Beige Book
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
JUNE 1987
TABLE OF CONTENTS
SUMMARY......................................................
i
First District - Boston...... ...............................
I-1
Second District - New York...................................
II-1
Third District - Philadelphia................................
III-1
Fourth District - Cleveland.................................
Fifth District - Richmond.....................................
IV-1
V-1
Sixth District - Atlanta....................................
VI-1
Seventh District - Chicago...................................
VII-1
Eighth District - St. Louis..................................
VIII-1
Ninth District - Minneapolis.................................
IX-1
Tenth District - Kansas City.................................
X-l
Eleventh District - Dallas...................................
XI-1
Twelfth District - San Francisco.............................
XII-1
SUMMARY*
Most Federal
Manufacturing
orders
price increases or
near
Reserve
capacity,
and
Districts
in
moderate
buildup.
part
to
Lumber
an
despite
mortgage
and
High
vacancy
rates
production
expansion
construction continues at a steady pace
rates.
economic
growth.
shipments continue to grow, with few reports of
inventory
due
report
of
the
is
operating
exports.
recent
Housing
increase
in
the new tax laws have reduced
commercial construction.
Most
agricultural
increases
for
in
cattle
sectors
and
and
hog
producers,
coal
producers
below last year's levels.
areas
as
crop
The
energy
report
that
However, oil
domestic oil prices rise.
appears to be slowing.
and
higher
also weak.
depressed.
Although
recent
beef and hog prices have generated short-term earnings gains
oversupply and low prices.
Oil
remain
interest
Higher
farmers
sector
still
face
also
remains
problems
of
depressed.
drilling and mining operations are
drilling
has
increased
in
some
Growth in retail and automobile sales
prices,
increased
consumer
rates are the major reasons cited.
Strong demand for commercial and
real
estate
indebtedness,
Loan activity is
loans
has
not
been enough to offset the reduction in the volume of consumer loans.
RETAIL
Growth
in
retail
sales
appears
to
be slowing in many districts.
Dallas and San Francisco continue to report generally sluggish sales,
*Prepared at the Federal Reserve
gathered prior to June 15, 1987.
Bank
of
Cleveland
from
information
and
Boston
while
indicate wide variations in sales activities
Cleveland
Most Districts report
among various retail chains.
prices,
especially
among
imported
goods.
in
increases
Boston's inquiries about the
reasons for price increases reveal two primary sources: import
the
decline
in
increases in
the
the
dollar.
prices
Strong
at
which
apparel
demand
quotas
for
are
quotas
and
apparel is leading to
bought
and
sold
among
overseas manufacturers.
Also,
quotas
provide
the incentive for foreign producers to import
more expensive lines of clothing.
has
been
felt
of
the
dollar
most strongly on prices of imports from Japan and European
countries, whose currencies
Prices
The decline in the value of
domestically
have
appreciated
produced
as prices of imported apparel.
most
against
the
dollar.
apparel have also risen but not as much
Much of
the
domestic
price
increase
is
due to domestic textile mills running near capacity.
Automobile
sales
are
sluggish
in
most Districts.
Minneapolis District report that automobile sales
in
May
than
a
year
ago.
Weak
producers.
prices,
and
As
current
yet,
domestic
production
by
raising
prices.
production
auto
schedules
The declining value of the dollar has
sales
20
percent
lower
auto sales raise the prospect for more
aggressive sales incentives and further
auto
were
Dealers in the
Import
dealers
have
cutbacks
have
by
not
domestic
discounted
stabilized inventories.
significantly
reduced
import
auto
dealers report declining profits, and
inventories increased considerably in May.
MANUFACTURING
Manufacturing continues to show
report
increases
in
orders
and
signs
shipments
of
and
growth.
moderate
Many
Districts
reductions in
iii
inventories.
Boston reports
industries
are
that
experiencing
improvement in the durable-goods
activity
in
both
nondurables.
increases.
sectors,
as
and
traditional
Philadelphia
and
Richmond
indicates
finds
increased
Employment, however, has shown little gain.
many areas, employment is limited
such
high-technology
to
replacement
hiring.
Other
In
areas,
Minneapolis and St. Louis, report employment losses over the past
month or two.
The effect of the depreciation of
still
mixed.
gain
in
Francisco,
Boston
domestic
on
reports
orders
the
other
the
dollar
In
to
an
easing
example,
is
of
import
competition.
San
hand, finds that manufacturers of some products
strengthening
in
sales
and
general, strong domestic demand appears to be the major force
behind improvement in manufacturing.
for
manufacturing
that none of its respondents attribute the
that compete against low-cost imports report
orders.
on
appears
The
increase
in
steel
production,
to be attributable to increases in construction and
in oil drilling operations, despite cutbacks in automobile production.
Most districts report that input prices are stable.
upward
price
pressure
as
certain
products,
There
is
some
especially steel products,
continue to be in short supply.
Capital
Districts.
spending
Chicago
is
reported
reports
sizable
to
be
moderately
high
by
some
investments in upgrading facilities
in the traditional, heavy-manufacturing industries.
ENERGY
The
domestic
energy
sector
crude
oil
remains
prices.
exploration and development are
depressed,
Atlanta
below
and
levels
despite
Kansas
of
a
the
City
year
increase
report
ago.
in
that
Dallas,
however,
that
reports
In May, the rig
to increase.
continues
drilling
count was only 4 percent below a year ago, and it was above the
earlier
months
in
recent increase in domestic oil prices is
The
1987.
of
levels
expected to sustain this trend.
Coal production has increased slightly
Atlanta
and
in
but
both
Richmond report that output is below last year's level.
Some
coal producers anticipate that the increase
in
recent
oil
weeks,
prices
may
help
to
shore up demand.
AGRICULTURE AND FORESTRY
Although
a
few agricultural sectors have shown signs of improvement
in recent months, conditions are still generally depressed.
cattle
and
of
earnings
are mixed.
being
hog
prices
cattle
and
lower
and hog producers.
Atlanta and Chicago
rebuilt
and
feed
report
costs
expanding
that
hog
and
and
short-term
cattle
herds
are
Kansas City, on the
that feedlots are presently full.
capacity
raised
in
However, prospects for the future
other hand, indicates that while feedlots are near
are
have
Increases
few
capacity,
feeders
cow-calf and stocker-cattle operators do not
appear to be adding to their herds.
A
Most Districts report favorable crop conditions.
spring
has
allowed
crop planting to be finished ahead of schedule.
development appears good, although St. Louis reports that
may
reduce
wheat
relatively
yields by as much as 20 percent.
its
dry
dry
Crop
spring
Crop prices, although
slightly higher in the past few months, are anticipated
to
fall
back
to
around the government subsidy levels.
Lumber
production
in
the
Pacific
Northwest
capacity, primarily due to strong demand from
China,
is running near peak
Japan,
and
Europe.
hikes
interest-rate
Recent
the volume of orders in
reduced
temporarily
April, but orders have picked up as mortgage rates have stabilized.
CONSTRUCTION AND REAL ESTATE
Residential construction remains strong in all Districts
Dallas
and
has had
St.
little
Districts
Louis.
effect
continue
The
on
vacancy
housing
activity.
Housing
higher
generated
rates,
interest
New
York
City
area
continues
to
many
New York reports
additional
demand.
the new tax laws have
and
caused a slowdown in commercial construction in many
the
in
starts
to run ahead of last year's numbers.
rates,
for
jump in mortgage rates during April and May
that anticipation of further rate increases
High
except
Districts.
experience
However,
brisk
commercial
construction activity.
