Beige Book
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
December 1990
TABLE OF CONTENTS
SUMMARY
.................................
First District - Boston
..............
i
I-
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II-1
Second District - New York ....................................
Third District - Philadelphia ................
Fourth District - Cleveland
Fifth District - Richmond
III-1
....................
...................................
IV-1
.......................................
V-1
.
Sixth District - Atlanta .....................................
Seventh District - Chicago ................
Eighth District - St. Louis ...................................
VI-1
VII-1
.....................
. VIII-1
Ninth District - Minneapolis ...................................
IX-1
Tenth District - Kansas City ....................................
X-1
Eleventh District - Dallas
XI-1
....................................
Twelfth District - San Francisco
.
XII-1
i
SUMMARY*
Business conditions are somewhat mixed in different parts of the country
but
on balance display a weaker pattern.
In many of the
Federal Reserve
districts, economic activity appears to have declined recently while it has
remained sluggish or grown slowly in the rest.
Several districts report a
decline in consumer and business confidence and many refer to expectations of
continued diminution in economic activity. Retail sales, adjusted for inflation,
appear to have declined below their year-ago levels in almost all districts.
Manufacturing conditions have weakened in most districts. However, soft domestic
demand has been partially offset by strong export orders.
continued weakness
in construction.
Most districts report
Several districts report a decline in
business loan demand as well as some tightening of loan standards by banks.
contrast, agriculture is reported to have been doing very well.
In
Crop yields have
been good and livestock prices have been high.
Consumer Spending
Retail sales apparently have weakened in almost all the districts.
The
dollar volume of retail sales in October was lower than a year ago in most of the
districts.
At best, only slight increases are reported in the rest of the
districts.
Thus, real retail sales appear to have fallen from their year-ago
levels.
The Chicago, Atlanta, and St. Louis districts
consumer confidence as
cite sharply lower
a key factor in the retail sales slowdown.
Several
*Prepared at the Federal Reserve Bank of Minneapolis and based on
information collected before November 26, 1990.
This document summarizes
comments received from businesses and other contacts outside the Federal Reserve
and is not a commentary on the views of Federal Reserve officials.
ii
districts
report
that sales
of
durable
goods
were
particularly hard hit.
Automobile sales in particular are reported to have weakened, except in Dallas.
Inventories are generally reported to have been at satisfactory levels.
Most districts report that retailers were pessimistic about sales prospects
for the Christmas season as well as for 1991.
However, the Richmond district
reports unexpectedly strong sales in metropolitan areas immediately following
Thanksgiving, and the Kansas City district reports that retailers expect sales
to be steady to moderately improved throughout the Christmas season.
Manufacturing
The Cleveland, Chicago, and St. Louis districts note particular weakness
in the automobile industry.
Weak domestic demand for manufactured goods was
partially offset by strong export orders.
An aircraft manufacturer reports that
90 percent of orders were from overseas compared to an average of 60 percent of
orders during the previous two years.
report strong export shipments.
The Richmond and Atlanta districts also
Manufacturing inventories have been described
as under control.
Manufacturers have expressed concern about business
coming months.
prospects for the
The majority of manufacturers contacted in the Boston district
expect a national recession lasting two to four quarters.
Business leaders
contacted in the San Francisco district expect continued deterioration in the
national economy.
Manufacturers in the Philadelphia district, however, expect
modest
in
increases
orders
and
shipments
over
the
next
six
months,
and
manufacturers in the Richmond district were less pessimistic about prospects than
they had been a month ago.
Construction and Real Estate
Most districts report continued sluggishness in construction activity.
Residential construction continued to be weak, with several districts citing a
glut of houses for resale. Atlanta, St. Louis, and Minneapolis report a decline
in sales of existing homes.
Nonresidential construction is also reported to be
generally weak. New York and San Francisco point to an abundant supply of office
and commercial space as big factors in the slowdown.
bright spots.
downtown
universal
However, there are a few
New York reports a recent pickup in office leasing activity in
Manhattan.
and
that
Chicago
reports
development
that
continues
metropolitan areas in the district.
construction
in
slowdowns
communities
are
outside
not
major
Minneapolis reports a recent rebound in
construction activity.
Wages and Prices
None of the districts report significant wage pressures.
Minneapolis
reports that medical insurance costs have continued to rise sharply.
reports some easing of medical worker shortages.
Atlanta
Dallas reports strong demand
for service workers.
Reports of price increases for goods are mixed.
San Francisco reports
price increases in the 3 to 5 percent range, but Boston reports that materials
prices for oil-based products have increased as much as 8 percent.
Richmond
reports steady finished good prices, even for products using oil-based inputs.
Several districts report expectations of discounting by retailers this Christmas
season in the face of weak demand.
Finance and Credit
Activity in the financial sector has been generally softer.
districts report a decline in consumer and business loan demand.
districts
also
particularly
report
for
some
tightening by banks
construction
and
land
of business
development.
Reports
Several
Almost all
loan
terms,
of
banks'
willingness to lend are mixed, with New York reporting that banks are somewhat
less willing to lend but with St. Louis reporting no change.
Agriculture and Resource Related Industries
The agricultural sector is reported to have been strong across the country.
Crop yields are generally reported to have been fairly good. Partly as a result
of these high yields, crop prices have fallen recently and reports are mixed on
farmers' incomes.
However, Minneapolis reports that farmers' balance sheets are
in excellent shape.
Several districts note that livestock producers have had an
outstanding year.
Oil and gas
extraction reports show little change
in Dallas or San
Francisco and a modest pickup in Kansas City and Minneapolis.
I-1
FIRST DISTRICT-BOSTON
First District contacts in both retailing and manufacturing report
that economic activity in the District was generally below year-earlier
levels in October and November.
For most retail contacts, sales are
running from slightly above to modestly below 1989 figures, but sales of
some durable or discretionary items have declined more than 10 percent.
Sales of First District manufacturers remain mixed, but most report that
orders are flat to down from year-ago levels.
Fearing a national
recession, most manufacturing respondents are keeping inventories lean,
reducing employment and cutting capital spending plans.
Retailers, too,
have been cautious in preparing for the Christmas season.
Retail
For the most part, this month's panel of retailers reported sales
results ranging from slight increases from last year's figures to
single-digit declines.
Sales of pharmaceutical products have increased
more than most goods, however, while sales of home building supplies and
some non-essential items have declined at double-digit rates.
Results from
northern New England tend to be stronger than those from the southern
states in the region.
Because of continuing regional economic weakness,
increases in oil and gasoline prices, and anxiety about the Middle East,
retailers are being cautious in adding stocks and employees for the
Christmas season.
Most prices are reported to be fairly stable because weak retail
demand requires a promotional stance.
However, prices for some metal and
plastic hardware products are up as much as 8 percent from last year.
I-2
Retail contacts are continuing to pursue cost-control measures.
Some are reducing interest expenses by repaying loans.
Sellers of durable
goods seem especially focused on reducing inventory and employment costs.
The consensus projection for 1991 calls for fairly flat sales
combined with continued pressures on earnings.
Manufacturing
First District manufacturers contacted in mid-November report mixed
sales results; however, a clear majority indicates that orders are flat to
down compared with year-ago figures.
percent from 1989 levels.
Declines in orders range from 5 to 25
One-third of the respondents noted a sharp drop
in demand 6 to 8 weeks ago.
With the exception of Germany, demand from
overseas has reportedly softened and is no longer stronger than domestic
activity.
In the United States, the auto and construction industries,
retailing, and the government sector all represent relatively weak
markets.
