but recent rainfall saved some
crops from failure.
Cattle and hog farmers in the area have seen prices rise in the last few
months, probably by enough to offset lower production and give total revenues a
boost.
The dairy industry is holding steady, with June production by
Pennsylvania farmers 2 percent higher than a year ago and at an all-time high;
however, milk prices are down about 5 percent over that time.
Poultry farmers
are also posting gains, benefitting both from lower feed grain costs and
higher prices for both eggs and broilers.
Most of the District experienced very dry weather in May and June, and,
although wheat and barley crops were doing well, corn and soybeans were at a
critical stage, and the second cutting of hay was reported to be short.
Heavy
rain arrived in mid-July, however, and prospects for field crop harvests in
Pennsylvania and New Jersey are improved.
Fruit and vegetable farmers in South
Jersey report higher prices for their products, partly as a result of the crisis
in the Southeast.
Most fruit and vegetable farms in the area are irrigated and
did not suffer from the earlier dry weather, and production, while not reaching
last year's levels, should still be high.
Crop farmers in Delaware, especially southern Delaware, are reported to be
experiencing drought conditions.
Losses are expected to exceed 30 percent of
projected crop yields, in some cases by a wide margin.
distress because they have little or no pasture left.
Livestock farmers are in
FOURTH DISTRICT - CLEVELAND
Summary
The Fourth District economy continues its pattern of slow growth with a
sluggish
manufacturing
housing
sector.
Unemployment
sector,
Retail
rose
in
depressed
sales
June
growth
the
and
energy
continues
to
be
rate
unemployment
Manufacturing activity remains
path
is
in
the
two
the
energy
industry
disrupted by strikes against
the doldrums.
quite
good.
on
producers.
growing well, and housing construction and sales remain robust.
lending
bank
growth
is
strong
for
real
estate,
above
its
the
flat
supplies may be
Steel
steel
largest
strong
remains
national and year-ago levels.
and
a
and
production,
moderate
Crops
are
Commercial
consumer
for
installment credit, and slow for business.
Consumer Spending.
Consumer spending in
this District appears
to
have
that sales steadily increased throughout the second
Major retailers report
quarter and into the first half of July.
Year-to-date current-dollar sales
increases range from 4% to 10% and July may be even better.
chain
reported
inventory
higher
inventories,
were
satisfactory.
levels
recently.
improved
and
all
of
Delinquent
the
Only one major
retailers
charge
felt
accounts
that
continued
their gradual rise, but none of the major chains indicated any great concern.
District auto dealers are showing satisfactory but relatively flat sales
of
domestic
new
cars.
Domestic
slightly higher than desired, but
auto dealers asserted
that
dealers'
inventories
continued
no reason for concern.
low-interest-rate
financing
to
be
Several domestic
incentives
are
too
IV-2
cars continues to outstrip supply.
good
On the other hand, demand for imported
longer very effective.
costly and no
despite
an
approximately
One dealer reported that sales have been
10%
price
increase
in
the
1986
model-year
in
as
employment
imports.
Labor Market Conditions.
The
unemployment
unemployment
rose.
points above
its
Ohio
rate
for
At 8.9%
Ohio
(sa),
year-ago level.
slower
in
than
in
faster
(4.5% vs. 0.2%).
the
rose
the
unemployment
In the
nation
June
(2.1%
rate
is
last twelve months
vs.
2.9%)
Within the District,
and
0.2
fell
and
percentage
employment grew
unemployment
the unemployment
grew
rate is very
high in counties that rely on coal mining.
Manufacturing.
Manufacturing
Production
several
month
Prices
indicated
two.
of
this
District
continues
purchased
are flat.
continues about
commodities
equipment
of
inventories
they expect order declines
Employment
and
services
in
to
be
sluggish.
increased slightly recently but new orders declined slightly
firms
or
activity
are
raw materials
are
flat
rising
flat
but
to continue for
as
order
prices
continue
and supplies, while finished goods
On balance, manufacturers
the next
decline.
manufacturers
Firms
slowly.
backlogs
expect-very slow growth
and
pay
to
for
trim
inventories
in
the
second
half of 1986.
Steel customers apparently have been diverting orders from USX
U.S. Steel)
to other suppliers,
against
widely
USX
announced
a
layoff
expected
of
1,400
to
including LTV, because
begin
workers
at
the
from
end
its
of
(formerly
of a possible strike
July.
Lorain
USX
recently
(Cleveland)
works
IV-3
because the threat of a strike has caused a sharp drop
mill.
been
Ironically,
halted
by a
insurance
benefits
producer
that
threatened
production
strike
for
in
work
the
LTV East Chicago,
response
retirees.
recently
by
at
filed
stoppages
to
LTV,
a
if
in orders
termination
the nation's
Chapter
11
they
the
ask
for
that
Indiana plant
of
health
second
bankruptcy,
life
largest
is
bankruptcy
and
steel
also
court
has
being
for
wage
concessions beyond those in the labor contract negotiated just last spring.
Agriculture.
Crops
in
Ohio,
one
of
doing better than average
the
largest
agricultural-producing states,
this year and corn especially is
are
flourishing
in
response to ample moisture and warm weather.
Housing.
Housing activity remains strong in this District.
Housing market
firms
are surprised that the housing market remains strong so late into a business
expansion but
the
consensus
is
that house building and
continue strong throughout 1986.
house buying
will
However, some firms are cautious in their
planning for 1987.