FINANCE
Growth in loans and
real
estate
loans
remain
fallen off substantially.
consumer
loan
demand
to
deposits
is
strong,
Some bank
the
but
generally
additional
borrowers,
contacts
marketing strategies, which include
to
offer
loans
with
variable
available from home equity loans.
attribute
auto
banks
increased
rates,
and
the
decline
in
of home equity loans, high
attractiveness
several
Commercial
the volume of consumer loans has
consumer indebtedness, and competition from
attract
weak.
finance
have
companies.
pursued
advertising
To
aggressive
and
proposals
similar to financing arrangements
Some banks
have
lowered
(or
plan
lower) rates on their fixed-rate loans in order to be more competitive.
to
FIRST DISTRICT - BOSTON
Economic activity in the First District remains at a high level,
although the composition of activity may have changed a little.
The retail
experience has been mixed, with some merchants facing flat sales and others
enjoying large increases.
results have been stronger.
Poor weather depressed sales in May; early June
Manufacturing respondents reported a fairly
broad-based pickup in orders in the past couple of months.
This increase
is attributed to domestic demand, rather than an improving trade
situation.
are not.
While retailers are seeing rising import prices, manufacturers
Employers throughout the District are experiencing difficulty
attracting and holding workers, particularly at the entry level.
Retail
Sales results continue to be mixed in the First District.
Some
chains report sales level with last year; others have seen increases of up
to 22 percent in recent months.
Several contacts mentioned a noticeable
pickup in the first week or two of June after a lackluster May.
Inventories have been kept in line with sales.
Some prices, notably
apparel and lumber, are rising; so are local labor costs.
The weather in New England was poor in May and sales generally
suffered as a result.
This was particularly true of seasonal items, which
reportedly picked up markedly as the weather warmed at the end of the
month.
One store experienced a sudden drop in sales of major appliances in
I-2
the middle of April which has not yet been reversed; another, however, said
appliances advanced well while sales of homebuilding supplies declined.
A number of merchants reported difficulty in keeping stores and
home offices fully staffed.
Turnover is rising ("because it is so easy for
employees to find new jobs") and it is difficult to hire new employees,
especially at the lower-paid end of the market.
Forecasts for the remainder of the year are closely tied to recent
performance.
For stores performing poorly, this represents a more negative
outlook compared with earlier this year.
Apparel Prices
Because of the sizable apparel price increase in the CPI, inquiries
about the sources of this increase were made among First District
retailers.
These retailers report that apparel import prices are rising
substantially (10-25 percent compared to a year earlier); they lay the
blame for these increases on both the quota system and the decline in the
value of the dollar.
Prices of domestically produced apparel are
increasing more gradually; these domestic price increases are attributed to
rising textile prices.
Strong demand for apparel is leading to increases in the prices at
which quotas are bought and sold among overseas manufacturers.
Also,
because the quotas limit the quantity (not value) of goods that foreign
producers can send to the United States, the items now imported include
fewer inexpensive goods.
While the decline in the value of the dollar has
had its strongest effects on the prices of imports from Japan and Europe,
quotas also affect goods from countries with no currency appreciation
relative to the dollar.
In addition, the appreciation of the yen has
contributed to price increases for Korean and Taiwanese apparel, because
many producers in these countries buy their fabrics from Japan.
Both imported and domestic textile prices are rising.
Prices for
imported textiles are rising because of the decline in the value of the
dollar (Japan and Europe) and because of quotas (Hong Kong, Korea,
Taiwan).
Domestic prices are rising because demand is up and domestic
textile mills are running near capacity.
Manufacturing
Respondents from the manufacturing sector have seen an increase in
orders in the past month or two.
Most of these contacts are producers of
capital goods, but within this group the increases have been broadly
based.
Manufacturers of both high technology products and more traditional
capital goods have experienced increases.
for the improvement.
Domestic demand is responsible
Reports on exports were mixed.
One contact in the
instruments industry reported that exports to Europe have been strong since
1986; however, another contact, from a firm that is very active in
international markets, described exports as disappointing.
None of the
respondents attributed the pickup in domestic orders to an easing in import
competition.
Japanese competitors are said to be resisting raising prices
and are holding on to market share tenaciously.
Most respondents are also
holding the line on prices and in a couple of cases prices are being
reduced.
Because of the lag between orders and shipments, several contacts
have quite low shipment volumes.
A couple have had small layoffs
recently.
Hiring is limited to replacement hiring; none of the firms
contacted is increasing the size of its workforce.
Capital spending levels
are considered to be fairly high, although not necessarily higher than last
year.
On balance, manufacturing respondents have become a little more
positive about the outlook for the next six months to a year.
Outlook
The New England Economic Project (NEEP), a non-profit organization
comprising businesses, government agencies and educational institutions,
held its semi-annual outlook conference at the end of May.
The NEEP
forecasts for the six New England states, taken together, call for
nonagricultural employment in the region to increase at a slightly faster
rate in 1987 and 1988 than the 2.6 percent rate of growth experienced in
1986.
Growth will be more balanced, with manufacturing employment
stabilizing in 1987 and increasing slightly in 1988.
Nonmanufacturing
employment will grow strongly but not quite so strongly as in the past
couple of years.
percent.
The unemployment rate in the region will remain around 4
Representatives from all six states spoke of the difficulties
employers are having finding workers.
All kinds of businesses,
manufacturing and services, are experiencing difficulty attracting and
holding on to staff, especially at the entry level.
II-1
SECOND DISTRICT--NEW YORK
The modest uptrend in the Second District economy continued in recent
weeks.
Most retailers had sales gains that were at or above plan, and residen-
tial construction remained strong.
Business activity showed some improvement,
and demand for office space was generally good.
Small and mid-sized banks
report that consumer loans continue weak, however, despite increasing attempts
to attract borrowers.
Consumer Spending
Second District department store sales were relatively strong in recent
weeks according to our contacts.
Due to the late Easter this year, sizable
over-the-year gains during April had been anticipated.
16 percent increases
targeted.
However,
actually posted were generally larger
the 13 to
than had been
May sales gains of 7 to 9 percent were for the most part in line
with expectations.
The major exception was a respondent whose May sales rise
of 19 percent was even greater than his year-over-year April increase.
In line with the Easter holiday and spring season, the items mentioned
as most heavily in demand were adult apparel and various items for children.
Most respondents reported that, as a result of recent sales activity, inventories remain on or close to plan.
However, one retailer, who noted a slowing of
sales momentum in May, described his inventories as "a little heavier than
desired".
Business Activity
A pickup occurred recently in District economic activity.
Both the
Buffalo and Rochester surveys of purchasing managers registered an increase in
those reporting improved business conditions in May,
and no respondents in
II-2
Rochester experienced a worsening.
In April, both surveys had shown a decline
in the percentage of firms with better conditions, though the percentage with
either stable or better conditions was essentially unchanged.
The May reports
also showed a sharp drop in firms encountering higher commodity prices.
District unemployment rates of 4.2 percent in New Jersey and 4.8
percent in New York remain well below the United States average.
However, some
recent developments have elicited considerable concern about the District's
employment outlook.
A Labor Department study just released shows that from
1984 to 1987 manufacturing jobs declined much more rapidly here than nationwide.
In addition,
two major corporations announced plans to move their corporate
headquarters and 6000 employees from the region over the next year or so.
Much
public discussion has ensued about what is needed to avoid the exodus of other
major
corporations
as
well as
about
the
increased vulnerability
of the
District's economy due to its narrowing industry mix.
Construction and Real Estate
Residential construction activity is strong in the Second District and
builders continue to anticipate that this year will see a high level of
homebuilding.
While some areas expect a slowing from last year's hectic pace,
other newly developing areas look for an even higher rate of activity.
The
rise in mortgage rates has apparently not yet had much of a dampening effect
and,
in
fact,
may be prompting some additional demand in
further rate increases.
anticipation of
However, a cautious note has been injected into the
outlook in northern New Jersey where a shortage of affordable land has been an
increasing problem.
An 18-month moratorium has just been declared on building
in the New Jersey wetlands and its impact on residential development is
uncertain.
Office leasing activity in the Second District has continued at a good
pace with reports of brisk demand in the midtown Manhattan market.