Stronger sectors include commercial aircraft, telecommunications,
electronics, and packaging.
Inventory levels are widely described as
satisfactory.
Employment is below year-ago levels at almost all manufacturers
contacted.
Declines range from slight to as much as 10 percent.
Respondents plan no additional lay-offs at this time.
Materials prices are generally reported to be increasing--from
gradually to as much as 8 percent for oil-based products.
Contacts
mentioned price increases for chemical feedstocks, steel, imported inputs,
and "shop supplies," such as safety equipment.
Most contacts are trying to
pass these input price increases on to their customers, but one-third are
meeting resistance.
Almost half have raised their selling prices by 3 to 5
percent on selected items.
Among firms discussing 1990 capital spending, most describe current
expenditures as below-budget.
Almost half the firms contacted plan to
spend just enough to cover depreciation in 1991.
A few firms expect to
upgrade their equipment; only one is building a new facility.
First District manufacturers describe themselves as very cautious.
The majority expect a national recession lasting two to four quarters.
A
few respondents report making contingency plans in case the downturn turns
out to be longer or deeper than currently anticipated.
Several contacts
expressed concerns about the implications of current debt levels for the
economy.
Outlook
The New England Economic Project (NEEP), a nonprofit organization
comprising businesses, government agencies and educational institutions,
held its semi-annual outlook conference at the end of November.
Based on a
national forecast that now includes a recession, the NEEP forecast calls
for nonagricultural employment in New England to continue declining through
the end of next year.
Jobs in the region are expected to grow at a very
modest pace in 1992 and remain below 1990 levels even in 1993.
Unemployment in New England is projected to exceed 7.5 percent in the
second quarter of 1991.
Incomes are expected to grow more slowly in the
region than the nation through the end of 1993.
II-I
SECOND DISTRICT--NEW YORK
Recent reports on District developments have been soft to mixed.
Most
retail contacts had disappointing sales results in October with year-to-year
declines for the third consecutive month.
Homebuilding activity remains
sluggish and unemployment rates rose further to just below the national
average.
Although a majority of firms in the Buffalo and Rochester
purchasing managers' surveys continue to report improvement or no change in
business conditions, there has been a sizable increase in the percentage
citing worsened conditions.
On the positive side, a pickup in office
leasing resulted in a decline in Manhattan's primary vacancy rates.
Demand
for consumer, business and home equity loans at small and medium-size banks
fell over the last three months.
Consumer Spending
Most District retail contacts reported disappointing sales results in
October though year-over-year declines were generally smaller than in
September.
One respondent stated that October sales were on target and
represented a decided improvement compared with the preceding two months.
Over-the-year sales results in October ranged from -18% to no change
from a year earlier.
Big ticket items such as furniture, rugs and other
home furnishings continued to be hard hit as they have for several months.
Among items in strong demand were cosmetics, higher priced women's apparel
and shoes, and men's shirts and ties.
Inventories were generally described
as on target which in some cases meant well below last year's level.
Only
one contact reported overstocked shelves.
Respondents tended to be rather pessimistic about the outlook for the
upcoming holiday season based on consumer reluctance to spend in recent
months.
Expressing optimism about the longer term, Barneys New York
II-2
announced plans to open a huge specialty clothing store in midtown Manhattan
in 1992.
Residential Construction and Real Estate
Homebuilding activity remained sluggish in the Second District during
recent weeks.
While a shortage of credit for acquisition and construction
loans is part of the problem, a continuing glut of houses for resale is also
a major deterrent to new construction.
In addition, some developers have
been downsizing projects already underway citing slow demand for new middleincome homes and condominiums which they attributed to growing consumer
cautiousness about the economic outlook.
A pickup in office leasing activity in downtown Manhattan and moderate
activity in midtown resulted in a decline in Manhattan's primary vacancy
rates recently.
Vacancy rates remain at relatively high levels, however,
and the continuing addition of older space to the market due to
consolidations and restructurings by various firms has caused vacancy rates
in the secondary market to climb further.
With the large overhang of vacant
office space in the region, much controversy still exists concerning the
wisdom of proceeding at this time with the construction of several new
office towers as part of a Times Square redevelopment project.
Other Business Activity
Both the Buffalo and Rochester surveys of purchasing managers reported
a sizable increase in the percentage of firms with worsened business
conditions in October.
However, a majority of firms in both surveys still
reported either improved conditions or no change from September.
Unemployment rates rose further in the District during October and are
now only slightly below the national average.
New York's rate moved up to
5.6 percent from 5.5 percent in September while New Jersey's rate increased
to 5.5 percent from 5.2 percent.
Further dampening the District's labor
markets were recent statements by the governors of both states that
II-3
substantial employment cutbacks may be necessary to close large budget gaps
in the current and next fiscal years.
New York City is also facing the
possibility of sizable layoffs because of a substantial revenue shortfall.
In addition, some financial services firms are still downsizing in
Manhattan, and Blue Cross and Blue Shield of New Jersey plans to lay off 600
workers in the near future.
Financial Developments
Based on a survey of small and medium-size banks in the Second
District, demand for consumer, business and home equity loans has fallen
over the last three months.
Business loan demand appears to have fallen the
most, as nearly all respondents reported a decrease in that category.
Although home-equity loan demand has slowed from three months earlier, it
appears to have leveled off over in recent weeks.
Delinquencies have risen
for all three categories and bankers reported a general lengthening of
repayment schedules.
When asked to forecast the demand three months from
now, a majority of bankers expected demand for each type of loan--consumer,
business and home equity--to stay the same.
Among the remaining bankers,
there was roughly an equal number predicting increasing and decreasing
demand for each type.
No banker reported that his institution was more willing to lend today
than three months ago.
willingness to lend.
Roughly equal numbers reported less and unchanged
The decreased willingness took various forms: some
banks had increased interest rates on loans; others had raised their
qualifying standards by increasing collateral requirements; a few had
tightened some loan covenants.
No banker reported a lowering of the maximum
amount available for a loan, however, or higher fees on business loan
commitments.
Bankers reporting unchanged willingness to make loans
generally had not altered their standards for at least two years.
III-1
THIRD DISTRICT - PHILADELPHIA
Economic activity in the Third District continued to
according to indications from business contacts.
ease in November,
Although more industrial firms
reported improving business in November than in earlier months this fall, overall
manufacturing activity remained on a downward trend.
Retail sales in October and
November, including Thanksgiving weekend, were below sales in the same months of
last year for most stores,
and auto sales were continuing to drop.
indicated that lending has been flat
in recent weeks, with modest
Bankers
growth in
mortgage lending offset by slower business and consumer lending.
While there is some optimism among manufacturers, in general the outlook
in the Third District business community is dim.
Slightly more manufacturing
executives expect business to pick up between now and next spring than anticipate
continued slowing, but manufacturing employment generally is expected to continue
falling.
Retailers expect sales for the holiday period to be below last year's
results and they are concerned that sales will remain soft in 1991.
expect
sales
to
continue
dropping.
Bankers
predict
continued
Auto dealers
softness
in
lending, due to weakening loan demand and further lending restraint prompted by
the need to bolster capital.
MANUFACTURING
Industrial activity in the Third District continued to decline in November,
but the severity of the downturn appeared to be diminishing a bit.
Four out of
ten manufacturers contacted for this report indicated that business was slipping,
but
this
reported
represented
a
slight
declining activity.
improvement
Also,
some
since
firms
early
fall,
when over half
indicated that business
was
improving in November, in contrast to early fall when there were virtually no
manufacturers
experiencing
improvement.