Housing
temporary
approvals.
starts
result
have
of
slowed
the
unusual
but
delays
builders
in
view
obtaining
Few mortgage lenders
mortgage
expected
as
a
loan
the high
to persist and thus virtually no lender added permanent staff.
estate closing cancellations had begun to rise as
mortgage rates
few lenders would guarantee the lending rate beyond 60 days.
estate
that
In recent months, processing times had reached 90 to 120 days as
the volume of applications surged.
volume
recently,
brokers
report
that
mortgage
loan
processing
Real
rose and
However, real
times
are
now
IV-4
approaching the normal 60 days.
spotty
are
There
savings
that
signs
loan
and
in
institutions
this
District are reducing their interest rates on new adjustable rate mortgages
to increase their attractiveness
relative
to the
fixed-rate mortgage
loans
the buyers seem to strongly prefer.
Commercial Banking.
loan demand
Overall
six weeks.
The
continued
robust
continues
to
growth
May.
year.
picking-up
at
somewhat
District banks.
Loans
in all major categories at large banks increased over the past
outstanding
Commercial
is
indicates
Contacts
in
gain
demand
for mortgage
grow
and
was
largest
but
at
industrial
a
pace
loans
estate
loans.
Consumer
substantially
registered
loans,
lower
the smallest
reflecting
installment
than
a
the
credit
year
ago.
increase, but the
in business loan demand since April
and
moderate business loan growth over the rest of
the
some improvement
expect
real
FIFTH DISTRICT - RICHMOND
Overview
District retailers report a slight increase in activity over the last
month, and there is little change in
remains strong in most urban areas.
the
District's
housing
sector
continues
strong,
municipal governments seem as yet
funds.
Agriculture
has
the
tourist
unaffected
been
which
Manufacturing remains generally weak, but
some manufacturing data suggest a moderate improvement
service
market,
hit
by
in
some
areas.
The
business
is excellent, and
expected
cuts
hard by heat and drought:
in
federal
many counties
throughout the District are qualifying farmers for disaster relief.
Consumer Spending
New cars are selling at
stores,
total
sales
about
last
month's
pace.
In
department
are up slightly, but sales of big ticket items are down
for the second consecutive month.
Sixty-two percent of the retailers
in
our
monthly survey expect sales to improve during the next six months, as compared
with 21 percent who expect declines.
Tourism continues strong.
Attendance is
breaking records at state parks and other major tourist areas.
Housing Market
Sales
of single-family homes are steady to up slightly in most large
urban areas, according to realtor associations.
from
very
strong
continues
to
range
in some large metropolitan areas such as Washington, D.C.,
where home price increases of
uncommon,
Demand
15
to
25
percent
over
last
year
are
not
to fairly weak in many small towns and rural areas such as those in
V-2
West Virginia.
Reports of mixed movements
in
mortgage
interest
rates
and
points suggest little net change in mortgage terms in the last month.
Manufacturing and Mining
District
manufacturing
activity
has
measures and increased marginally by others.
declines
declined
More survey
than increases in shipments and new orders.
marginally
by some
respondents
report
On the other hand, more
respondents report increases than decreases in employment and the workweek.
A majority of manufacturers still expect business to improve, but not
as
many are optimistic as last month.
This month, 58 percent think the econ-
omy will expand during the next six months; last month, 68 percent thought so.
Apparel and textile firms report increased activity over last
they
expect
continued
month,
increases over the remainder of this year.
manufacturers report a decline in activity,
as
do
machinery
and
Furniture
manufacturers,
where capacity utilization is around 50 percent.
Virginia
and
Virginia coal mines have increased production in
West
recent weeks, probably because the
electric
power,
and
because
new
hot
weather
emphasis
has
increased
demands
for
on environmental protection has
increased the demand for low sulphur coal.
Services and Government
Fifty-two
service
sector
survey
respondents
report
last month, as compared with 24 percent who report
in
declines.
Sixty-six percent of the responding service firms expect
in
over
of
increases
increase
sales
percent
sales
to
the second half of the year while only 9 percent expect sales to
V-3
decline.
Forty-eight percent expect a rise in employment over
the
next
six
months, while 7 percent anticipate a decline.
State,
county,
and
city government respondents are concerned about
budget cuts, but indicate that their expenditures have been holding steady
increasing.
government
With
regard to the next six months, 83 percent of the municipal
respondents
expect
a
decline
in
revenue
from
government, and 75 percent expect increases in tax revenues.
expected
to
anticipate
increase
no
or
by
change.
75
percent
Forty-eight
of
the
percent
the
Expenditures are
respondents;
of
the
federal
the
respondents
remainder
foresee
increases in employment, as compared with 26 percent who foresee declines.
Agriculture
Record-setting heat and prolonged drought
damaged
and
District
corn--are
scientists
agriculture
experiencing
expect
insect
in recent weeks.
extreme
damage
to
stress.
have
conditions
severely
Crops--particularly soybeans
In
addition,
be far above normal.
agricultural
The shortfall in
yield due to heat, drought, and insects will result in hundreds of millions of
dollars of losses to crop producers.
The
drought
has
also
hurt
livestock producers.
Cattle are being
marketed long before they reach profitable weights, due to the poor conditions
of
pastures
and
shortages
of
hay.