Although
II-3
the recently announced plans of Mobil and J.C. Penney to move their corporate
headquarters from Manhattan mean the release of an additional three million
square feet, the consensus seems to be that this can be accommodated with no
real difficulty.
A major new project getting underway is
complex of offices, condominiums,
a $900 million
and stores in Jersey City.
While the
overall vacancy rate in northern New Jersey remains high, this project on the
Hudson River is reportedly at a prime location because of its proximity to
public transportation as well as New York City.
Financial Developments
Small and mid-sized banks in the Second District report that growth
in consumer loans has remained weak in recent months, despite increasing
attempts to attract borrowers. Banks indicated that originations of personal,
automobile,
and mortgage loans have all been considerably lower than their
usual level for this time of year. Respondents attributed the decline to the
attractiveness of other products such as home equity credit lines, high
consumer
indebtedness, and
competition
from the auto
finance
companies.
Several banks emphasized the importance of home equity credit, and suggested
its growth relative to more traditional consumer
pressure to lower rates in the problematic areas.
loans has been exerting
Banks cited the desire for
a more balanced portfolio between fixed rate consumer and variable rate home
equity loans, as well as the higher profit margins on the fixed rate category
as reasons underlying this pressure. Most surveyed banks indicated that they
have begun to offer lower rates on several types of consumer credit or plan to
do so in the near future. In addition, most of the banks are in the process of
increasing advertising and marketing efforts to current and prospective bank
customers.
III-1
THIRD DISTRICT - PHILADELPHIA
Moderate growth characterizes most sectors of the Third District economy as
the summer begins.
Manufacturing activity is expanding slightly in June, for
the third month in a row; and, in a change from recent months, durable goods
manufacturers are making greater gains than nondurable goods producers.
Retailers report that May sales ran ahead of plans and that strong consumer
demand is continuing into June.
Automobile sales, however, are weak.
Bankers
note that real estate lending remains strong and that commercial and industrial
lending picked up in May and June.
Consumer loan demand, however, is growing at
the same slow pace that has marked recent months.
The outlook in the Third District business community is generally
optimistic.
A slight majority of the manufacturers polled in June expect
further expansion in the next two quarters.
Area merchants are encouraged by
the pace of sales this spring and they forecast a good summer.
They also
express confidence that sales will remain healthy for the rest of the year.
contrast, automobile dealers do not expect any improvement this year.
In
Bankers
expect business lending to grow modestly, but they do not foresee an
acceleration in consumer loan demand.
Although bankers say pressure on net
interest margins has eased somewhat recently, slow growth in deposits has
prompted concern about the cost and availability of funds later in the year.
MANUFACTURING
Industrial activity is up slightly this month, according to the most recent
Business Outlook Survey.
Nearly one-third of the companies covered by the June
survey report increased business, while one-fifth say their business is off from
May; about half are operating at a steady pace.
Business is improving for
III-2
durable goods producers, but is mostly stable for makers of nondurables.
Although the difference is slight, it marks a reversal of the sectoral pattern
observed in earlier months this year.
Most indicators of manufacturing activity in June reflect the trend of
moderate growth experienced so far this year.
Shipments by local manufacturers
are rising and new orders are up, but not by a comparable amount.
order backlogs are slipping.
Consequently,
Employment is steady, with most firms reporting no
changes in either payrolls or working hours.
Industrial prices in the region are generally stable, although there is
some upward movement in input costs.
While most of the companies surveyed in
June indicate steady prices for the goods they purchase, 40 percent reported
higher charges compared to May.
Most firms say they are holding the line on the
prices of their own products.
Looking ahead, just over half of the survey respondents foresee continued
growth this year.
Overall, area manufacturers expect further gains in orders
and shipments, and they expect declining order backlogs to stabilize.
On
balance, their capital spending plans call for higher outlays during the next
six months.
Nonetheless, employment is expected to decline slightly over the
next two quarters.
RETAIL
Nearly all area retailers contacted in early June reported strong sales in
May continuing into June.
Sales at all types of stores are running ahead of
last year, with increases ranging from 5 to 10 percent.
Department store
officials say quality apparel and upscale merchandise generally are their best
performing product lines.
They are emphasizing these goods in their product mix
because of their relatively greater selling margins.
III-3
The strength of consumer demand this spring, following good first quarter
results, is leading store officials to raise sales forecasts for the summer.
Most merchants expect sales for this period to run nearly 10 percent above last
summer, and they expect similar results for 1987 as a whole.
However, some
discount store executives are concerned that stepped-up promotions and price
markdowns may become common later in the year as individual competitors attempt
to maintain and enlarge their market shares.
Automobile sales in the Third District are running parallel with national
trends.
Unit sales vary from up slightly to down substantially at domestic
franchises, and inventories exceed desired levels for nearly all makes.
Nevertheless, dealers selling U.S.-made cars have not discounted prices yet, and
this, combined with lower operating expenses, is limiting the current impact of
slower sales on their profits.
as gross sales fall.
However, import dealers' profits are declining
Dealers expect the pace of sales to slip a bit further
before stabilizing for the balance of the year.
FINANCE
Loan growth at major Third District banks picked up somewhat in May after
slowing in April.
Total outstanding loan volume in late May was approximately 3
percent above year-end 1986, and 10 percent above last May.
is attributable to real estate and commercial lending.
Most of the growth
Real estate lending has
been strong for the past 12 months, and bankers say that active real estate
markets and profitable land development projects in the region continue to
provide opportunities to make sound loans.
Commercial and industrial loan growth increased in May.
Bankers say that
their marketing efforts are bringing in good loans from local businesses.
They
are putting relatively more floating-rate loans on the books, and they say that
net interest margins, which had contracted recently, are now improving.
III-4
Some area banks are promoting consumer loans aggressively, and they report
gaining substantial amounts of new business.
Overall, however, the lower growth
rate in consumer lending that local banks first noted last fall is continuing.
Lending officers contacted in June said that credit card lending is flat and
other installment lending is up only slightly.
The rapid growth in home equity
lending that followed the introduction of this product appears to have eased
also.
Nearly all bankers say deposit growth has not met expectations.
This is
especially the case with long-term (one year or more) certificates of deposit.
Bankers believe higher rates on alternatives to bank accounts have led to
disintermediation in recent months.
Several mentioned the possibility of
declining liquidity in the banking system toward the end of the year.
Anticipating this, asset/liability managers are attempting to lengthen the
maturities of their liabilities, and some banks have introduced floating-rate
CDs or raised rates to attract longer-term money.
IV-1
FOURTH DISTRICT - CLEVELAND
Summary
The
were
region's
reported
inventories
economy
in
continued
production,
remained
new
steady.
orders,
Retail
sales
of
areas,
installment
employment,
while
particularly
specialty
were mixed, with hard goods outselling soft goods.
Housing permits continued to increase as the
Consumer
and
Increases
Commodity prices continued to increase, and
shortages were experienced in a number
steels.
to show positive signs.
loans
picked
building
season
progressed.
up once again, and the volume of real
estate loans continued to grow, despite higher mortgage rates.
Retail Sales
Retailers reported mixed growth through April.
in
Ohio
was
in April.
items.
roughly
Retailers
in
the
the
national
substantially
below
reported
opposite.
goods,
a
Cleveland
few
area
average,
regions
reported
while
and
types
of
sales
increases
and
Columbus
Akron
were
Meanwhile, sluggish sales
reported
in
such as apparel, perhaps stemming from the double-digit price
increases reported in
electronics
growth
Some retailers reported strong hard goods sales,
especially home furnishings.
soft
sales
on a par with the national growth rate of 6 percent
This growth was concentrated in
the
Retail
has
been
the
April
attributed
CPI.
Slow
largely
sales
to
growth
consumer
in
foreign exchange rates and
quotas.