Nevertheless,
the
region's
goods-
III-2
producing sector remained on the downward trend that began a year and a half ago.
Although there was a slight upturn in the number of firms that reported
growth in shipments and orders in November, overall new orders, shipments, and
Employment also remained
order backlogs continued to shrink at area plants.
weak, as Third District manufacturers continued to cut payrolls and working
hours, on balance.
Looking ahead, the number of area manufacturers with optimistic forecasts
slightly
exceeds
conditions.
the
predicting
further
deterioration
in
business
On balance, managers at area plants expect modest increases in
and shipments
orders
number
However, with significant
over the next six months.
uncertainty still surrounding the outlook, they are planning further cutbacks in
employment.
RETAIL
Third District retailers contacted in late November generally indicated
that sales for October and November were below the level for the same period last
year and continued to be sluggish over the Thanksgiving weekend.
upscale
specialty
stores
were
doing well,
most
stores
experiencing weaker sales than they had anticipated.
inventories
were
at
appropriate
levels;
of
all
While a few
types
were
Retailers indicated that
nevertheless,
many
expressed
determination to move out all merchandise ordered for the Christmas shopping
season by the end of the year.
Store executives' forecasts of final results for the holiday sales period
reflect the recent slow sales pace.
Most merchants expect Christmas sales this
year to be below last year's, with forecasted declines ranging up to 10 percent,
in dollar terms.
Retailers also generally expect slow sales in 1991.
Third District auto dealers reported a continuing decline in unit sales,
and they were paring orders to manufacturers and keeping inventories lean.
Most
expect the downtrend to continue regardless of the course of the overall economy,
III-3
and they do not expect more than slight temporary upticks in sales in response
to current or future rebates or other marketing efforts.
FINANCE
Aggregate loan volume outstanding at major Third District banks in early
November was approximately 9 percent above the year-ago level but flat compared
to the prior month. Commercial and industrial loan volume was below the year-ago
level, continuing on the downward trend that began during the summer; bankers
surveyed
in
late
November
said
the
continued
softening
in commercial
and
industrial lending was partly due to easing demand and partly to continuing
lending restraint by banks.
Consumer lending in November was well above a year
ago, but bankers said growth was slowing noticeably, and they attributed this to
increasing caution among consumers in light of economic uncertainties and growing
debt burdens.
Real estate lending was still growing modestly, mostly due to
residential mortgages;
bankers
described commercial real
estate
lending as
"inactive."
The outlook among Third District bankers is for a continued pullback in
lending to business, lasting into mid-1991 at least, and softness in consumer
lending until economic growth picks up.
They expect banks' participation in
commercial real estate financing to be restrained for an indefinite period.
Several bankers expressed concern about the
capital standards.
imposition of new minimum
Many banks expect to limit or reduce assets in anticipation
of needing to meet a capital-to-assets ratio of greater than 3 percent; however,
some said reducing assets through securitization is becoming less attractive. The
large number of banks attempting to sell assets is resulting in lower prices and,
consequently, less
expected.
funds are being generated from downsizing
than had been
IV-1
FOURTH DISTRICT - CLEVELAND
Summary.
Nearly all Fourth District respondents expect that real GNP will
decline this quarter.
A few anticipate, however, that growth will revive in
1991:IQ, and that the economy will avoid recession.
Respondents generally
believe that the District is not currently in a recession.
has held up better here than nationally.
Several retailers expect that real
consumer spending will decline this quarter from last.
to be weakening more than seasonally.
Manufacturing
Construction appears
Funds for qualified borrowers are
generally available, but District bankers have become cautious about
industrial construction and consumer loans.
National Economy.
U.S. economic prospects eroded further in recent weeks.
All but one of a panel of 24 Fourth District Roundtable economists expect GNP
to decline this quarter.
growth.
Just a few weeks ago, 6 of the group expected slight
Still, a few expect that growth in real GNP will revive next quarter,
and believe that the economy is not in a recession, even if real GNP declines
this quarter.
Most panelists still anticipate a temporary bulge in prices
because of the oil price shock, and forecasts of inflation a year from now
hover in a 4% zone.
Regional Economy.
Most respondents believe that although conditions in
this District have softened recently, the economy is not now in a recession.
Manufacturing has been the region's strong sector, but construction activity
has been weakening.
Some District respondents point out that the recent
flatness in employment, a rise in Ohio's unemployment rate in September and
IV-2
October, and softness in retail sales all suggest an impending slowdown in the
region.
Manufacturing.
Fourth District respondents still believe that
manufacturing here is holding up better than in the national economy, although
some note signs of deterioration in both domestic and export markets.
A supplier of electronic parts reports that year-to-year increases in
the firm's exports were shrinking even before the Kuwait invasion.
A
softening dollar has helped to sustain exports of steel mill products, but one
producer notes deterioration in its overseas markets.
A capital goods
exporter believes that exports should be stronger this quarter than last,
partly in response to the dollar's continued decline.
Some steel producers note a recent decline in orders that may prompt some
layoffs next month, but another reports that its orders are holding up because
customers are hedging against a possible work stoppage when a labor contract
expires in January.
Producers expect that output this quarter could fall 10%
from last quarter.
Capital goods producers report weakened demand in some industries, but
flat to rising demand in others.
A welding machinery producer comments that
domestic orders softened in the last few months, resulting in a cutback in
overtime work.
recently.
A computer industry supplier reports that orders declined
In contrast, a supplier to the heavy-duty truck industry is
encouraged by a gradual revival in that industry from trough months earlier
IV-3
this year.
Auto production this quarter has been cut back to about a 6.2
million unit annual rate.
The industry is tentatively planning on a
production rate only slightly higher for 1991:IQ.
Consumer Spending.
Retailers generally are not optimistic about sales
prospects for this quarter.
relative to last quarter.
Most expect a decline in real consumer spending
One retailer noted that spending for big-ticket
goods, including home furnishings and appliances, has been weakening.
He
anticipates that December sales will increase about 5%, in nominal terms, from
a year earlier.
Another reports its October sales in this area were only 2.5%
higher (in nominal dollars) than a year earlier.
Still another retailer
asserted that spending in this area remains better than spending in some other
regions of the country.
All retailers emphasize that advertising and other costs will be cut, and
that new hiring this holiday season will be less than usual.
Still, one
department store official indicates that consumer spending the day after
Thanksgiving was better than they expected.
Construction.
Residential and nonresidential construction is softening
more than seasonally, according to some construction officials.
Builders of single-family homes still have access to borrowed funds, but
builders of multi-family units are forced to search extensively for financing.
Neither banks nor thrifts are reported to be interested in acquisition and
development loans, except to highly qualified builders of single-family units.
IV-4
One builder claims that although credit conditions have changed marginally
since last spring, environmental regulations in some areas are now a bigger
restraint on residential construction than credit availability.
Loans for commercial real estate are difficult to obtain, except for
owner-occupied buildings.
A construction official claims that industrial
construction is being limited to environmental work and to maintenance and
repair.
No new speculative office building construction is underway,
according to a developer.
Financial Developments.
to District bankers.
Loan activity continues to be "soft,"
according
Some report continuing growth of loans outstanding,
but at a slower pace in recent months.
One bank comments that credit card and
auto installment loans were rather strong in November, but mortgage loans have
been soft.
Another reports slower total loan growth in recent months because
more loan applications are being rejected.
Another bank is cutting back on
loans to meet its year-end capital requirements.
A few well-capitalized banks
claim that ample credit is availabile for qualified borrowers, but demand is
weak.
Several banks report that they are now more cautious about consumer loans,
and indicate that more applicants are being turned down than a few months ago.
