Beige Book
National Summary

August 7, 1979

This month's REDBOOK reports carry a clear message: a general softening in activity began in the second. quarter and. no early reversal is in sight. The decline has centered in housing and. consumption spending, but attempts to prevent buildups of inventories, and dimming prospects for capital spending are also factors. Despite weaknesses, total activity is still at or near record levels and job markets remain surprisingly strong. Motor fuel supplies have improved, but sectors affected by shortages are not returning to normal. Inflation continues unabated. Credit is tight, but generally available. Agriculture is prosperous, but transport problems are hampering movements of grain.

Pessimism is widespread. as reflected in consumer attitudes, surveys of executives, and opinions of directors. The main causes of pessimism are continued inflation and. concerns associated with the long-tern availability of energy.

Philadelphia's survey of manufacturers shows a decline in activity after "three months of no growth." Richmond's survey reveals declines in shipments, new orders, and. order backlogs.

Most districts reported that gasoline and diesel shortages had eased significantly in the past month, because of both increased supplies and conservation induced by sharply higher prices and concern over availability. The main direct adverse impact of fuel shortages has been on low-mileage vehicles and tourism. A number of' districts, notably Atlanta and Dallas, remarked that tourism had recovered significantly as fuel supplies improved, but summer tourism certainly will be off substantially nationwide except for some favorably located areas.

Although scattered layoffs have occurred, most districts reported demand. for labor still strong. San Francisco finds that layoffs in some manufacturing industries have been offset by continued gains in other manufacturing industries.

Virtually all districts reported sluggish retail sales, especially of items adversely affected by energy. New York was particularly concerned. Some districts, for example Richmond, found offsets in increased sales of items used in and around the home. Consumer credit use has been curtailed along with purchases of big-ticket items. St. Louis reported an increase in installment credit delinquencies and personal bankruptcies.

Residential construction and sales of existing homes are off almost everywhere, but the impact varies substantially. Chicago reports residential permits down 40 percent, while Cleveland is "encouraged by the strength of the housing sector."

Shortages of materials have eased as activity has slowed, particularly in the case of building materials. Inventories are not generally excessive except for products such as big cars where sales have dropped sharply. However, steps taken to prevent the buildup of burdensome inventories are reflected in reduced demand for manufactured products. Both Cleveland and Chicago report a decline in new orders for steel, but output prospects are favorable for the short term.

Vigorous activity in nonresidential construction contrasts with the residential picture. San Francisco mentions a shortage of office space.

Demand for capital equipment remains strong overall, but some weak spots are appearing. Boston, New York, and St. Louis report some manufacturers scaling back expansion plans. Among the capital goods sectors that remain strong are commercial aircraft, railroad equipment, electronic controls, machine tools, and energy-conserving items.

Demand for most types of credit remains strong. Terms are stiff, but good risks are readily accommodated. Usury ceilings which had limited activity in Texas and Louisiana are being liberalized. Business loan demand is reported as "exceptionally strong" by both Boston and New York, but Philadelphia says business loan demand is "mixed." Several districts comment on the lack of deposit growth.

Farm income prospects are favorable with high prices and excellent yields indicated for wheat, corn, and soybeans. Kansas City believes that "outstanding" wheat yields imply the USDA has underestimated the crop. Facilities to move and store grain are fully utilized. Minneapolis fears that a strike at the port of Duluth will cause loss of one-third of the area's wheat crop.