Sales of domestic automobiles in
pace
than
those
in
the
rest
Ohio
grew
of the nation.
lower sales than last year, they have tried to
at
a
slightly
faster
Although dealers reported
avoid
financial
incentive
IV-2
preferring
programs,
that
dealers reported
Dealers
nation.
sales.
They
to
lure
sales
in
indicated
also
customers
the
package
deals.
are
keeping
pace
area
modest
that
with
price
increases
Import
with
the
reduced
have
have avoided financial incentive programs because they
feel their profit margins are at the lowest acceptable levels.
Manufacturing
A survey of purchasing agents in
signs
of
growth
in
Ohio
manufacturing.
An
continued
to
increasing
show
percentage of firms
indicated that production was higher than the previous month.
continued
concern
to
improve, and inventories remained low.
about
increases
productivity.
Prices
in
of
commodity
steel
prices
products
being higher and in short supply.
were
positive
New
orders
Purchasers expressed
growing
most
faster
than
often mentioned as
Also mentioned was the
steady
increase
in the price of services.
Raw
steel
production
the previous month.
beginning
of
in
the
This marks
1987.
With
an
region was up 26 percent in May from
increase
employment
of
increasing
12
by
percent
since
the
only 3 percent and
average weekly hours roughly constant, much of the increase
in
output
is
attibutable to higher labor productivity.
Labor Markets
The
employment
In
months.
unemployed
of
7.2
April,
fell
percent.
nonmanufacturing.
picture
Ohio
14,000.
Most
in
gained
These
of
the
Construction,
the
region
22,000
has improved from previous
jobs,
while
the
number
of
changes resulted in an unemployment rate
employment
retail
trade,
increase
and
occurred
services
in
(notably
IV-3
business and amusement and
gains.
recreation
employment
Manufacturing
services)
remained
registered
the
from
unchanged
largest
the previous
month.
Regional employment projections for the third
generally
optimistic.
workers
than
to
by
durable
predicted
retailers,
the
A
greater
reduce
number
employment.
and
nondurable
of
the
1987
are
to
add
opportunities
are
wholesalers
and
employers
Employment
manufacturers,
construction industry, and services.
forecasted in finance/insurance/real estate.
report
quarter
of
expect
Staff reductions are
Columbus, Dayton,
most positive employment forecasts;
and
Akron
Pittsburgh and Youngstown
report the least positive.
Factory production workers in Ohio worked an average
week
per
in
April,
down
earnings dropped $5.12
significantly
in
blast
in
to
many
furnace
$493.41.
basic
overtime
sectors.
steel
42.1
hours
Their average weekly
March.
Reduced
industrial
and
from
.4 hours
of
lowered
earnings
A notable exception occurred
products
in
which
earnings rose $22, due primarily to an increase
in
the
average
average
weekly
workweek
of 1.3 hours.
Housing
Housing
ago.
starts
in
Sales of existing homes
traditional
quarter
this
house-buying
year
over
percent in Pittsburgh.
point
Ohio during March were up 39 percent over a year
since
March,
continued
season.
to
Average
rise
house
as
we
sales
move
for
into
the
the
first
last year rose 7.5 percent in Cleveland and 60.8
Although interest rates have risen
one
percentage
loan officers felt that the panic over expected large
future rate increases has subsided.
IV-4
Banking
District loan demand has
large
banks
been
soft.
Total
loans
at
fell at an annual rate of 6 percent from mid-April to the end
of May.
Commercial and industrial loans accounted for
of
recent
the
outstanding
the
vast
majority
contraction in loan volume, at least partly because of the
higher cost
of
borrowing.
Installment
loans
In
contrast,
consumer
lending
picked
up.
outstanding grew at an annual rate of nearly 30 percent
over the last six months.
Real estate lending also continued
at an annual pace of over 20 percent.
to
increase
V-1
FIFTH DISTRICT - RICHMOND
Summary
Growth
in
the Fifth District economy is slowing, and business optimism,
although still relatively strong, has
producers,
somewhat.
Most
retailers
and
however, report increased activity in June and expect further slow
improvement in coming months.
higher
waned
grain
prices
District crops are off to
a
good
start,
but
are starting to pinch the profits of poultry producers.
Executives of depository institutions report increases in mortgage loans,
they
expect
loan
and
demand for business capital expansion and modernization to
rise in the months ahead.
Consumer Spending
Major department stores throughout the District report increased sales in
early
June.
Most retailers expect their sales to rise in coming months, but
only about one-fourth plan to add employees.
of
these
stores
The use of credit cards in
many
continues to decline although discount chains report little
change in credit card use.
Manufacturing and Mining
Manufacturing activity in the District remained on
early
June.
experienced
one-fourth
prices
an
upward
trend
in
Over one-third of the producers who responded to our June survey
May-to-June
recorded
increased,
increases
declines.
the
shipments
Employment,
backlog
inventories declined slightly.
in
of
orders
the
was
and
new
orders,
while
workweek, and raw material
generally
unchanged,
and
Although the survey indicates continued growth
in the manufacturing sector, comparisons with responses earlier this year show
that this growth is slowing.
V-2
Nondurable
manufacturing seems to be improving more briskly than durable
manufacturing.
Among
manufacturing
have
nondurable
recorded
firms,
strong
further increases in coming months.
those
in
textile
and
apparel
sales gains in recent months and expect
Production and sales are strengthening in
large chemical corporations, in some instances due to increased export orders.
In the durable goods
increased
activity
percent, the
however,
sector,
and
highest
report
a
in
nonelectrical
rise
some
capacity
utilization
this past month.
their
time.
capacity
Furniture
manufacturers
report
utilization rate to 64
industry
representatives,
a decline in shipments, which they attribute to reduced home
and office building activity.
the
in
machinery
In the stone, clay, and glass
industry,
where
rate is 86 percent, business has improved slightly
Plant managers expect lower production in the months
ahead,
however, as higher interest rates begin to affect homebuilding, which accounts
for a large portion of their sales.
District coal production has increased in recent weeks and
its
level
a
is
year ago, but coal employment is at an all-time low.
indications that
much
of
recent
the
production
is
being
now
near
There are
stockpiled
in
anticipation of a strike later this year.
Wages
In
the
building
trades, collective bargaining now in progress suggests
little change in the moderate rate of wage gain recorded in recent years.
the
Washington
labor
where
In
metropolitan area, however, and certain other District cities
markets
are
very
tight,
there
are
reports
of
gouging
by
construction workers and builders.
In
the
suburban
areas
around Washington and elsewhere in the District
where the unemployment rate is very low, it has become increasingly
difficult
V-3
to fill service jobs.
Higher wages and other inducements are being offered to
attract workers.
Agriculture
Plantings of most major crops across the District have
normal
level
after
falling
behind
temperatures and heavy rainfall.
earlier
in
the
progressed
spring
Growing conditions have
due
been
to
to
a
cool
excellent
in
all but a few parts of the District.
The
production
of
hardwood
lumber
has been booming in West Virginia.
Demand has prompted mills to build more kilns to dry the lumber.
Financial
Executives of District financial institutions report little change from a
month
in commercial and industrial loan activity.
ago
estate, however,
financial
including
executives
are
home
in
months
loans
lines,
continue
to
rise.
These
optimistic that the economy will continue to grow,
but are fearful that inflation may
coming
equity
Loans secured by real
to
accelerate.
They
increases
project
in
consumers and loans to businesses for plant and
equipment expenditures, but they
anticipate
declines
in
loans
secured
by
office buildings.
A
slowdown
in home sales may be creating problems for institutions that
specialize in originating and
institutions
buyers.
finds
selling
mortgages.
At
least
one
of
these
itself unable to meet its contract commitment to mortgage
VI-1
SIXTH DISTRICT - ATLANTA
The Southeast continues to show moderately increasing employment and falling
unemployment rates, even in Louisiana and Mississippi where rates have been in double
digits.
Manufacturing
employment
has
been
increasing,
especially
in
textiles.