Auto dealers note a marked tightening in bank financing for new cars.
A large mortgage lender reports that the value of its construction and
development loans in 1990 will nearly match its 1989 level.
FIFTH DISTRICT-RICHMOND
Overview
Reports of business and financial conditions in the District suggested
that economic activity declined in early November.
Retail sales were weak
through the first half of the month but showed strength after Thanksgiving.
Manufacturing activity fell.
Loan demand softened, and a more conservative
approach characterized all bank lending.
Funds for new commercial construction
and speculative residential building were particularly tight.
Exports
continued to rise faster than imports, and agricultural conditions remained
generally favorable.
Consumer Spending
Responses to a pre-Thanksgiving mail survey of retailers indicated that
retail activity softened in early November from October.
Some retailers blamed
unseasonably warm weather for the slow sales, while others pointed to reduced
consumer confidence and purchasing power.
Overall declines were recorded in
sales of big ticket items as well as in total sales, shopper traffic, and
employment.
Business at department stores was especially poor and not expected
to improve.
Despite the weakness in sales, inventories also apparently declined over
the survey period.
There was some indication that suppliers were requiring
earlier payment for delivered goods.
Retail and wholesale prices were
reported steady to higher.
Retailers reported unexpectedly strong sales in most major District
metropolitan areas during the three days following Thanksgiving.
Surveys by
V-2
the local newspapers in these areas indicated that shopper traffic was very
heavy and that business was brisk.
Lines of shoppers were reported at some
stores that had advertized discounted merchandise.
Manufacturing
Our regular mail survey suggested that District manufacturing activity
declined slightly in early November.
Respondents indicated that shipments,
orders, and employment declined, but that inventories of raw materials and
finished goods changed little.
Most manufacturers felt that poor sales
were their biggest problem, and manufacturers of furniture, textiles and
apparel said their industries were definitely in recessions.
Some
manufacturers said that customers were increasingly reluctant to order very
far ahead.
Raw materials prices rose, but most manufacturers apparently held
finished product prices steady.
Even firms that use petroleum-based inputs
like chemicals and plastics said that they had absorbed sharp increases in
their raw material costs and had not increased prices of their finished goods.
Manufacturers saw weakness in current economic conditions, but they were
somewhat less pessimistic than a month ago about prospects for business next
year.
Most respondents believed that economic activity weakened in their local
areas and in the nation in early November, and about half expected further
weakening in the months ahead.
A significantly larger number of respondents in
November than in October, however, expected activity to pick up in coming
months.
Port Activity
Officials at District ports--Baltimore, Charleston, and Hampton Roads
(Norfolk)--indicated that, seasonally adjusted, exports rose in October from
V-3
September and imports were generally unchanged.
Compared with a year ago,
export activity was higher and import activity was mixed.
All port
representatives expected exports would continue to increase faster than imports
during the next six months.
The declining dollar evidently gave a modest boost to some exports.
West
Virginia's timber industry, for example, enjoyed strong export sales, and
exports of coal to overseas markets apparently rose.
Finance
A telephone survey of financial institutions and conversations with other
business people suggested that total credit volume shrank in the first three
weeks of November.
Decreases in loan demand and in credit availability were
cited as reasons for the decline.
The volume of outstanding commercial and industrial loans evidently
declined in early November.
Lenders reported that the demand for new
commercial loans decreased and that borrowers were reluctant to use existing
lines of credit.
Bankers attributed the weaker demand to the sluggish economy
and to the uncertainty resulting from Mideast tensions.
Some lenders also
indicated that they were taking extra care to ensure that potential borrowers
were creditworthy.
Nearly all lenders reported no change in their loan rates.
Bankers said they were analyzing loans for new ventures and business
expansions more carefully.
They indicated, however, that quality customers
with sound management and sufficient documentation should find adequate credit
available.
Even so, some small businesses and real estate developers with
strong past repayment records reported that they had not been able to find
adequate funds.
In some metropolitan areas, loans for real estate development
were reported to have dried up and construction activity was described as
deeply depressed.
Agriculture
After falling behind earlier this autumn, harvest and planting activity
progressed at a rapid pace in recent weeks due to a lack of rainfall.
As of
mid-November, the harvests of corn, soybeans, peanuts, and apples were at
normal to above-normal levels.
The planting of small grains was on schedule,
and above-normal temperatures accelerated the germination and emergence of
these grains.
Most livestock producers received relatively high prices and benefitted
from relatively low feed prices.
prices.
High production, however, held down lamb
VI-1
SIXTH DISTRICT - ATLANTA
Overview:
Most business contacts report that activity weakened in October and
November from earlier this year, with real sales revenues even with or lower than at this time
last year. Manufacturers producing for domestic consumption indicate declining orders relative
to this time last year, and are cutting production and shrinking employment as a consequence.
On a more positive note, orders for defense-related goods and exports are said to be increasing,
thus supporting production and limiting the overall employment drop. Businesses report only
limited cost pass-through of oil-related price increases and an easing of previous labor shortages
for selected occupations. Retailers generally report poor sales; they are increasingly pessimistic
concerning the outlook for the holiday season. Our business contacts almost universally note an
erosion of consumer confidence. Reports from bankers mirror those of our manufacturing and
retail contacts, indicating weaker consumer spending and more cautious borrowing behavior in
October and early November than in previous months. In the construction sector, contacts report
that the level of overall activity declined in October as compared to earlier this year or to last
October.
Manufacturing: The consumer spending slowdown is said to be rippling through the
manufacturing sector with widespread reports of declining orders and employee layoffs. As
orders fall, apparel producers say they are attempting to reduce inventory risk by placing orders
for fabrics only after they receive firm orders from retailers. A producer of children's clothing,
who claims his sales are usually recession-proof, reports November orders are off by one-fourth
compared to last year. Likewise, producers of shirts and hosiery report falling orders and
continuing layoffs. A heavy equipment manufacturer reportedly will close a plant in November
and more temporary shutdowns at auto assembly plants were announced this month.
VI-2
Positive developments within manufacturing are noted by producers of defense
products in Georgia and Alabama. An executive at a major utility reported that energy use was
up 5 percent on average in October from a year earlier in the metals, paper, chemicals, and auto
parts industries. Except for metals, export markets for these products are reportedly strong.
Wage and Prices:
Freight costs are being affected by higher oil prices, though
transportation companies say the economic environment is limiting their attempts to fully passthrough fuel cost increases. The cost of producing petroleum-derivative commodities such as
styrofoam packaging materials, chemicals, and fertilizers is also up and in varying degree is
being passed on to customers. Utility company executives report that prices of domesticallyproduced alternative fuels such as coal and natural gas are remaining stable, limiting the impact
of higher-priced oil. In labor markets, scattered reports indicate both an easing of the nurse
shortage because the economic slowing is causing some local labor force reentry and growth in
the pool of available skilled and professional workers. The recent call-up of reserves is reported
to be having no significant impact yet on labor availability.
Retail Sales:
Retailers and other business contacts generally used increasingly
pessimistic terms to describe consumer spending. Most expect that real sales this holiday season
will be down in Florida and Georgia, and only flat or up slightly elsewhere in the region relative
to last year. Uncertainties about energy prices and the future of the economy are reported to
continue their impact on consumer confidence and to limit buying of cars and other durable
goods.
In Florida, consumer confidence, as measured by a University of Florida survey,
plummeted in October to the lowest level recorded in the survey's six year history. In Atlanta,
a similar poll taken in mid-November by a private organization suggests holiday spending will
be down this year compared to 1989. This poll also found that consumers are increasingly
reluctant to make car or major appliance purchases as compared to sentiments expressed in
VI-3
August. Merchants elsewhere in the region also point to eroding consumer confidence and
falling discretionary income as factors limiting consumer spending.
