Beige Book
National Summary

September 13, 1978

Reports from the twelve District Banks this month indicate continued expansion of the national economy but at a moderate pace. Retail sales growth continues in most Districts but at varied rates. Expanding manufacturing activity and generally strong loan demand continue to be major sources of strength to the economy. Construction activity is on the upswing despite some labor and materials shortages in the Midwest. With the exception of cotton, crop prospects are reported to be favorable.

Retail sales volume is growing in all Districts in September, but at various rates. Boston, Richmond, Chicago and Minneapolis report strong sales growth, while the other Districts indicate only modest or marginal gains after accounting for inflation. Automobiles and/or big-ticket items are mentioned as particularly strong areas by New York, Cleveland, Richmond, Chicago, Minneapolis and San Francisco. There is scattered concern that inventories may be becoming excessive. As for the future, retailers have mixed opinions. Several Reserve Banks mention that merchants are concerned about the possibility of overextension of consumer credit within the next few months.

Manufacturing activity is reported to be generally strong. Although New York and San Francisco report little or no growth in this sector, an actual decline in activity is not observed anywhere. Supplies of most commodities appear to be adequate at this time. For the longer term, manufacturers seem to be considerably less optimistic and a little more uncertain than they have been in recent months. In fact, Philadelphia and Richmond report that manufacturers in those Districts are anticipating a decline in economic activity within the next six months.

Expansion in the construction industry is indicated across the board, despite an acute shortage of cement noted in Chicago, Minneapolis, and Dallas. Although no wholesale shutdown of work has been observed in those areas, some cutbacks are noted and jobs are being delayed. Nevertheless, gains in residential and/or nonresidential construction are noted in these three Districts, as well as in Atlanta and St. Louis.

Economic conditions in the agricultural sector are generally favorable. Farm income is reported to be rising and crop prospects, with the exception of cotton, are said to be good. Hot, dry weather has been a problem in cotton producing areas for some time now and the cotton yield is expected to be well below normal. The prolonged drought has also led to the liquidation of cattle in the St. Louis and Dallas Districts, affecting prices in those markets.

In the banking sector, loan demand is reported to be generally strong. Consumer borrowing, especially for mortgages, is reported to be particularly heavy. However, the demand for business loans, while strong overall, is showing signs of weakness in Atlanta and Richmond. Looking ahead to 1979, bankers are generally projecting continued loan demand growth and foresee little difficulty in meeting that demand. Although tight money conditions currently prevail in Minneapolis and San Francisco, these conditions may be, at least in part, only seasonal. Bankers do not generally foresee funds drying up as a result of disintermediation in the coming months.