Construction of office buildings and homes has slowed, although warehouse and industrial
construction is still strong. Production of oil and gas seems to have bottomed out.
Employment and Industry.
The employment picture improved moderately in the
region for the latest reporting period. Notably, the unemployment rate in Louisiana fell
by over one percentage point from March to April, and total employment expanded.
Transportation equipment employment increased in the state due to more activity in ship
building and repair. Increased activity in the lumber and wood sector also accounted for
some of the state's employment gains. The employment declines in the energy-producing
sector appear to have bottomed out.
District chemical producers supplying the apparel and textile industry have been
prospering as a result of the rebound in textiles. The tire industry is strong as a result of
lower prices for petrochemical raw products and growing demand attributable to
increased auto travel. Food manufacturing is getting a strong lift from the expansion in
poultry and fish processing industries.
Spokesmen from the furniture manufacturing
industry are optimistic, at least for the near term.
The machinery industry, however,
suffers from excess capacity and weak demand.
Consumer Spending.
During May, southeastern retailers generally posted slight
increases over last May's sales.
While overall sales fulfilled merchants' expectations,
activity continued to be sluggish in Mississippi and Louisiana.
Retailers do not plan to
increase inventory levels in anticipation of higher prices, and they seem content with
their present inventory as they head into the summer months.
Although profit margins
on foreign goods are decreasing for some, retailers generally have not yet raised prices
on imported merchandise.
VI-2
Car sales in the District were disappointing in May as major U.S. and Japanese
manufacturers posted sharp declines in sales from levels a year earlier.
Dealers' hopes
for the traditionally strong pre-summer months were dashed despite attractive carmaker incentive programs to lure new buyers.
Meanwhile, minivan, utility vehicle, and
light truck sales are still growing.
Construction.
Single-family building permits held steady in April for the Sixth
District and the nation (three-month average,
seasonally adjusted).
Contacts in
Birmingham, Atlanta, and Nashville report an oversupply of homes priced over $200,000
but note that the sale of medium-priced homes is still strong. Additions and renovations
to existing buildings make up the bulk of construction in New Orleans.
The mortgage
rate increase has dampened sales and led to closing delays, say realtors.
Orlando builders report a decrease in office vacancy rates, although contacts in
Atlanta and Birmingham say the construction pace has yet to slow enough to see
significant rate declines.
Lauderdale
and
Memphis
Office vacancy rates in the central business districts of Ft.
rank
among
the
nation's
highest.
Contacts
say
the
concentration of new office space in the suburbs of these cities is largely to blame.
District builders are more optimistic about development of industrial distribution
and warehouse space.
Atlanta's strong absorption rate has spurred assemblage of large
land tracts for industrial development despite falling rental rates.
Orlando contacts
expect strong demand this year and steadily declining vacancy rates.
Financial Services.
Total loan growth at the District's larger commercial banks
edged downward in April, caused largely by a steep drop in the growth rate of consumer
loans.
Contacts speculate that reductions in outstanding credit card debt, along with
weak auto sales and uncertainty about the economy, may have dampened consumer
lending growth this year.
Tourism and Port Activity.
With visitor registrations in May up strongly from
last year, there are expectations throughout the Southeast of a strong summer season for
VI-3
tourism. Cities throughout the District are posting increases in air travel well above the
national average, which is partially a result of more airlines selecting southern cities as
hubs for their operations.
The lower dollar appears to be slowly fueling export growth in the District.
Miami port officials report gradual improvements in exports to Latin America. Even so,
exports and total port tonnage were both 10 percent below year-earlier levels for the
first seven months of the fiscal year beginning in August 1986. In New Orleans, a rise in
exports of pulp and paper and other manufactured products has substantially boosted port
employment and revenues.
Rebounding foreign sales of phosphates in the first four
months this year pushed Tampa's export tonnage up by about 5 percent from the
depressed level in the same period last year.
Agriculture, Forestry, and Mining.
District oil rig activity remained stable in
May for the third consecutive month. Even so, the number of rigs in operation is still 30
percent below last year's depressed figures. Although two-thirds of the ocean rigs in the
Gulf of Mexico are idle at present, one source predicts active rig numbers will double by
1988 because of the improving price outlook. Coal production in Alabama and Tennessee
experienced more than a seasonal decline in April and May; output fell short of year-ago
levels by 12 percent. With higher prices for petroleum products, demand for coal should
improve during the balance of 1987.
On balance, crop prospects currently appear favorable.
There is some concern
over low rainfall totals in the eastern half of the District.
The poultry industry,
suffering from production-induced price declines, is experiencing shrinking profits. Pork
and cattle herds are apparently being rebuilt.
VII-1
SEVENTH DISTRICT--CHICAGO
Summary. Economic activity continues to expand in the Seventh District, at a
stronger pace than in 1985 and 1986 despite lagging demand for autos. From December 1986
through April 1987, payroll employment in District states rose faster than in the U.S.
Chicago purchasing managers reported another month of continued growth in May,
accompanied by further increases in prices and slowing of deliveries. Sources contacted
regarding capital spending in various industries noted several sizable projects and
numerous smaller ones, some announced earlier and already under construction, others to
be started next year. Signs of improvement are reported in demand for some types of
machinery which had been weak. Slowing auto sales have led to production cuts and
layoffs, particularly affecting southeast Michigan. Steel continues to show surprising
strength, with some products in short supply and prices rising. A large retail chain
reports a pickup in sales in early June, after a slow May. There are indications that
would-be home buyers are adjusting to higher mortgage interest rates, though one
knowledgeable source sees continued hesitancy in hopes that rates will fall. Livestock
farmers' earnings have been boosted by higher prices. Allaying earlier concerns about a
lack of precipitation, prospects appear good for high crop yields per acre in most areas
of the District.
Capital Spending. Contacts surveyed recently noted numerous capital investment
projects underway or expected, some not until next year. These include several auto
assembly plants, parts plants, and other facilities--Japanese, American, and joint
venture--being built, expanded, or improved in District and nearby states. A large steel
mill, a joint venture American-Japanese plant, is to be built in northern Indiana. Other
steelmakers are expected to make sizable investments in upgrading facilities in the
District and elsewhere. Rehab projects are going ahead at refineries and electric
utilities, including conversion of a Michigan plant from nuclear to gas expected to start
next year. A producer of building and industrial products expects to increase its
VII-2
capital spending substantially in 1988 and 1989. A furniture maker is building a
computer furniture manufacturing plant in Michigan.
Machinery.
Some markets for equipment show an upturn, but reports on current
conditions are mixed. A capital goods producer, bearish in recent years, sees
significant improvement in some lines, including basic food processing machinery and
specialized machinery, but not in petroleum equipment. On the other hand, a steelmaker
reports improved demand from the petroleum industry, particularly for offshore drilling,
as well as from makers of farm equipment, construction equipment, and railcars. In
contrast, a large farm equipment producer forecasts retail demand in 1987 below 1986's
low volume. To an unknown but apparently significant extent, strength of steel demand
from these sectors reflects rebuilding of low inventories and filling of order backlogs
built up during prolonged work stoppages which ended early this year in steel, farm
equipment, and construction equipment.
Motor Vehicles. Auto sales have continued to trail year ago. Auto makers have
reduced their forecasts of sales for the year. Production cuts and layoffs, temporary
and indefinite, at assembly and parts plants have been particularly significant in
southeast Michigan.
A contact expects unemployment in the Flint area to rise to around
14% by year-end, as a result of auto industry cuts and their effects on other
businesses. In contrast, truck sales so far this year have been above last year's strong
pace. An industry source expects production of heavy trucks to exceed 1986's output by
16% or more, returning to around the 1985 level.
Steel. Production cuts in the auto industry have not been reflected in reduced
output of sheet steel. Order backlogs, built up because of the USX work stoppage, have
been reduced.