Retailers are generally comfortable with inventory and employment levels that are
about even with those at this time last year. Some merchants are taking advantage of contract
opportunities to reduce orders, particularly for durable goods.
Financial Services: Reports from bankers and other lenders across the region mirror
retailers' reports that consumer spending is slowing, with several contacts saying that consumer
loan growth has weakened appreciably since summer. Lenders generally say they are even more
concerned with deteriorating loan quality now than earlier this year. They indicate that weak
economic growth, tighter regulatory scrutiny, and overbuilt real estate markets have caused them
to apply credit standards more diligently to all types of lending.
Construction:
Overall construction and absorption is reported to remain weak across
the District. A contact in New Orleans says that real estate remains dormant there, and contacts
in Atlanta say home sales are flat-to-down compared to last November. In Florida, a building
materials producer reports that company sales in November were running 10-20 percent below
expectations, and that a rebound is not expected in Florida until 1992. Florida and Georgia
utility company executives note that monthly year-over-year rates of commercial and residential
customer connections have been declining this year.
VII-1
SEVENTH DISTRICT--CHICAGO
Summary. Economic activity in the Seventh District slowed moderately in October and
early November, although several contacts reported that some sectors were holding firm.
Retailing sources indicated that personal consumption spending has begun to show the effects of
a decline in consumer confidence, and it is difficult to detect previously available signs of
relative strength in spending in the District. A slowdown in orders from auto dealers prompted
Big Three automakers to reduce assembly plans for the fourth quarter, affecting a number of
District production facilities. Overall manufacturing activity is mixed, however, with strength in
shipments in several key sectors accompanied by some weakening in orders in other sectors.
Large District banks generally continued to tighten lending standards, especially for commercial
real estate development. While many projects continue to move ahead, a number of contacts
expressed growing concern about future construction activity.
Consumer Spending. Consumer confidence fell more sharply from July to October than
in any three month period in the last 44 years, including the 1973-74 oil embargo period,
according to the University of Michigan's Index of Consumer Sentiment. Several contacts in the
retail sector stated that this decline has begun to impact consumer spending. A national
department store chain reported that the weakness in comparable-store sales that developed in
October continued into early November. Results in several Midwestern markets were somewhat
better than in the nation as a whole, although sales still declined (year-over-year) in October and
early November. Store traffic has slowed, according to this contact, but the average expenditure
per customer is holding up. A fast-growing specialty retail chain based in the District reported
that sales growth in September and October dropped more sharply than in past experience. Sales
in the company's big-ticket durable goods category fell sharply from a year ago. Recent
weakness in durable goods sales was also reported by a large department store chain, with
October appliance sales in the Chicago metropolitan area declining somewhat less than in the
nation as a whole. A large national discount store chain reported that the month of October
ended stronger than it began, with good momentum continuing into November. This contact had
VII-2
reported declining year-over-year sales growth from June through September, a trend that
reversed itself in October and early November. District sales growth lagged behind the
company's national average, principally because of increased competition in the Midwestern
market.
Auto Production. Auto production in the District faces a serious slowdown over the next
several months. Slowing dealer orders have prompted Big Three automakers to reduce
production schedules for the fourth quarter, and several auto industry analysts maintained that
Big Three production cutbacks probably will be greater than those already announced. While
income guarantees included in organized labor contracts may help cushion the impact on District
consumer spending, one analyst noted that the employees of many regional suppliers to the
industry do not enjoy such protection. Still, several automakers contended that current and
expected conditions should not produce a slump in the auto sector comparable to those in
previous recessionary periods. One industry spokesman argued that 1991 sales could be as high
as in 1990 if the Middle East crisis is resolved soon.
Manufacturing. Overall manufacturing activity in the District is mixed. While other
durable-goods sectors have weakened along with autos recently, machine tool orders in October
were robust and steel production remained solid. A large District steel producer reported that
October was a good month for the company's shipments. Order books for the industry are
generally full for the fourth quarter. Steel orders for the first quarter of 1991 look normal,
according to an industry economist, including orders from the auto industry. A major producer
of capital goods in the District reported that nondefense machinery shipments in October grew
slightly faster than for the year-to-date period. However, nondefense machinery orders declined
in October, in contrast to relatively strong growth for the year-to-date period. The capital-goods
market was characterized as showing "no widespread recessionary cratering," but concern was
expressed about the near-term outlook. New weakness in orders is consistent with the results of
October purchasing managers' surveys in Chicago and Indianapolis, both of which showed
relatively sharp declines in the new orders component.
VII-3
Slowing economies in Canada, Western Europe, and other foreign markets could affect a
significant source of expected strength in the District's manufacturing sector. A large District
producer of heavy equipment reported continued slowing in unit sales in October and early
November in many of its important overseas markets, following the weakness that developed
over the summer. Sales growth in Asia has continued at about the same pace recorded in the
third quarter, however. A capital goods producer in the District reported solid increases in
export sales (in current dollar amounts) in October, but noted continued weakness in some of its
foreign subsidiaries' sales. Another large exporter in the District, which produces less cyclically
sensitive goods, stated that unit sales volume overseas continued to expand in October and
November.
Banking. The downturn in the U.S. commercial real estate market, the prospect of higher
deposit insurance premiums, and bank regulatory concerns about capital adequacy have
combined to tighten credit standards at large banks in the District. One bank economist stated
that recent loan demand has been driven in part by greater customer concerns about the future
supply of credit, which contributed to a recent surge in medium-term note issues. Several large
District banks reported stricter standards on commercial and industrial loan applications by large
borrowers, while a smaller number disclosed stricter standards for small and middle market
firms. Approved lending generally (although not universally) bore higher spreads on loan rates
over base rates, stricter covenants, decreased maximums for credit lines, and somewhat
increased credit-line fees. District respondents generally reported tighter credit standards for
construction and land development loans than for other types of loans. One large District lender
stated that commercial mortgage loan foreclosures are "certain to exceed 1987 levels (the
previous peak) in 1990."
Construction. While most construction projects that previously received financing
continue to move ahead, commercial and multi-family residential construction have become
generally acknowledged sources of weakness in the District economy. A large contractor in the
District stated that occupancy and rental rates indicated that demand for new office building and
VII-4
hotel construction would probably be "falling rather sharply." Construction of retail stores and
industrial structures has been relatively strong, but this contact believed that conditions would
likely deteriorate in these areas as well. A large manufacturer of construction equipment
reported that sales in the District were holding up relatively well. However, equipment
customers were expressing reservations about future District construction activity, if conditions
in the Northeast and the West Coast spread to the Midwest. A producer of construction
materials reported greater declines in shipments for October than for the year-to-date, and noted
that industry shipments in the District have begun to show declines comparable to those in the
nation as a whole. Still, this source stated that Midwest construction activity is "not quite so
bad" as in much of the rest of the country. A District manufacturer of capital goods used in
construction reported that, after four months of deterioration in contract awards, order rates were
just beginning to fall off. Reports of construction slowdowns are not universal, however, and
development continues in many communities outside of major metropolitan areas in the District.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Summary
The level of Eighth District economic activity has declined in
recent weeks.
and
Retail sales, in real terms,
construction
exports
are
District's
sectors
continue
increasing.
largest
Minor
banks.
to
credit
The
are down.
weaken,
The manufacturing
although
tightening has
agricultural
sector
manufactured
occurred
shows
at
the
continued
strength.