Shipments of hay from the Midwest have
provided some relief, but heat stress continues to damage
Poultry
stress.
producers
report
higher
death
rates
pastures
and
hay.
among their flocks from heat
VI-1
SIXTH DISTRICT - ATLANTA
The southeastern economy continues to mark time. The unemployment rate is
steady with job gains about offsetting labor force growth.
Industrial activity is mixed
with employment in most manufacturing industries remaining soft, while trade and
services employment continues to register strong growth.
and
residential
construction
are
also
boosting
the
Consumer spending, tourism,
economy,
while
commercial
construction weakens and agriculture and mining experience severe problems.
The
banking industry is performing well even though there are problems in Louisiana.
Employment and Industry.
Labor markets stabilized somewhat in May, with
the region's unemployment rate remaining unchanged from April at 7.8 percent following
three
months
of increases.
Louisiana,
Mississippi,
and Alabama
continue to post
unemployment rates significantly above the national average, while Florida and Georgia
again ranked well below the nation.
Industry employment figures continue to show a mixed pattern. While overall
employment
in
the
textile
and
apparel
industry
continues
to
decline,
carpet
manufacturing is strong, and one large producer recently announced expansion plans.
Defense spending continues to bolster employment throughout the region, but prime
contractors report a fall-off in new contract awards. Lumber exports are increasing with
European buyers of hardwoods again appearing in response to the decline in the dollar
exchange rate. Less positively, industry sources report a recent slackening in demand for
southern pine as a a result of slowing housing starts.
Large oil firms continue to announce layoffs in Louisiana as oil drilling
activity steadily drops to new lows.
Louisiana's rig count is now 60 percent lower than
the severely depressed level of this time last year.
Coal industry executives foresee
more mine closings in Alabama primarily because of a drop in demand as energy users
turn to lower-priced oil.
VI-2
Consumer Spending.
Year-to-date retail sales growth in the Sixth District is
running slightly ahead of the national rate with Birmingham, Nashville, and Mobile
registering the fastest growth among metropolitan areas.
The Atlanta market also
remains strong, while, at the other extreme, sales activity levels in energy-depressed
New Orleans and Baton Rouge continue to be dismal.
Sales of U.S.-made autos improved sharply in June as the weaker dollar, lower
interest rates, and cheaper gas prices stimulated sales. Even so, sales for the first half
of 1986 were below year-earlier levels, with Louisiana registering the largest percentage
decline among District states.
Construction.
After three consecutive
permits fell in May in all District states.
monthly increases, single-family
The performance of different metropolitan
area housing markets in the District varies widely, however.
For example, Miami and
Atlanta builders and realtors continue to report very active markets, with strong demand
bidding up home prices. Meanwhile, home prices are falling in the New Orleans market,
with out-migration of the jobless exacerbating market weakness.
Commercial construction activity around the Sixth District remains disparate,
and differences in construction vigor are widening. With a five-year supply of unleased
office space, New Orleans remains the region's weakest office market, and developers
there see little hope for improvement in the near future.
In other places, such as
Atlanta, Birmingham and Jacksonville, office markets are continuing to expand at a fast
pace.
Nashville is spearheading the region's growth of industrial construction, with
warehouse
construction booming
as the Tennessee
capital develops into a major
distribution center. Retail construction is volatile in all District states.
Financial Services.
The pace of year-over-year total loan growth at large
commercial banks increased in June compared to growth rates a year earlier, due
primarily to an increase
in real estate lending.
Respondents report substantial
VI-3
refinancing of single-family mortgages.
In Jacksonville, however, commercial real
estate lending is rising sharply.
Tourism.
Declines in both the foreign exchange value of the dollar and
gasoline prices continue to boost travel to the Southeast. Increased air fare competition
also is making domestic travel more affordable.
Tourism in Florida, Georgia, and
Tennessee is up strongly, with central Florida faring especially well. Vacation travelers
are reportedly taking advantage of package tour promotions and making multiple short
distance and time trips instead of longer ones.
Agriculture and Non-Energy Mining.
Severe heat and drought are wreaking
havoc in southeastern agriculture with withered crops and pastures, substantial losses of
poultry, and sharp increases in marketing of cattle. Costs of dairy production are rising
as feed becomes scarce.
Georgia, Alabama, and eastern Tennessee have suffered the
most damage, while Louisiana, Florida, most of Mississippi, and western Tennessee have
had more adequate soil moisture.
The situation in Georgia is becoming critical with an
estimated $200 million in damage as of mid-July.
The Southeast's non-energy mineral industries are also experiencing trying
times.
Phosphate production is about 75 to 80 percent of capacity due to reduced
international demand for fertilizer and substantial reductions in planted U.S. acreage.
Granite quarries in Georgia are facing cut-backs in production due to shortages in water
supplies.
VII-1
SEVENTH DISTRICT--CHICAGO
Summary. The pace of activity in the District, overall, continues short of the nation.
Employment in the five states has been about flat since early 1986, compared with growth for the
country as a whole. Illinois and Iowa are about even with a year ago, in contrast with 2-3
percent growth in Indiana, Michigan, and Wisconsin. Hardly anyone is expecting a recession and
1987 is expected to see improvement. Manufacturing jobs have fallen more sharply since January in
the District than the nation. Purchasing managers in Chicago report continued though slower
growth in production through June, but Milwaukee buyers say output, orders, and backlogs have
slipped substantially. Bright spots in the region's economy remain residential building and
sales, and related spending on appliances and furniture. Tourism is up strongly according to
reports from Michigan and Wisconsin. Auto sales are at a high level, supported by manufacturers'
incentive programs, and company projections indicate 1986 will be very close to last year's record
for car/truck sales combined. Heavy trucks are down sharply. Capital goods remain weak.