Third quarter output of sheet and other steel products is expected to be
unseasonably strong, partly because of reduced imports, and partly because of increased
usage in some industries. The reduction in imports is thought to be mainly a result of
the lower dollar, rather than bilateral import restraint agreements. Hot rolled sheet
VII-3
and plate were reported in short supply. A large amount of structural steel is under
contract or out for bid, part of which is for auto and parts facilities under
construction in this country. Steel prices are up with further increases expected later
in 1987 and into 1988.
Housing. Potential residential mortgage borrowers experienced "sticker shock" in
May after interest rates jumped up sharply, but are said by one contact to be returning
to lenders. Another source, however, thinks talk that interest rates will decline is
causing some potential home buyers to wait. Chicago-area lenders typically are quoting
10.5-10.75% for 30-year fixed-rate loans, with a few as low as 9.9-10% seeing strong
demand. Lenders' cost of funds has risen less than yields on home loans, resulting in
attractive spreads. New home construction in the Chicago area this year has been above a
year earlier, largely as a result of the mild winter. Home resales have been active but
below excellent levels in 1986. Rental housing units in certain parts of the Chicago
area are in excess supply.
Consumer Spending. A large general merchandise retailer reports that sales were
somewhat slow in May, but have been strong so far in June, helped by warm weather.
Women's apparel has been selling well, despite price increases resulting from the lower
dollar. Credit delinquencies, concentrated in energy and farm states, have declined
after rising earlier. Inventories are low.
Agriculture
Earnings of District livestock farmers have been buoyed recently by a
large rise in cattle and hog prices. Because of strong earnings, cattle feeding
activities have expanded, particularly in Iowa. During the first four months of this
year, Iowa farmers placed 30% more cattle in feedlots than a year earlier. Some
observers view the increase as a sign that the long, steep downturn in cattle feeding in
Iowa has ended. Spring crop plantings in District states are virtually complete, one of
the earliest planting seasons on record. Early stands of corn are rated mostly "good".
Rains have tempered earlier concerns about drought in most District areas.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Summary
The District's economy slowed in the most recent period as
indicated by employment and construction data.
Dry agricultural
conditions have allowed rapid planting progress but threaten further crop
development.
Outlook
A recent survey of 261 small businesses in the Eighth District
suggests that respondents' expectations of economic conditions in the
near future were less optimistic than a year ago.
Compared with first
quarter 1986, a smaller proportion felt general business conditions would
improve, that it was a good time to expand and that their sales volume
would increase in the near future.
Employment
Total District employment declined slightly in April, but a
larger decrease in the number looking for work allowed the region's
unemployment rate to fall slightly in April to 7.4 percent.
District
nonfarm employment expanded at a 2.8 percent annual rate in the three
months through April.
Although this pace approaches the national
average, it represents a considerable slowing from the last report.
Most
of the slowdown was concentrated in manufacturing, construction and the
health and business services sector.
Regional manufacturing employment
fell at a 1.4 percent rate in the February-April period with most major
VIII-2
industries posting losses.
Auto assembly plants laid off workers in
April and May, and temporary shutdowns are planned for portions of June
and July.
In Missouri, auto industry employment in April was a third
lower than one year earlier.
District mining employment, concentrated in
Kentucky coal mining, fell in March and April after four successive
months of gains.
Construction and Real Estate
Construction slowed recently due to a sluggish residential
sector.
The value of District residential contracts was up 2.1 percent
during the three months through April, trailing the nation's 6.4 percent
growth.
Permits for both multi- and single-family dwellings dropped in
April after first quarter gains.
New home sales jumped in April as buyers attempted to close
deals before anticipated higher mortgage rates.
In St. Louis and
Memphis, sales were strong in April, but were expected to flatten in
May.
Single-family starts in Louisville were more than 30 percent above
year-ago levels in April and May, although one real estate contact
expects slowing in future months.
District nonresidential construction accelerated in recent
months; nonresidential contracts issued in the three months through April
grew 15.3 percent, outpacing the nation's 7.2 percent expansion.
Extremely rapid growth in Arkansas offset declines in Tennessee.
Banking
A recent survey of the largest District banks indicated a
slowing in participations and sales of commercial and industrial (C&I)
VIII-3
loans.
All of the respondents indicated a slackening in the demand for
C&I loans and as a result, are reducing their involvement in sales and
participations in order to build their own portfolio.
Most respondents
emphasized sales and participations were viewed as a means of limiting
risk rather than as money-making vehicles.
Most of the loans sold or participated were sold to affiliate
banks or U.S.-chartered banks with assets greater than $1 billion.
The
average maturity of these loan participations is approximately one year.
District banks typically average a spread of 50 to 100 basis points as
the "lead" bank in a participation transaction.
Agriculture
Current weather conditions are a source of both good and bad
news.
Due to dry weather, planting progress on all major District crops
is well ahead of average.
To date, crop development has been favorable.
The bad news is that the dry spring leaves crops vulnerable to damage
during the normally dry months of July and August.
Most states report
that wheat yields will be reduced by as much as 20 percent due to the dry
spring.
The volume of farm products shipped on the middle Mississippi
River in the first four months of this year was 19 percent above the
level of the same period last year.
IX-1
NINTH DISTRICT-- MINNEAPOLIS
In
the
continued
quarter
improvement.
quarter.
Other
second
the
Ninth
Employment
District's
conditions
economy
showed
strengthened
signs
early
of
in
the
Consumer spending didn't grow by much, but neither did it weaken.
improvements
were
noted
in
agriculture
and
resource-related
industries--both of which have been weak spots in the district's economy.
Employment
The district's labor market continued to improve.
In Minnesota, seasonal
job growth helped lower the unemployment rate to 4.6 percent in April.
Minneapolis-St.
Paul
metro
area,
the
percent--its lowest April rate since 1979.
in
the
Twin Cities
indicative
of
unemployment
levels.
April
offset
continuing
claims
during
continued
unemployment
fell
layoffs
in manufacturing
in
Minnesota
May
8 percentage
labor
there.
markets,
a
level
18
percentage
3.7
points
Also
initial
points below year-earlier
In addition, the Minneapolis help-wanted advertising index
to
to
Increases in nonmanufacturing jobs
strength
fell
rate
In the
higher
than
a
year
rose
in
earlier,
corroborating the view of Bank directors that the Twin Cities labor market is
tight.
Other
April,
Montana.
district
employment
In
states
rose
also
and
South Dakota,
experienced
unemployment
durable
goods
heightened
rates
fell
manufacturing
job
in
growth.
the
During
Dakotas
increased,
and
and
the
April unemployment rate in the Sioux Falls metro area fell to only 2.7 percent.
IX-2
Despite
firm
labor markets, relations between labor and management have
been a concern at some major companies.
meatpacking
Minnesota,
industry
Iowa,
and
and
have
Nebraska.
A number of strikes have troubled the
affected
One
6,700
such
strike
workers
is
in
South
reported
at
Dakota,
a
large
meatpacking plant in Sioux Falls.
Consumer Spending
Retail spending on general merchandise grew moderately in recent months.
One large retailer reports that its combined sales for March and April reached
levels 10 percentage points higher than a year ago.
reports
a slightly larger increase over the same months
sales promotions during May were also well
inventory levels haven't been
price
inflation
has
and notes that
received by consumers.
its
Although
too low, a few retailers mention that offshore
deliveries from Asia have been slow.
retail
Another diversified chain
been
One Bank director notes that the rate of
low.
Bank
directors
continue
to
report
lackluster retail sales in smaller cities and towns dependent on agriculture
and oil extraction.
vehicles
Motor
sales
have
recently
slowed.
One
large
domestic
manufacturer reports that its district sales were about 20 percent lower this
May compared to May 1986.
the
recent
decline
late-May sales
wasn't
overly
severe.
Another
manufacturer
picked up and have been particularly strong
Both manufacturers
of year.