Consumer Spending
Most retailers report that the nominal value of sales
or
slightly
below
declined.
that
of a
year
ago.
Thus,
real
retail
is near,
sales
have
Sales of appliances, furniture and other big-ticket items are
particularly
weak.
Relatively
mild weather
has
slowed
the
sales
of
winter apparel, while uncertainty about national economic conditions and
the
Persian
Gulf
situation
Retail
price-conscious.
have
made
inventories
generally are
Most contacts expect the nominal value
slightly
below that of 1989,
consumers
both
cautious
at planned levels.
of holiday sales
though several
and
respondents,
to be
near or
including
those
representing discount stores in St. Louis and Memphis, expect substantial
growth.
Contacts
report weakening
that are
domestically produced or
are reportedly selling fairly well.
desired levels.
vehicle
sales,
especially
are not fuel-efficient.
for cars
Small trucks
Vehicle inventories are generally at
The outlook is for continued weakness.
Manufacturing
Manufacturing activity continues to weaken, with both durables
and
nondurables
sectors
affected.
Several
auto
assembly
plants
had
VIII-2
temporary
layoffs
in
producers
of tires
November
and
some
of their
also report
and accessories,
suppliers,
such
as
production cutbacks.
While most textile and apparel producers in the District are experiencing
flat
or
declining
orders
Shield-related
three
orders,
for
factories
hats
uniforms,
filling
and
Desert
Operation
boots
one
and
plant
producing medical uniforms are substantially expanding their operations.
Construction and Real Estate
Both
residential
for
Permits
weaken.
and nonresidential
homes
single-family
and
Louis
are
by
down
Realtors in these cities report that economic
Persian
the
affecting the housing market.
that home sales
St.
to
Existing home sales have also weakened in St. Louis,
Little Rock and Memphis.
conditions
in
continue
while multifamily permits are down
one-third from their year-ago level,
almost 75 percent.
construction
are up
are
Gulf
the
primary
negative
factors
however,
reports
One Louisville realtor,
substantially
from their year-ago
pace;
this
realtor expects a record dollar volume in 1990.
Banking and Credit
Loan
report
officers
that
some
credit
minor
occurred recently at the District's five largest banks.
tightening
has
For commercial
and industrial (C&I) loans that banks were willing to approve, the costs
of credit
lines
and
increased somewhat,
the
of
spreads
loan
rates
according to respondents,
over base
rates
had
while the maximum size of
credit lines and collateralization requirements were basically unchanged.
Except
for
tightened
residential
during
the
mortgage
past
loans,
three
real
months.
estate
Credit
loan
terms
standards
have
for
construction and land development loans and loans to finance commercial
office buildings
have
tightened somewhat more
nonresidential real estate loans.
than those
for nonfarm
Respondents indicated that, apart from
VIII-3
normal seasonal changes, demand for residential mortgages had remained
the same or weakened somewhat compared with the first
half of the year.
The banks' willingness to make consumer loans, however, had not changed.
Agriculture and Natural Resources
The harvest of the District's crops is nearing completion.
When
the harvest is over, District production of soybeans will be up slightly,
while cotton and tobacco production will be up substantially over 1989.
Corn production will be down.
Dry soil conditions led to poor pasture
conditions and a short supply of hay in parts of Mississippi.
remain relatively strong.
cow/calf operators
Returns to
Southern pine lumber mill
District states' recent coal
activity is running ahead of last year.
production has been higher than a year ago.
Exports
District exports of manufactured goods have increased in
months,
while
agricultural export
growth appears mixed.
export growth of manufactured goods
to
Mexico
Government offices
are
growing
among producers of auto parts,
due in
as
import
restrictions
have
eased.
assisting exporting firms report a recent upswing in
the demand for their services.
year ago,
Much of the
industrial machinery and printing and packaging machinery.
chemicals,
Exports
is
recent
part to large
Exports of rice are up slightly from a
sales to Mexico and Brazil,
crops were damaged by severe droughts.
whose rice
Several contacts believed the
lower exchange value of the dollar has helped boost exports in recent
months, but were unsure how important this factor was.
soybean exports are reported as lower than a year ago.
Corn, wheat and
IX-1
NINTH DISTRICT-MINNEAPOLIS
Ninth district economic conditions have been showing signs
recently.
Labor market
conditions
have been mixed.
Growth
of weakness
in spending on
general merchandise has slowed down lately, automobile sales have been sluggish
and housing activity has declined.
have been mixed.
Conditions in construction and manufacturing
Resource-related industries have been doing very well.
Wage
and price increases have remained moderate.
Employment, Wages, and Prices
Labor market
conditions have been mixed in the
district.
Minnesota's
unemployment rate was 4.5 percent in September, up slightly from 4.3 percent in
August and 4.2 percent in September 1989.
Unemployment rates in Montana, South
Dakota, and the Upper Peninsula of Michigan were slightly higher
than their levels a year ago.
in September
Unemployment rates in western Wisconsin and North
Dakota fell slightly over the same period.
The number of people employed in the
district was about 1.0 percent higher in September than in September 1989.
In
the Minneapolis-St. Paul area, computer and electronics firms have continued to
reduce the size of their workforce but demand for hospital and medical workers
is reported to have been strong.
Wage increases have remained moderate.
However, employers throughout the
district report that medical insurance costs have continued to rise sharply.
Price increases,
except for fuel
costs, have been moderate.
A construction
contractor reports that costs are expected to increase 4 to 6 percent
in the
first half of 1991 but does not expect to be able to pass along cost increases
fully to customers.
Consumer Spending
District retailers of general merchandise report a slowdown in sales growth
lately.
One major retailer reports that October sales in comparable stores were
IX-2
2.4 percent higher than a year ago and sales in the first 10 months of the year
were up 4.7 percent over last year. A discount chain store reports that October
sales were 1 percent lower than a year ago and an appliance retailer reports no
change
in sales over the same period.
northern Minnesota, and Michigan's
Canadian shoppers.
Retailers in North Dakota, Montana,
Upper
Peninsula
report
strong sales
to
Throughout the district, inventories are reported to be at
acceptable levels.
New car and truck sales have been sluggish lately.
truck sales in early November were about 7 percent
Dealers report that
lower than a year ago.
Reports of new car sales range from a 2 percent increase to a 15 percent decrease
over the same period.
Automobile dealers report that they expect sales in the
first quarter of 1991 to be about 1 percent lower than the first quarter of this
year.
Housing starts have continued to decline in Minnesota.
The number of new
housing permits issued in that state was 8 percent lower this September than
last.
This decline was concentrated in the Minneapolis-St. Paul metropolitan
area where the number of new housing permits declined by 12 percent over the same
period.
Sales of existing houses in this metropolitan area had been holding up
well earlier in the year but fell by 34 percent this October from last October.
Housing activity elsewhere in the district has been moderately good.
Tourist spending has been fairly strong, especially in areas near the
Canadian border. Thus far this year, Canadians have reportedly made over 700,000
trips to North Dakota-a number which exceeds the population of that state.
The
number of tourists visiting Mount Rushmore in South Dakota was about 4 percent
higher this year than last.
The city of Deadwood, South Dakota, has
grown
explosively ever since legalized gambling was introduced about a year ago.
IX-3
Construction and Manufacturing
Conditions in the district's construction industry have rebounded recently.
In the Minneapolis-St. Paul metropolitan area, the dollar volume of contracts for
future construction had been substantially below 1989 levels but rose sharply in
September when it was 35 percent higher than in September 1989.