Nonresidential building remains robust but is beginning to show signs of slipping, particularly
renovation work. A diversified producer of consumer and industrial goods indicates that the
improvement in demand expected in most lines has not developed. The District has seen excellent
crop growing conditions, in contrast with the devastating drought in the Southeast. Crop prices
have declined sharply in recent weeks, in anticipation of a large harvest. Livestock prices have
risen, and livestock farmers are also benefitting from lower feed costs. District farmland values
continued to fall in the second quarter, but not as fast as in earlier quarters.
Residential Construction. The residential building boom continues in many parts of the
District, sparked by lower mortgage rates, though some areas remain depressed. Contracts, in
square feet, in the five states were up 31 percent in the first half from a year ago, but to about
two-thirds of the 1978 level. In the Chicago area, both single-family and apartment construction
are sharply higher this year. Apartment vacancies are described as low here, in contrast with
some other parts of the country. Heavy resales and refinancings continue to tax facilities. A
large backlog of mortgage loan applications slows processing and closings. There are few takers
VII-2
for adjustable rate loans, quoted at rates as low as 7.75 percent in the Chicago area versus
around 10.5 percent commonly quoted on 30-year fixed-rate loans.
Nonresidential Construction. There are signs of emerging weakness in commercial
construction.
Work on new office buildings continues at a very vigorous pace, but starts on
several large commercial buildings in the Chicago area have been delayed recently. Some have been
rebid, with new bids often lower. Renovation of existing commercial structures has slowed. Some
observers are increasingly concerned about rising vacancies at the many suburban "strip" shopping
centers currently under construction or built in recent years. Others are optimistic that the
vigorous rise in residential construction is creating a need for this additional retail space.
Demand has picked up for Chicago-area industrial space, primarily for warehouse and distribution
use rather than manufacturing.
Speculative building has increased, from very low levels a few
years ago. District-wide nonresidential construction contracts in this year's first half were 17
percent above a year earlier, in square feet, with only Iowa lower.
Consumer Spending.
A major general merchandise retailer reports that sales have continued
at good levels, with appliances and home furnishings strong, and apparel relatively weak. The
share of goods bought on credit has fallen slightly, and credit delinquency rates are down
moderately.
Wisconsin tourism officials say activity and inquiries are up 7 to 30 percent, and
expect a "banner year". Airline travel (revenue passenger miles) is up helped by lower fares.
Motor Vehicles. Sales of autos and light trucks remain near record levels, supported by low
interest rates offered by captive finance companies of major auto makers. These cut-rate
financing programs are placing strains on various groups. An auto leasing company complains that
it can no longer sell its used cars profitably because demand has been diverted to new cars. A
trade group of consumer lenders is seeking to have the programs declared illegal on
anti-competitive grounds. Sales of medium trucks are ahead of a year ago, but heavies are down to
a rate of around 120,000 units, versus 140,000 last year. Deregulation has greatly improved
efficiency in trucking. As current heavy truck production is far short of industry capacity,
shutdowns of 2 plants in other parts of the country may do little to ease pressures on District
producers.
VII-3
Steel. Order trends suggest a "normal" seasonal decline in mill shipments from the second
quarter to the third. For the year, an industry analyst expects shipments nationally to decline
to about 72 million tons this year from 73 million in 1985. Raw steel production is expected to
fall more because of increased use of continuous casting, which yields a higher ratio of finished
product. The share of raw steel produced in the Seventh District this year (approximated by
AISI's Chicago and Detroit districts, through mid-July) has slipped to 36.1 percent of the nation
from 36.7 percent in 1985. Steel for autos and construction continues at good levels, capital
goods remain weak, and the oil/gas market is in a state of collapse. Customers have been shifting
orders away from steel companies that have not settled their labor contracts--currently, USS.
Industry observers view the bankruptcy filing by LTV Corp as ominous for a relatively inefficient
large Chicago mill.
Capital Goods. Sales of capital goods remain weak. Machine tool orders, which had
recovered partially from recession lows, have again dropped below shipments, eroding backlogs.
Recent weakness is attributed partly to uncertainties over tax law changes. A major District
machine tool maker has announced further substantial staffing cuts. Sizable layoffs also have
recently been announced or are expected at a producer of paving equipment and a maker of lift
trucks in the District. Markets for industrial diesels remain very depressed.
Agriculture. District farmland values declined again in the second quarter, but the rate of
decline continued to slow. Preliminary results from our latest survey of agricultural bankers
indicate that District farmland values declined nearly 2 percent in the three months ending June
30. The latest drop compares to declines of 3 percent in both the first quarter and the fourth
quarter of 1985, and 4.5 to 6 percent in the first three quarters of 1985. Credit conditions at
District agricultural banks reflect weak farm loan demand, ample liquidity for lending, a high
proportion of problem farm loans, and declining interest rates. As of midyear, interest rates
charged by agricultural banks on farm operating loans averaged just over 11.75 percent, down 85
basis points from 6 months earlier and 110 basis points below a year ago.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Summary
The expansion of the Eighth District's economy is slowing
slightly with growth of employment, retail sales and construction
trailing that of the nation.
