Overview
District reports suggest that economic activity in most sectors has slowed in recent weeks retracing some of the progress made in late spring and early summer. Manufacturing activity has declined broadly giving rise to new layoffs and plant closings in most Districts. Consumers are widely described as extremely cautious, buying very selectively, and almost totally avoiding any major commitments. As a result of excess capacity and weak orders, many businesses are scaling back or deferring capital spending plans. The construction industry is confronted by continued weakness in the residential area and a recent fading of support from the commercial and industrial sector. Crop prospects are generally quite good, but the resultant prospect of falling prices implies further financial difficulties for farmers. Loan demand is soft with only widely scattered pockets of resurgence. The outlook is very subdued and cautious, although a few Districts discern traces of optimism.

Manufacturing
There is little in the District reports to suggest any recent improvement in industrial activity. Production, shipments, and orders are generally below the June-July levels and cost cutting measures are being pursued vigorously. Inventories are modest for the most part, but there is widespread determination to trim them further. Layoffs continue to exceed recalls; vacations and plant shutdowns are being extended; and average workweeks are being reduced. Capital spending plans are being scaled back since plant and equipment capacity is far in excess of current needs.

Dallas, St. Louis, and Philadelphia report that industrial activity has stabilized. All other Districts but Kansas City report production cut backs that have resulted in layoffs and plant closings. New York, Cleveland, and Chicago cite capital goods industries, in particular, as an example. Cleveland finds major steel producers in great difficulty with inventories high, prices low, orders weak, and capacity utilization at 40-50%. In the Chicago District over half the freight car plants are closed. Only defense related industries, noted by Boston and St. Louis, and some seasonal industries such as food processing, seem to be offering much support to the broad industrial sector.

Consumer Spending
In the retail sector, consumers are generally described as cautious despite aggressive promotional and discounting programs by retailers. The net effect has apparently been to hold real sales at or near year ago levels. There is virtually no indication of a consumer led recovery being imminent.

Dealers are keeping inventories very tight and squeezing profit margins but have been disappointed recently, particularly by the apparent failure of this summer's tax cut and social security benefit increase to boost sales. Retailers have adopted extremely cautious buying plans, hoping that stronger back to school and Christmas spending will materialize, but basically waiting to see before committing heavily.

Durable goods still seem to be the most affected, but San Francisco finds even grocery store sales sliding. Only two areas of relative strength appear: tourist trade is doing well in the mountains of Pennsylvania and in the western half of the Minneapolis District; also, Chicago and Kansas City report recent strength in automobile parts and repairs.

Construction and Real Estate
A very weak but stable residential sector and a stronger but fading commercial and industrial sector sum up the current construction picture. The housing sector is almost uniformly weak, although regional differences do exist. San Francisco reports homebuilding picking up slowly while in the New York and Chicago Districts there is no revival in sight. Mortgage rates have drifted down in some areas, but so far without effect.

Commercial construction is generally stronger than residential building, but varies considerably from District to District. Most Districts remarking on commercial building find it slowing somewhat or being sustained only by projects already in progress. Dallas reports a high level of activity, however, and Atlanta notes an upturn in permits in early August.

Agriculture
With few exceptions District reports on agriculture are bleak. Farmers are generally faced with high and rising production costs and the prospects of falling crop prices. Weather conditions have been good to excellent and forecasts call for bumper crops of grains and soybeans, which along with large inventories and weakening export demand are widely expected to depress prices significantly further as harvests proceed. The livestock sector is somewhat stronger as feed prices continue soft and smaller hog and cattle supplies lend support to meat prices.

Continuing deterioration of price to cost ratios is depressing farmland prices and eroding the equity position of many farmers. Minneapolis reports storage facilities already near capacity and Kansas City sees the possibility of a shortage later. Furthermore, Minneapolis and Chicago expect relatively small portions of the corn crop to be eligible for support programs. The implications of these conditions for farmers, lenders, and agribusinesses are, in Chicago's view, ominous.

Financial Sector
Loan demand is widely described as soft. Businesses have slashed inventories and otherwise cut costs, greatly reducing credit needs. Philadelphia also notes that declining interest rates are attracting some borrowers into the long term debt market, further dampening business loan demand.

New real estate loans are very weak, but in some areas outstandings are on the rise due to lower turnover rates of residential properties and a modest increase in second mortgages. Additional financing for ongoing commercial projects is also lending support in some areas.

Consumer borrowing is showing few signs of life. In the Third District there has been a mild recovery, but even there outstandings remain slightly below year ago levels.

Recent bank difficulties have reportedly prompted a great deal of caution by banks contemplating extensions of credit.