However, it is
expected that construction activity in this area will decline in the coming
months.
Elsewhere in the district, construction activity has been moderately
good.
Conditions
lately.
in the district's manufacturing
industries have been mixed
The computer and electronics industries have continued to be in very
poor shape and suppliers to housing construction report slow sales.
aircraft industry suppliers
and the medical instruments
However,
industry have been
growing rapidly. Manufacturers generally report strong export demand, especially
for capital goods.
Resource-Related Industries
The district's resource-related industries appear to be fairly healthy.
Agriculture appears to be in good shape.
have been excellent.
Crop yields throughout the district
There was very little rain in the district this fall which
helped farmers dry their fall harvest.
However, the lack of rain has also raised
concerns about a possible drought next year.
Good crop yields have been offset
by a fall in prices of farm products so that farmers' incomes are not much
changed from last year.
However, farmers' balance sheets are reported to be
fairly healthy and farmland values are reported to be rising fairly rapidly.
Livestock ranchers report that this year has been the best in their experience.
The mining industry has also been doing well.
up recently, especially near proven fields.
Oil exploration has been picking
X-1
TENTH DISTRICT - KANSAS CITY
Overview.
Continued strength in farm incomes and a modest improvement
in the energy sector are helping to sustain slow growth in the Tenth District
economy.
High cattle and hog prices are the primary sources of strength in
farm incomes, and higher oil prices are spurring exploration and development
activity.
Retail sales, including new auto sales, however, remain soft.
Slow
sales are leading both retailers and manufacturers to trim inventories.
Despite slight declines in mortgage rates, new home sales and housing starts
are weak.
Loan demand at commercial banks decreased slightly last month, with
much of the decline due to lower demand for residential construction loans and
commercial real estate loans.
Retail Sales.
District retailers report sales flat at best over the
last year and over the last three months.
thrilled if sales end up flat for the year.
One retailer noted that he would be
Sales strength is limited to a
few categories of goods such as apparel and outdoor sporting goods.
appliances and other big ticket items are generally weak.
Sales of
Most respondents
are trimming high inventory levels and becoming more cautious about buying.
One retailer remarked they were not ready for a recession because they were
loaded with merchandise.
While most respondents expect sales to be steady to
moderately improved through the Christmas season, they also expect slower
sales soon thereafter.
New auto sales are flat to down in most district states.
Potential
buyers in some areas are having difficulty getting loans as lenders become
more selective.
Most dealers are trimming inventories in the expectation of
weak sales, while still trying to maintain stocks of the new models.
Manufacturing.
Apart from petroleum products and fuel surcharges,
X-2
purchasing agents report only slightly higher input prices over the past three
months.
Prices are expected to increase modestly over the next three months.
Agents report no difficulty in obtaining materials, and lead times continue to
shorten.
Most firms are trimming inventory levels due to lower than expected
sales and continue to operate below full capacity.
Energy.
Sharply higher oil prices have begun to spur exploration and
development activity in the district.
The average number of operating
drilling rigs in district states increased from 305 in September to 325 in
October, a level almost 7 percent higher than one year ago.
Despite this
improvement, uncertainty about the eventual outcome of the Middle East
situation will moderate further gains in drilling activity.
Housing Activity and Finance.
Housing starts are generally unchanged
from last month, despite weak new home sales across the district.
Expectations for sales are mixed, but starts are not expected to increase.
Several builders report higher prices for wooden shingles and asphalt roofing.
Availability of materials is not a problem, however.
Reports on deposit flows from savings and loan respondents are mixed,
with results often dependent on locality and business strategy.
Mortgage
demand is down and is expected to worsen due to seasonal factors and a
weakening economy.
Mortgage rates have declined slightly over the last month
and are expected to fall further in the months ahead.
Banking.
Commercial bankers report total loan demand decreased slightly
over the last month.
Much of the decrease was due to a lower demand for
residential construction loans and commercial real estate loans.
Demands for
commercial, consumer, and agricultural loans were steady, while home mortgage
demand increased slightly over the last month.
Bankers report credit
X-3
standards for loan approval unchanged to somewhat tighter, with tighter
standards generally due to a less favorable economic outlook and pressures on
banks' capital positions.
Respondents report no change in their prime rate
over the last month, but several bankers expect their prime rate to fall in
the near future.
Although a few respondents reduced consumer loan rates
recently, most did not change their consumer rates in the last month.
bank deposits were stable to slightly lower over the last month.
Total
Demand
deposits, money market deposit accounts, and small time deposits were stable
to slightly down.
NOW accounts and large certificates of deposit were
unchanged, while IRAs and Keogh accounts showed some increase.
Agriculture.
The harvest of most district crops is nearly complete,
except for Oklahoma's cotton harvest.
Corn, soybean, and milo yields were
normal to slightly above normal in most of the district.
and onion yields in northern Colorado were disappointing.
Sugar beet, potato,
In southwestern
Oklahoma, peanut yields were excellent, and a large cotton crop is expected.
The district's winter wheat crop is generally in excellent condition.
After an excessively dry planting season in much of the district, plentiful
moisture and warm weather have given the new crop a boost.
Crop income prospects for district farmers have weakened in recent
months, but livestock income prospects remain bright.
the fall harvest season neared completion.
Crop prices slumped as
Higher oil prices promise to boost
crop production expenses and have encouraged farmers to purchase fuel,
fertilizers, and other petrochemicals earlier than normal.
Crop income
subsidies have been cut back in the new government farm program, and
participation in the program by district farmers may decline.
High cattle and
hog prices, however, continue to bolster incomes for district livestock
producers.
XI-1
ELEVENTH DISTRICT--DALLAS
After adjustment for seasonal patterns, respondents indicate that output
in the District has remained unchanged since the last survey.
The
manufacturing sector continues to decline while growth in the service sector
has recently increased.
have increased mildly.
Auto sales are expanding.
Construction activity has declined slightly.
extraction has remained flat.
continue to increase.
Department store sales
Energy
State government revenues and expenditures
In agriculture, prices and production have been
increasing.
Manufacturing orders continue to be weak.
Most respondents say that
orders have not changed or have declined slightly.
uncertainty due to the Middle East crisis.
desired levels.
sector.
Respondents note continued
Inventories are generally at
The weakest industries are those tied to the construction
Lumber producers note declining demand while orders for stone, clay
and glass remain at very low levels.
continued strong.
Orders for primary metals generally have
Fabricated metal producers cite flat sales, but respondents
expect sales to decline in the coming months.
Chemical orders have fallen in
recent months after a surge that followed the Kuwait invasion.
Chemical
production has remained strong, however, because producers are replenishing
depleted inventories.
Petroleum refiners say that demand has generally been
flat and that, while margins have improved slightly, they are well below preinvasion levels.
According to apparel manufacturers, orders have declined
because retailers are cautious about the holiday season.
weak across a wide range of electronic products.
stimulated sales growth in oil field machinery.
Sales continue to be
Strong foreign demand has
Sales of food and kindred
XI-2
products have been growing moderately.
Paper production has continued to show
mild year-over-year gains.
Growth in the District service sector has increased during the past
several months.
Respondents note that increased economic uncertainty has
boosted demand at temporary employment agencies, with demand particularly
strong from the manufacturing sector.
Computer-related business consulting
has slowed somewhat while other types of business consulting have increased.
Some respondents note that demand for accounting services has accelerated
recently.
Health services continue to grow at a moderate pace.
Hotels and
airlines note some recent declines in demand while respondents in the
advertising sector say demand has improved modestly.
Growth in District retail sales has increased since the beginning of
October, although real rates of growth are close to zero.