District banking activity is characterized
by strong commercial lending and slower growth of consumer and real
estate loans.
Crop conditions remain good to excellent in most District
states.
Employment
Nonagricultural employment grew at a 2.0 percent annual rate in
the three months ending May, slightly below the 2.1 percent national
rate.
Manufacturing employment declined at a 2.2 percent rate during the
same period.
Although District nonmanufacturing employment has increased
steadily throughout the current recovery, employment in the manufacturing
sector has not changed substantially since mid-1984.
The District
unemployment rate declined to 7.5 percent in May from 7.6 percent in
April while the national jobless rate increased slightly during the
period.
Consumer Spending
Despite strong April growth, District retail sales decreased at
a 6.3 percent rate in the February-April period compared with a 2.3
percent national growth rate.
A survey of major retailers in the
VIII-2
District's largest metropolitan areas suggests that second quarter sales
were strong in St. Louis and Louisville compared with year-ago levels,
moderate in Memphis (approximately 5.0 percent higher) and weak in Little
Rock.
Respondents anticipated continued third quarter strength in St.
Louis and Louisville while the outlook for the other areas was
uncertain.
Several retailers reported that the declining value of the
dollar has resulted in only slight increases in the prices of goods
imported from Japan and Western Europe; exporters apparently have limited
price increases and narrowed their profit margins in order to maintain
their share of the U.S. market.
Construction
The value of District residential construction contracts awarded
in the second quarter declined by 8.4 percent compared with a 14.0
percent increase nationally.
Despite the recent decline, this indicator
is 6.0 percent above its year-ago level.
Building permit data from the
District's major metropolitan areas indicate that, while single-family
housing exhibited strong growth in recent months over year-ago levels,
multifamily building has declined.
Nonresidential construction activity in the District increased
by 0.2 percent in the second quarter compared with 11.9 percent national
growth.
In contrast to the District's stagnation, nonresidential
construction increased by 29.3 percent in Tennessee during the period.
VIII-3
Banking
Total loans outstanding at large District banks grew at a 7.9
percent annual rate for the second quarter compared with a 6.7 percent
rate for the same period last year.
Second quarter loan activity saw an
acceleration in commercial lending being offset by a slowing in the
growth of consumer and real estate lending.
Commercial loan volume grew
at a 12 percent annual rate over first quarter levels versus a 2.5
percent rate for the same period in 1985.
The Memphis and Louisville
markets, in particular, have experienced strong growth in commercial
loans as a result of some large banks becoming very active in loan
participations originated by New York City banks.
In contrast, consumer
loans grew at only a 12.4 percent rate during the second quarter relative
to a 28.5 percent rate over the same period last year.
Agriculture
Crop conditions are rated good-to-excellent in most District
states as a result of favorable weather throughout the planting and
growing season.
The corn and soybean crops have enjoyed nearly ideal
growing conditions in Illinois, Indiana and Kentucky and are two to three
weeks ahead of normal development.
Crops in western Tennessee have
progressed at a near-average pace but are more vulnerable to moisture
shortages than are the northern agricultural regions of the District.
Northern Mississippi and Arkansas report crop conditions as below-average
to average due to late planting and moisture shortages.
Both areas note
that timely rains could still result in very satisfactory crops.
IX-1
NINTH DISTRICT - MINNEAPOLIS
Ninth
months.
Some
District
conditions
have
not
changed
much
in
the
last
employment indicators have continued to move favorably.
sumer spending may have softened a bit, but still is not weak.
continuing
with problems
Con-
The tourist
Resource-related industry
industry still seems to be having a good summer.
performance remains mixed,
few
in
sec-
the extractive
Little has changed in agriculture except meat animal prices, which have
tors.
increased.
Employment
Unemployment
overall
district
rates
in the Ninth District
(seasonally
adjusted)
percent in April to 5.8 percent in May.
dropped
to
district's
5.4 percent,
improvement
its
is
are
unemployment
still
rate
falling.
dropped
from
increase
significantly
lowest level
encouraging, it
in
6.2
During that period, Minnesota's rate
since September 1981.
does
not
While
indicate growing
demand; the rate drop was primarily due to a decline in the labor force.
did
The
the Minneapolis-St.
Paul metropolitan
the
labor
Jobs
area,
though, which helped ease the stress of workers who have migrated there from
more
troubled
parts
of
the
district.
District Bank directors report
that
other metro areas showing some employment strength were the Sioux Falls area
of South Dakota and the La Crosse-Eau Claire area of west central Wisconsin.
Consumer Spending
Overall, retail sales of general merchandise have been a bit on the
soft side lately, but they are probably still ahead of last year's pace.
One
retail chain reports that its recent sales have stayed in line with expectations.
A Bank director notes that sales have been good in the Fargo and Grand
IX-2
Forks areas of North Dakota, but that this success was probably at the expense
of smaller surrounding cities.
Another director reports that the outlook at a
large mall in Duluth, the largest city in hard-pressed northeastern Minnesota,
is bullish.
Sales
of motor
vehicles
domestic manufacturer reports
generally held
firm in June.
One
large
that its car sales were 3 percent higher this
June than last, and while its truck sales were down 10 percent, it only has
about two months of truck inventories on hand.
The most recent reports indi-
cate that district vehicle sales early in July were 20 percent ahead of sales
a year earlier.
