Beige Book
National Summary

November 14, 1979

Current conditions vary considerably among the Districts. General characterizations range from ongoing growth in the Minneapolis District to emerging recession around Boston. Near consensus exists, however, as to pervasive weakness in the automobile and housing sectors. Strength persists, nonetheless, in some other manufacturing sectors, and non-auto retail sales. There is also general agreement that inventories, in general, across the economy, pose no immediate problem, although there are underway widespread efforts to pare current stocks and reduce what have become heavy carrying costs. Financial market conditions are tending to depress the growth of loan activity in most districts. Mortgage and automobile lending are generally weak, but business lending continues to expand moderately, at least in most regions. In general, loan demand continues buoyant despite some moderation in its recent growth.

Real personal consumption expenditures are being depressed by the dearth of automobile sales, but continue to show resilience in other sectors. Only Boston and Minneapolis see general weakness in retail sales. Dallas has perhaps the strongest report, with unit sales at department stores ahead of a year-ago. In several districts sales continue to advance from earlier in the year despite being down somewhat, in real terms, from a year ago. Chicago finds consumption of durables, luxury goods, and services down, while Kansas City perceives recent strength in sales of appliances, home furnishings, and energy related home improvement items. In several regions, however, much of the recent vigor of sales is attributed to aggressive promotional activity. In the Richmond District, where sales are up, retailers are preparing promotion programs for an expected softening in demand.

Most districts report marked slowing in residential construction and in sales of existing homes. Usury ceilings are cited as a major impediment in a number of states, but even in the states with no such restrictions, financial market conditions are not conducive to vigorous activity in the housing sector. In some areas, notably the St. Louis, San Francisco, and Atlanta Districts, commercial construction remains strong, offsetting the weakness in residential activity. Dallas reports that substantial construction in progress is propping up the volume of real estate loans outstanding. New York, on the other hand, finds construction to be "the principal exception to near-term strength in business activity."

Manufacturing activity is particularly spotty. The automobile sector is exhibiting pervasive weakness, but there exist definite areas of strength. St. Louis finds, with the exception of autos, a relatively high level of manufacturing and particular strength in several industries including most capital goods, basic metal products, aircraft, and textiles. Minneapolis reports broadly based strength in industrial production. Dallas characterizes manufacturing as flat with weakness in consumer durables being about offset by strength in nondurables and construction related areas such as primary metals and stone, clay and glass products. Meanwhile, the Third District is reportedly five months into a general downturn in manufacturing activity. Chicago reports high operating rates, but declining order backlogs at most capital goods producers. The capital goods sector in the Cleveland District is still experiencing backlogs amidst some concern that they might soon face reductions in orders. San Francisco sees most sectors except auto and construction related ones doing well.

Despite the prevailing level of interest rates, more stringent non- price lending terms, and tighter credit standards business loan demand continues to expand in most areas. Funds apparently remain available to businesses who are taking advantage of that availability. The most common characterization of business loan activity is a moderate slowing in the rate of growth. Kansas City and Atlanta report credit demand dampened by interest rates and Boston perceives a softening in commercial loan demand, but these cases appear to be exceptions. Mortgage lending, on the other hand, seems to be severely and broadly depressed. In regions where mortgage money is available interest rates and down payment requirements have increased sharply in recent weeks. Some district report non-price rationing of funds, while other find some lenders having withdrawn completely from mortgage lending activity.

Reports on agricultural activity are generally favorable with good crops and firm prices holding farm incomes up in the Midwest and plains states and in the Far West. Atlanta, however, reports sharply higher feed costs and low market prices for broilers and hogs widening loss margins of producers. Cutbacks in production of hogs and broilers is resulting. In the Midwest transportation bottlenecks and inadequate storage facilities are impeding marketing efforts.