However, last May's sales were unusually high, so
report
in
the
says
its
Dakotas.
that district inventories are normal for this time
Bank directors report that sales were slow in western parts of both
Montana and Wisconsin.
Housing markets continued to be
quite
active
in
the
district.
In
the
Minneapolis-St. Paul metro area, housing permits were 17 percent higher during
IX-3
this year's warm April than in April 1986.
Multifamily home construction was
particularly
strong.
affordable.
But realtors are worried about future
One
Bank
director
notes
that
housing
sales in
still
remains
light of recent
increases in mortgage rates.
Agriculture
Agriculture
months.
Crop
stimulated
Dakota
by
conditions
conditions
have
have
warm weather
observes
that
continued
been
and
generally
recent
conditions
to
have
improve
excellent,
rains.
A
been
good
director from South Dakota notes
that
state,
recently.
though.
through
have also increased.
These
been remedied by recent
while
still
recent
early
growth
from North
much
of
that
In Minnesota, most of
that more rain is needed
Crop prices,
Wheat prices have
with
in
Bank director
state--even in the usually dry area around Bismarck.
the earlier moisture deficiency has
somewhat
relatively
rains.
A
Bank
in some parts of
low,
have
risen
increased particularly sharply, and corn prices
increases will
save
the federal government some
money on its farm payments programs.
Compared with major crop production, conditions for meat-animal production
continue to be more favorable.
highest on record.
good.
And members
A Bank
of
In Minnesota, prices
director
reports
that
for May lambs were the
cattle
prices
were
still
this Bank's Advisory Council on Small Business, Labor,
and Agriculture report that the hog market looks promising through August, and
that
farm
income
generally
is on the rise.
In fact,
a big hog production
facility is planned for the area around Pierre, South Dakota.
IX-4
Resources-Related Industries
Some
Higher
good news
copper
is
prices
reported
have
Michigan's Upper Peninsula.
doing
well
and
that
two
in most
helped
the
major
important
resource-related
White
Pine
industries.
copper
Bank directors say the gold mine there
new
gold
mines
may open
in
South
producers in Montana may be helped by a cut in severance taxes.
mine
on
is also
Dakota.
Coal
While the oil
industry is still in the doldrums, permits for oil-drilling increased a bit in
North Dakota.
Finally, demand for many district wood products remains solid.
X-1
TENTH DISTRICT - KANSAS CITY
Overview.
economic activity.
sales are sluggish.
Little change is apparent in overall Tenth District
Retail sales generally are increasing slightly, but auto
Retailers report little change in prices while
manufacturers' purchasing agents report stable to moderately higher input
prices.
Inventory levels are satisfactory.
Housing starts remain near last
year's levels, and mortgage loan demand at savings institutions has declined.
The district's energy industry remains generally depressed.
deposits at district banks are essentially unchanged.
Loan demand and
Winter wheat harvest is
under way and yields are expected to be about average.
Retail Sales.
Tenth District retailers generally report that sales
are about the same as or above year-ago levels and have been improving during
the last three months.
Most retailers report little change in prices during
the past three months, although one retailer reports dramatic increases in the
prices of imported goods.
Inventory levels are satisfactory.
Retailers are
generally optimistic that sales will be solid during the rest of 1987.
Automobile Sales.
Automobile dealers report that sales in May were
below a year earlier and a month earlier.
inventories are larger than desired.
Because of sluggish sales,
Financing is generally available for
both dealer inventories and consumer purchases.
Dealers hope that sales have
bottomed out, and most are cautiously optimistic in their outlook.
Purchasing Agents.
Purchasing agents report that major input prices
are stable to moderately higher relative to a year earlier and that they
expect input prices to increase only moderately during the remainder of 1987.
Some problems with materials availability were reported.
The Canadian lumber
strike was blamed for a shortage of lumber, for example.
Few problems with
material availability are expected for the remainder of the year, however.
Inventory levels are viewed as generally satisfactory.
X-2
Housing Activity and Finance.
Homebuilders report that housing
starts remain at or slightly below last year's levels.
Single-family home
construction remains stronger than multifamily construction.
overall 1987 housing starts to be near 1986 levels.
Sales of new homes are up
slightly, with prices moderately higher than a year ago.
inventories are not causing undue concern.
Builders expect
New homes
No problems are reported with
either the availability or delivery of housing materials.
Materials prices
are relatively stable.
Many savings institutions in the Tenth District have experienced weak
deposit growth during the last year.
dampened deposit inflows.
mortgage rates.
Negative publicity about the FSLIC has
Loan demand has fallen off since the April runup in
Mortgage rates leveled off after their April increase, and
most respondents believe that rates will remain near current levels in the
near future.
Energy.
The district's energy industry remains generally depressed
despite the fact that prices of domestic crude oil have remained near $20 for
several weeks.
Although OPEC is committed to keeping prices stable, recent
events in the Persian Gulf have made the outlook for oil prices more
uncertain.
Exploration and development activity in the district remains flat.
The average weekly number of operating drilling rigs in the Tenth District
fell from 248 in April to 238 in May, still about two-thirds of the number
recorded a year earlier and only 16 percent of the peak number reached in
1982.
Agriculture.
Wheat harvest in the Tenth District is under way in
Oklahoma and parts of southern Missouri and Kansas.
Although wheat acreage is
down in areas where a wet fall prevented some winter wheat planting, yields
across most of the district have not been adversely affected by the weather.
X-3
Wheat yields appear average in most parts of the district.
Grain storage
capacity in the district should be adequate for this year's wheat crop.
Spring crop planting was generally finished ahead of schedule due to
favorable weather across most of the district.
Most areas report that 80 to
100 percent of the corn, milo and soybean crops are planted, and many fields
are showing good early growth.
Feedlots in the Tenth District are generally full, reflecting strong
returns to cattle production over the last year and the renewed rise in beef
prices since the first of the year.
Few feeders are expanding their feeding
capacity, however, and cow-calf and stocker-cattle operations do not appear to
be adding to their herds.
Growers appear reluctant to expand herds at the
current high cattle prices and some bankers, fearing a drop in the market, are
loaning less on the collateral value of the cattle purchased.
District hog
producers have reacted to strong market conditions much the same as cattle
producers.
Hog prices have been favorable over the past year and particularly
strong in 1987, but there is little evidence of expansion in hog operations.
Though some bankers report a moderate increase in hog inventories in their
areas, there has been no sign of investment in new facilities.
Banking.
Total loan demand and total deposits at Tenth District
banks were essentially unchanged during the past month.
Demand weakened
slightly for consumer loans, but was constant for other types of loans.
About
two-thirds of the respondents reported raising their prime rates slightly,
while the rest expect their prime rates to increase slightly in the near term.
Half the respondents report raising consumer loan rates slightly, and about a
third expect their consumer rates to rise slightly in the near term.
Half the
respondents report no change in large CDs, while the other half report an
increase.
Balances in other accounts remained constant.
XI-1
ELEVENTH DISTRICT--DALLAS
The District economy remains weak overall.
Nevertheless, the
number of industries that appear to have reached their troughs has
increased since the April survey.
Respondents from most manufacturing
industries report that sales have stabilized or are increasing.
industry indicators point to slow improvement.
Energy
Construction remains weak,
but declines in contract values have ceased for now.
Liabilities of
District banks continue to decline, but at a decelerating pace.
Average
prices paid to District farmers are increasing.
Although most District manufacturers report that their orders are
either rising or have ceased to fall, industries linked to the construction
sector note continued declines.
Manufacturers of energy-related durable
goods say that past reductions in their sales and employment appear to be
over, but they do not expect marked increases in sales soon.
steel producers continue to rise.
Orders to
Respondents from the electronic
equipment and chemicals industries say that the falling dollar has led to
continued increases in marketings of their products.
refinery output is very strong.
Demand for oil
Apparel industry sales are up over a year
earlier.
District drilling continues to increase.
In May the rig count was
only 4 percent below a year earlier and it was above the levels of earlier
months in 1987.