Scattered reports indicate that housing activity has remained strong
in the Minneapolis-St. Paul area, but may have weakened in some other parts of
the district.
In
the
Twin Cities, residential
building contracts were
55
percent higher this May than last and home sales were 17 percent higher this
June than last.
Also, members of this Bank's Advisory Council on Small Busi-
ness, Agriculture, and Labor report housing growth in Baldwin, Wisconsin, and
Fargo, North Dakota.
But directors of this Bank's Montana branch note slack
housing markets in the Bozeman and Billings areas.
Tourism
The
tourist industry,
an increasingly important sector of the dis-
trict economy, is having a good summer.
Tourism-related employment in South
Dakota, for example, grew more than 47 percent in the last 10 years--much more
than
twice
the
growth
rate
of nonfarm employment
Montana is currently 20 percent ahead of last year.
appears to be up throughout the district.
there.
Group
travel
in
Attendance at campgrounds
Bank directors report that tourist
travel to the Upper Peninsula of Michigan and northern Minnesota is good; many
IX-3
Canadians have
been passing
through Minnesota on their way to
the Expo
in
Vancouver.
Resource-Related Industries
The performance
mixed.
of major resource-dependent sectors continues to be
A Bank director reports
strong
demand for wood
products--including
pulp, paper, lumber, and waferboard--although prices haven't increased.
Indi-
cative of this strength, a Canadian company plans to build a $10 million wood
fiber sheeting plant in International Falls, Minnesota.
This would partially
replace the jobs lost when a U.S. corporation closed a siding plant there in
December 1984.
However, the district is doing very little drilling and almost
no exploration for oil and gas, in either Montana or North Dakota.
even some producing wells are being capped.
oil
prices,
coal prices have dropped
In fact,
And in conjunction with falling
10 percent
in Montana.
bankruptcy of a large national conglomerate has
Further,
the
resulted in the closing of
another, jointly owned, iron ore processing plant in northeastern Minnesota.
The surviving owner has
lessened the impact,
though, by announcing plans to
triple raw ore production-at a mine in that region.
Agriculture
Agricultural conditions remain nearly the same as a few months ago.
Crop conditions still look good, and crop prices are still low.
This Bank's
latest survey of district rural lenders indicates that farm earnings and land
values continued to decline in the second quarter, although the respondents'
loan portfolios didn't deteriorate much further.
prices are being eased somewhat by government
fuel
and fertilizer
costs.
Problems caused by low crop
deficiency payments and
lower
And a Bank director reports significant recent
strengthening in cattle and hog prices, the former occurring despite increased
cow sales resulting from the dairy buy-out program.
TENTH DISTRICT - KANSAS CITY
Overview.
Economic activity in the Tenth District appears to be
generally sluggish.
Significant weakness continues in the energy and
agricultural sectors, but housing activity is strong.
reported to be below year-earlier levels.
Retail sales are
Both retail inventories and
manufacturers' inventories of materials inputs are being trimmed, an action
expected to continue through the year.
Loan demand at commercial banks is
mixed as consumer and agricultural loan demand is down while residential real
estate loan demand is up.
Wheat yields were somewhat above average, and a
large corn crop is expected that will put further downward pressure on corn
prices.
Retail trade.
Retailers report year-to-date sales slightly below levels
established last year.
Sales are expected to increase seasonally through the
rest of the year due to upcoming back-to-school and Christmas buying activity.
Prices, which have been stable the past three months, are expected to increase
slightly.
Retailers generally are trimming inventories slightly and expect to
do so through the rest of the year.
Automobile sales.
Auto sales are down slightly from last year, but
dealers expect this small sales slump to bottom out in the near future.
credit conditions exist, but they are helping sales only slightly.
Good
Most
dealers are trying to trim inventory levels, now viewed as a little high.
Purchasing agents.
In general, purchasing agents report slightly lower
input prices, high inventory levels, and adequate availability of materials.
Most purchasing agents surveyed report input prices somewhat lower than a year
ago.
However, they also report that prices have stabilized or risen slightly
in the last three months.
the rest of the year.
Expectations are mixed regarding price changes for
Most firms have been trimming inventories and expect to
continue to trim throughout 1986.
Housing activity and finance.
Area homebuilders report that starts of
single family dwellings have increased sharply over the year ago period, while
multifamily starts have increased to a lesser extent.
Most homebuilders
expect housing starts to remain strong during the remainder of the year.
Sales of new homes are near year ago levels, and new home prices have remained
steady.
Builders also report good availability and steady prices of
materials.
Savings and loan institutions have generally experienced slightly lower
savings inflows this year compared with a year ago.
Most expect savings
inflows through 1986 to remain flat or fall slightly.
Mortgage activity
continues to be strong, but is not dominated by demand for refinancing to the
extent that it was earlier this year.
Mortgage interest rates have been
steady and are expected to remain stable at current levels for the rest of the
year.
Energy.
The substantial drop in oil prices in early 1986 and recent
price volatility continue to plague the district's energy industry.
Exploration and development activity remain depressed.
The average weekly
number of operating drilling rigs in the Tenth District was 200 in June,
compared with 550 in January and 221 in May.
Further declines in drilling and
production are likely in the near term if oil prices remain soft, as expected.
Agriculture.
The wheat harvest is completed in the Tenth District
except in Wyoming and Nebraska.
in most of the district.