Texas are showing some improvement.
is outperforming the nation.
many items.
Houston and West
Several retailers note that the District
Weak demand has held prices flat to down for
Some retailers say that they have shifted from foreign to
domestic manufacturers due to the falling value of the dollar.
Sales at
discount stores continue to be stronger than sales at non-discount retailers.
Area auto sales rebounded in October after several months of weakness.
On a year-over-year basis, sales increased 20 percent in Houston and 11
percent in Dallas/Ft. Worth.
In the first 10 months of 1990, sales in Houston
and Dallas/Ft. Worth were up about 4 percent from the same period in 1989.
District oil and gas extraction has shown little change.
The price of
West Texas Intermediate crude has increased 90 percent since Iraq's invasion
of Kuwait last August.
Nonetheless, natural gas prices have increased only
seasonally and oil prices are expected to retreat once the crisis in the
XI-3
Persian Gulf has been resolved--leaving oil and gas producers cautious about
expansion.
Consequently, neither drilling nor employment in the oil and gas
industry have increased significantly.
Although the Texas rig count increased
slightly during October, the District rig count has been declining since July.
District construction activity has slipped slightly in recent months.
Median home prices in Texas dropped sharply in September and October.
One
respondent noted that while median home prices have decreased, this is due to
a relative increase in the amount of lower priced homes being sold.
The
respondent noted that the price for any given home has generally been rising.
District residential construction has increased due to continued strength in
the Texas apartment market.
Nonresidential construction has increased
slightly but remains below that of a year ago.
District nonbuilding
construction has continued to decline.
State government respondents say that nominal tax revenues in the
District continue to grow slowly.
Demand for social services has increased in
all three District states and employment and spending has continued to grow at
moderate rates.
The District harvest is nearly complete.
Production has been good
despite extreme weather conditions earlier in the year.
District agricultural
net cash income should be up slightly from last year, even though incomes have
been reduced by higher than expected fuel costs.
Although livestock and
livestock products prices were down from September, they reached a record
October high.
from September.
Crop prices were 7 percent below a year ago but up 1 percent
XII-1
TWELFTH DISTRICT -- SAN FRANCISCO
Summary
Economic growth in the West remains sluggish, and western business leaders' expectations
about the national economy continue to deteriorate. Reports suggest that price increases may
have moderated in recent weeks. Retail trade activity in the West is mixed, with wide variations
by region. Activity in most manufacturing industries is reported to be flat to down from a year
ago. Agriculture is one of the stronger sectors in the District, with strong prices and good yields.
Lumber orders are down, while oil producers are enjoying the current high level of prices.
Construction and real estate activity are down in most parts of the West, but several inland
regions report continued strength. While conditions in Twelfth District financial institutions
remain generally healthy, some California banks report further softening in major markets.
Business Sentiment
Western business leaders' expectations about the national economy continue to
deteriorate. According to the most recent survey, 72 percent of respondents expect a recession
during the next year, compared with 67 percent five weeks earlier and 4 percent at the end of
July. The remainder of respondents anticipate that real GNP will grow at a pace slower than 2
1/2 to 3 percent. Weakness is anticipated in the home building, consumer spending, and business
investment sectors, with more than 90 percent of respondents expecting softening in each of these
sectors. In contrast, respondents are evenly split between those expecting the trade balance to
improve and those expecting it to worsen.
Wages and Prices
Reports suggest that price increases may have moderated in recent weeks. While some
petroleum-based products, including plastic products, have seen their prices rise during the past
six weeks, users of other petroleum products, such as jet fuel, note recent declines since the sharp
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run-ups immediately following the invasion of Kuwait. Reported price increases for labor and for
most other products continue to cluster in the 3 to 5 percent range. However, auto dealers and
department store retailers report that consumer resistance is holding their prices down. One
retailer notes that wholesale prices for soft goods appear to be declining, and these reductions
should eventually be passed on to the consumer. Another retailer expects prices to fall during the
holiday season as stores resort to promotional pricing to attract shoppers.
Retail Trade and Services
According to current reports, retail trade activity in the West is mixed. Several
respondents report weakness, including an auto dealer and a department store executive. Sales
are stronger in the Pacific Northwest and inter-mountain areas than they are in other parts of the
West. Moreover, a Sacramento respondent notes that some retailers in that area are experiencing
stronger sales than they did a year ago, much to their surprise.
While one retailer reports a slight increase in inventories, another notes that inventories
are in "surprisingly good shape" due to cautious ordering by retailers. No significant changes in
the composition of retail orders, in terms of domestic versus imported products, were reported.
Manufacturing
Most respondents familiar with manufacturing industries report that activity is flat to down
compared with a year ago. Inventories, however, are generally under control. One respondent
reports that electronics industry orders are being placed with much shorter lead times as
customers try to hold down inventory costs. While the number of commercial aircraft
manufactured remains flat, orders continue to pour in and the order backlog continues to
lengthen. This year, 90 percent of one aircraft manufacturer's orders were from overseas,
compared to an average of 60 percent during the previous two years. A smaller aircraft
manufacturer, however, reports that the overall number of orders at his company is about the
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same as it was last year, and that there has been no appreciable change in the composition of
domestic versus foreign orders.
Agriculture and Resource-Related Industries
Agriculture is one of the stronger sectors in the District, with strong prices and good
yields for most products. Beef producers are enjoying high prices, and beef exports to the Pacific
Rim have picked up again after slowing this summer. In California, farmers and ranchers are
increasingly concerned about the possibility of a fifth drought year. This concern, along with
worries about trade negotiations and the general economy, have led to increased caution among
some farmers.
Lumber orders are down from a quarter ago and from a year ago. Many mills in the
Northwest are cutting back production due to this lack of demand.
Oil producers are enjoying the current high level of prices. In Kern County, California,
oil companies are spending money to enhance their wells, but long-term price uncertainty is
keeping them from doing much exploration.
Construction and Real Estate
Construction activity is down in most parts of the West, particularly in the office and
commercial sectors. The weakness is attributed to an abundant supply of space in most markets,
coupled with resulting caution on the part of lenders. Reports suggest that construction activity
in the Seattle area may be growing more slowly or declining, but a utility company continues to
experience robust growth in its number of residential hookups. Some parts of the District
continue to experience strong residential construction activity, including Bakersfield and Fresno in
California's central valley, and parts of Idaho, Utah, and Oregon.
Real estate activity, as measured by the number of sales, property values, and rents,
continues to weaken in most parts of the West. A southern California developer reports that new
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leases on office space in some areas are priced 10 to 15 percent below their peak levels. This
developer also reports that few commercial properties are being sold, but estimates that the
values of the well-leased commercial properties that are changing hands have fallen by as much as
10 to 15 percent as well. At the same time, in California's central valley, the Pacific Northwest,
and the inter-mountain states, residential property values continue to exceed their year-earlier
levels. Even in markets that are generally lackluster, low-priced homes continue to sell relatively
briskly.
Financial Sector
While conditions in Twelfth District financial institutions remain generally healthy, some
California banks report further softening in major markets. One California banker, for example,
reports that business loan demand is flat and consumer loan demand has softened considerably
during the past two to three months. At the same time, bankers in Oregon, Utah, Idaho, Hawaii,
and central California report strong or improved loan demand.
Cite this document
Federal Reserve (1990, December 17). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19901218
@misc{wtfs_beige_book_19901218,
author = {Federal Reserve},
title = {Beige Book},
year = {1990},
month = {Dec},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19901218},
note = {Retrieved via When the Fed Speaks corpus}
}