Leading indicators of drilling activity in the District
point to continued slow improvement in the rig count.
Both the seismic
crew count and well permit applications increased in April and May.
price of West Texas intermediate crude oil has remained near $19 per
barrel.
The
XI-2
Indicators of District construction activity have shown some
recent strength, but the belief that these increases signal a building
recovery is not widespread.
The value of construction contracts in March
and April showed improvements compared with previous months.
Year-over-year declines persist, but at a much slower rate than earlier in
1987.
The drop in multifamily building permits is still occurring at a
fast pace.
Despite the recent upturns in overall contract construction
values, the lagged effects of past declines have resulted in continued
dropoffs in construction employment.
Retail sales in the District remain sluggish, with respondents
reporting no recent significant changes in sales or employment.
receipts in Texas remain below a year earlier.
Sales tax
Sales of home furnishings
and of some apparel lines are weak, but sales of women's accessories are
growing.
Respondents generally express guarded optimism with respect to
sales increases in the second half of 1987.
District auto dealers say that their sales rose in April and held
steady in May, but that volume is below a year earlier.
Prices of domestic
models have remained constant, while those of many imported models have
risen substantially.
Respondents expect that sales in the second half of
1987 will be higher than during the first half of the year but that sales
will be relatively slow by historical standards.
The balance sheets of large District banks continue to show a
reduction of deposits, but the rate of decline in deposits has slowed
somewhat in recent months.
Total deposits were down 8.7 percent in May
from a year earlier with large time deposits down 14.4 percent.
Borrowings
by large banks continued to increase, although at a decreasing rate.
XI-3
Business and real estate loans declined in April and May.
Deposits at
thrifts remain above a year earlier, but their rates of growth have been
falling.
Although the rate of decline in large time deposits has increased
in recent months, strong growth in small time deposits has offset this
reduction.
Some savers are said to be redistributing their deposits among
various S&Ls to maintain deposit balances below the maximum level covered
by FSLIC insurance.
District farmers and ranchers show signs of increasing their
incomes compared with a year earlier.
For livestock producers, margins
between feed costs and slaughter prices have widened markedly over the last
twelve months.
Demand for old-crop cotton remains strong and relatively
high futures market prices have led to some increases in forward
contracting for the new crop.
The 1987 cotton crop is in excellent
condition along the Rio Grande but cotton farmers face moisture shortfalls
and low seed supplies elsewhere.
Farmers' credit conditions seem to be
stabililizing but the fallout among their lenders continues.
From the
beginning of 1987 through the end of May, six Texas agricultural banks
closed, compared with the same number of closings for all of 1986.
XII-1
TWELFTH DISTRICT - SAN FRANCISCO
Summary
Economic conditions are healthy in most parts of the Twelfth District, although
weakness persists in the intermountain area and in Alaska.
Spending on consumer
products, including automobiles, has slackened in recent months, but the pace of
manufacturing activity has improved. Forest products activity continues at a strong
pace, while higher prices for many western agricultural products bode well for
mining and farming enterprises.
The recent upturn in oil prices has sparked
optimism among California oil producers, but oil-related problems in Alaska continue
to mount.
Higher interest rates have had little impact on construction activity in
most areas, as residential markets continue generally healthy and nonresidential
activity already had been slowed by high vacancy rates and tax reform.
Financial
institutions have experienced sharp reductions in home mortgage refinancing
applications, and many report a renewed interest in adjustable rate instruments.
However, few bankers report significant declines in mortgage applications for home
purchase.
Consumer Spending
In many parts of the District, the pace of consumer spending has slowed in
recent months.
Sales of both domestic and imported cars are reported to be lack-
luster in several areas, including the otherwise economically healthy San Francisco
and Seattle areas. In the San Francisco area, auto sales reportedly are down 21 percent from last year, with inventories rising. Several respondents noted that although
new car sales are down, used cars are selling very well. In the Eugene, Oregon area,
one auto dealer estimates that he sells two used cars for every new car sold.
More generally, respondents in Arizona and Washington report moderating of
the previously robust activity in those two states. In Idaho, sales tax receipts for
April were higher than they were in March, but remained substantially lower than
XI-2
their year-earlier level. Import-dependent retailers and distributors are being hurt
by the reduction in imports that has taken hold in recent months.
Manufacturing
Manufacturers of some products that compete against low-cost imports report
strengthening sales and orders which they attribute to the reduced value of the U.S.
dollar.
Sectors reporting improvement include apparel, semiconductors, and
computers.
One large semiconductor maker has announced that it intends to
complete two Oregon facilities which were put on hold in 1985 due to the
semiconductor industry slump.
Agriculture and Resource Related Industries
Lumber production continues to be strong, and many mills are running at peak
levels.
China is becoming an increasingly important market for these products.
Already this year, 8.5 million tons of railroad ties have been exported through
Portland to China, and shipment of 10.5 million board-feet of lumber to China will
begin in August.
Demand in Japan and Europe also has been bolstered, by the
reduced value of the dollar. Overall, lumber exports are 28 percent higher than they
were a year ago. The volume of orders declined in April and early May due to the
increase in mortgage interest rates, but as rates stabilized later in the month orders
picked up again.
The prospects for many western farmers have improved. Cattle producers are
enjoying higher prices and lower feed costs, while potato and fruit growers benefit
from a mild winter and increased production.
California cotton commands prices
double the level of last year, as strong foreign markets, notably in China, buoy
demand.
However, dry weather in some parts of the District has raised concerns
about summer yields.
prices.
Wheat farmers, among others, continue to experience low
Despite high participation rates in government acreage-reduction programs
that should reduce the current oversupply problem, they see little prospect of
XII-3
improvement.
These problems are particularly apparent in eastern Washington and
Oregon, in southern Idaho, and Utah.
In Kern County, California, oil industry prospects have improved modestly
since the price of local oil rose to $13 per barrel from less than $10 a year ago.
contrast, Alaska's economy continues to founder.
In
One company reports that the
volume of freight it ships to Prudhoe Bay is down 70 percent from last year's level.
Construction and Real Estate
Most respondents reported that the increase in interest rates this spring has
had little effect on the volume of real estate activity in their areas.
In the San
Francisco Bay Area, for example, the real estate market has been healthy through
May. One East Bay developer placed forty-seven "spec" lots on the market, at prices
of $75,000 and up, and sold forty of them on the first weekend. Although residential
construction activity remains largely unaffected at this point, some builders
reportedly are scaling back plans for residential units in 1987, and generally are
taking a more cautious attitude.
Moreover, some building materials dealers have
reported a sharp drop in low-end housing starts, since low income buyers are
particularly sensitive to higher interest rates.
High vacancy rates and changes in the tax law caused a slowdown in commercial construction activity earlier in the year, and higher interest rates appear to
have had little additional impact.
A few projects which do not pencil out at the
higher rates have been squeezed out. One banker argues that some developers have
withdrawn loan applications, hoping that rates will fall later in the year.
Financial Sector
The initial jump in mortgage interest rates caused a flurry of activity in April,
apparently due to concern about the possibility of further rate increases.
Several
bankers report that the increase in interest rates has reduced demand for mortgage
refinancing and renewed interest in adjustable-rate instruments.
For example, one
XII-4
banker reports that refinancing applications have fallen to thirty percent of their
previous level. The same banker notes that while fixed-rate mortgages previously
comprised about 85 percent of his bank's mortgages closings, they now account for
only 60 percent of its total.
Most bankers report little change in the number of
mortgage applications for housing purchases, but one claims that the number of
applications has dropped to a third of the level seen several months ago.
Cite this document
Federal Reserve (1987, July 6). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19870707
@misc{wtfs_beige_book_19870707,
author = {Federal Reserve},
title = {Beige Book},
year = {1987},
month = {Jul},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19870707},
note = {Retrieved via When the Fed Speaks corpus}
}