Yields reported were average to above average
Growers are expected to place much of this year's
wheat crop in storage under Commodity Credit Corporation (CCC) loans.
Storage
space for the crop is reported to be generally adequate.
Ample rainfall points to excellent crops of corn, milo, and cotton.
corn crop is approximately two weeks ahead of schedule in the district.
A
The
X-3
burdensome inventory of corn from previous crops and expectations of an
exceptionally large crop in the making have forced the price of corn to lifeof-contract lows on the Chicago Board of Trade.
Of increasing concern to corn
growers and their lenders is a critical shortage of storage space for the
current crop.
In some cases, grower efforts to place corn in storage under
CCC loan may be thwarted by a lack of available storage space, forcing the
sale of the grain at low harvest-time prices.
Rural communities remain under strain in the district.
Bankers report
that the pace of farm acquisition through foreclosure was the same or higher
In addition, business conditions for local merchants are
than a year ago.
generally described as depressed.
Banking.
Loan demand at Tenth District banks was mixed during the past
month, with nearly equal numbers of surveyed banks reporting increased loan
demand, lower loan demand, and unchanged loan demand.
Among loan categories,
demand for consumer loans and demand for agricultural loans were down, while
demand for residential real estate loans was up.
Demand for commercial and
industrial loans and demand for commercial real estate loans were higher at
some respondent banks, and lower at others.
Most banks lowered their prime
rate one-half percentage point; the rest expect to do so shortly.
also lowered their consumer lending rates.
or unchanged deposit activity.
savings accounts increased.
almost uniformly.
Most banks
Most banks report either increased
Demand deposits, NOW's, MMDA's, and passbook
Large CD's and small time deposits were down
XI-1
ELEVENTH DISTRICT--DALLAS
The Eleventh District economy is still in a slump, but the rate of
decline is decelerating.
Drilling activity, which has been falling rapidly
since early 1985, has stopped declining.
construction values has moderated.
Auto and retail sales are weak.
The protracted slide in contract
Manufacturing output is still falling.
Assets of large banks are below a year
earlier and loan demand is ebbing.
Agricultural prices remain below a year
ago.
District manufacturers are generally reporting poor business
conditions as a result of weakened demand from the energy and construction
sectors.
Primary metal and nonelectrical machinery producers are
particularly affected by declines in orders from firms in the energy
sector.
Although falling oil prices have reduced input costs to District
chemical manufacturers, some note that sales are off because of reductions
in demand from energy firms.
Among producers of stone, clay, and glass,
lumber and wood, and fabricated metals, brisker construction activity
outside the District has partially offset reduced orders from builders
within the District.
Electrical machinery firms report low sales growth
and slumping prices resulting from weakness in manufacturing demand.
Stiff
foreign competition is holding down prices in the apparel industry.
Orders
for paper and allied products are falling.
The drilling rig count in the District states stabilized in July,
but it is almost 70-percent below a year earlier.
Reductions in both
drilling permits and the seismic crew count continued, suggesting that
future declines in the rig count are likely.
XI-2
The value of construction contracts has begun to stabilize, after
a fairly steady decline that commenced in the third quarter of last year.
Nevertheless, residential, nonresidential, and nonbuilding construction
contract values remain well below a year earlier, with particularly large
year-to-year declines in office building construction.
Office vacancy
rates in all major District cities have risen significantly in the last few
months, owing to a combination of slow absorption rates and a large
increase in the supply of office space.
Respondents report concern over
the financial health of office projects not only because of high vacancy
rates, but because of an increasing rate of bankruptcies among District
tenants.
Despite stable residential contract values, the number of
residential building permits has fallen.
Single-family home permits have
continued to edge down, while multifamily building permit activity is
plummeting.
Dealers say that auto sales are declining, in part, because of
overall economic sluggishness in the District.
They also note that high
sales volumes in recent years have drastically lessened the average age of
the existing automobile fleet, so that the need to replace older vehicles
is reduced.
Retail sales are below last year's level.
broad-based across product lines.
Declines are
Particularly significant weakness was
reported by respondents in the energy-dependent portions of the District.
The depreciation of the dollar against some currencies has resulted in
increases in the prices of consumer electronics products.
At the District's large banks, loan volume is below a year
earlier.
While business and other loans have declined absolutely, real
XI-3
estate loan volume continues to expand, although at a markedly decreased
rate.
According to respondents, the growth in real estate loans is chiefly
from take-downs on outstanding commitments on projects already under
construction and out-of-state projects developed by locally-based
borrowers.
Bankers say they have tightened restrictions on loans for land
purchases and construction.
since a year ago.
Total deposits have declined significantly
The sharpest drop has been in large time deposits, but
demand deposits also have contracted.
Total liabilities declined in June
from a year earlier, despite a large increase in borrowings.
Texas savings
and loans continue to increase their deposits, but year-to-year growth has
slowed considerably, particularly in large time deposits.
District crop and livestock prices are down significantly from a
year earlier and the perception is widespread that income prospects for
farmers and ranchers are unlikely to improve this year.
Increased payments
from government programs this year are not expected to offset the impact of
lower crop prices.
quarter.
Agricultural land values plunged during the second
Declining oil and gas prices have affected the debt service
capability of over 20 percent of borrowers in the agricultural loan
portfolio of bankers responding to a recent survey in the District.
XII-1
TWELFTH DISTRICT -
SAN FRANCISCO
Summary
The
Twelfth
residential
weakness
economy
other
and
sectors.
now
is
Retail
either
flat
Manufacturing
activity remains
appear
emerging
to
be
expected.
its
Oil
family
Many lenders,
refinancing
growing
from
sales
or
slow.
their
industry problems
downward slide.
single
is
construction, trade, and service
in
somewhat,
District
modestly,
sectors
growth
growing
The
home building
overwhelmed
received
and
continue to mount.
accelerates
of
to
to
in
but
more
has
been
mixed.
modest
annual
have
outweigh
most
areas.
industries
slowly
than
Agriculture continues
altered
strong,
building
loan applications
spring,
the
slowed
activity remains
the
in
have
high-tech
while multifamily
by the volume
during
appears
slumps,
Residential construction
growth
continues
modestly
lumber
respective
as
for
their
as
slows.
mortgage
application
procedures for these loans.
Consumer Spending
Retail
California
However,
sales
and
total
activity
Washington
report
sales are flat
or
Respondents
growth
only slightly higher
of
in
3 to
than
coastal
5 percent.
last
year's
in
Utah, Oregon, Arizona, central California, and Alaska.
Available
information continues
related
industries in
tourist
traffic
Reports
from Alaska
state
there.
this
was
the West will
12
percent
to
suggest
as
expected, tourist
post strong gains this
higher
in
suggest that a record
summer, providing
that,
May
than
it
summer.
was
in
May
number of visitors will
a welcome boost
to the
Oregon
oil-dependent
1985.
see that
economy
XII-2
Manufacturing and Mining
The
aerospace
industry remains
strong,
bouyed
sales and as yet unreduced defense contracts, but
most
manufacturing
demand
have
sectors
not
yet
for lumber and wood products has
by commercial
aircraft
expected improvements
materialized.
Although
in
greater
increased western lumber production
by 8 to 10 percent during the past year, prices have dipped during the past
Consequently,
few months.
no
longer
cut
costs
by reducing
wages
The condition of western high technology companies
and modernizing plants.
is
continue to
firms
deteriorating,
but
the
long-awaited
upturn
has
not
yet
arrived.
Low oil
the
prices
Twelfth
California,
oil
major
District.
only
30
company
take their
continue to
One
laid
respondent
of
percent
off
oil
100
reports
are
rigs
additional
revenues have already led
state oil
toll on oil
producing areas
that
in
operating.
employees
last
Kern
In
County,
Alaska,
one
Reduced
month.
percent wage cut
to a 15
in
for Alaska's
state workers, and layoffs or further wage cuts may follow.
Agriculture
In
most
parts
of
the
Twelfth
District,
continue to hamper farm profitability.
prices
have
been
particularly
agricultural
low
prices
In Idaho, where low milk and potato
problematic,
one
sign
of
is
weakness
that
seasonal growth in agriculture loans is only one sixth of last year's pace.
In Oregon, yields
expected
grapes,
to
be
apples,
promising.
of major
high,
but
crops
prices
and berries,
including wheat,
remain
prices
low.
For
are adequate
rye,
a few
and
seed are
and grass
the
crops,
including
outlook
is
more
XII-3
Construction and Real Estate
In most
strong,
parts
of
the District,
although most
areas
that
residential
experienced
construction
a strong
activity
burst
of
activity
this spring have reported some slackening during the past two months.
report
respondents
building
by
localities.
a
that
wide
single
family
building
There
is
margin.
In Arizona and Utah,
is
however
outpacing
wide
is
Most
multifamily
variation
among
single family permits are running 20 to
30 percent ahead of last year's level, while multifamily permits are down
20
to
50
percent
fallen
percent.
higher
by
a
In
than
Oregon,
they were
similar
amount.
single
last
The
family
year,
San
permits
but
are
multifamily
Francisco
and
Los
some
5
to
permits
Angeles
10
have
areas
however report single family building up 10 to 15 percent, but multifamily
construction
up
by
40
to
60
percent.
In
these
areas,
strength
in
multifamily permits is attributed to the effects of mortgage revenue bonds
and tax reform, and most respondents expect building activity to slow soon.
Financial Sector
In
demand
the
wake
remains
staff
time has
and
bottlenecks
last
strong,
past few months.
approval
of
and has
home
buying
even increased
spree,
in Los
loan
residential
Angeles
during
the
Banks have been deluged by refinancing applications and
risen
streamlined
arise
spring's
dramatically.
application
in appraisals
banks' direct control.
Most banks
procedures,
and credit reports
have hired
but
the
additional
most
severe
which are outside
the
Banks are faced with falling rates and increasing
time between application and approval.
In addition, some consumers
"shop
XII-4
around" their applications, multiplying bank workloads.
banks have shortened commitment periods
As a result, most
and few still offer rate lock-ins
upon application. - In addition, many now require a nonrefundable "sincerity
deposit,"
paid upon application, that is applied to processing fees if the
loan is closed.
Although no banks reported
increasing mortgage contract
rates to reduce loan demand, a few have increased origination fees.
Cite this document
Federal Reserve (1986, August 18). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19860819
@misc{wtfs_beige_book_19860819,
author = {Federal Reserve},
title = {Beige Book},
year = {1986},
month = {Aug},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19860819},
note = {Retrieved via When the Fed Speaks corpus}
}