Most Federal Reserve Districts report moderate economic growth. Manufacturing orders and shipments continue to grow, with few reports of price increases or inventory buildup. Lumber production is operating near capacity due in part to an expansion of exports. Housing construction continues at a steady pace despite the recent increase in mortgage rates. High vacancy rates and the new tax laws have reduced commercial construction.

Most agricultural sectors remain depressed. Although recent increases in beef and hog prices have generated short-term earnings gains for cattle and hog producers, crop farmers still face problems of oversupply and low prices. The energy sector also remains depressed. Oil and coal producers report that drilling and mining operations are below last year's levels. However, oil drilling has increased in some areas as domestic oil prices rise. Growth in retail and automobile sales appears to be slowing. Higher prices, increased consumer indebtedness, and higher interest rates are the major reasons cited, Loan activity is also weak, Strong demand for commercial and real estate loans has not been enough to offset the reduction in the volume of consumer loans.

Retail
Growth in retail sales appears to be slowing in many districts. Dallas and San Francisco continue to report generally sluggish sales, while Boston and Cleveland indicate wide variations in sales activities among various retail chains. Most Districts report increases in apparel prices, especially among imported goods. Boston's inquiries about the reasons for price increases reveal two primary sources: import quotas and the decline in the dollar. Strong demand for apparel is leading to increases in the prices at which quotas are bought and sold among overseas manufacturers.

Also, quotas provide the incentive for foreign producers to import more expensive lines of clothing. The decline in the value of the dollar has been felt most strongly on prices of imports from Japan and European countries, whose currencies have appreciated most against the dollar. Prices of domestically produced apparel have also risen but not as much as prices of imported apparel. Much of the domestic price increase is due to domestic textile mills running near capacity.

Automobile sales are sluggish in most Districts. Dealers in the Minneapolis District report that automobile sales were 20 percent lower in May than a year ago. Weak auto sales raise the prospect for more aggressive sales incentives and further production cutbacks by domestic auto producers. As yet, domestic auto dealers have not discounted prices, and current production schedules have stabilized inventories. The declining value of the dollar has significantly reduced import auto sales by raising prices. Import dealers report declining profits, and inventories increased considerably in May.

Manufacturing
Manufacturing continues to show signs of growth. Many Districts report increases in orders and shipments and moderate reductions in inventories. Boston reports that both high-technology and traditional industries are experiencing increases. Philadelphia indicates improvement in the durable-goods sectors, and Richmond finds increased activity in nondurables. Employment, however, has shown little gain. In many areas, employment is limited to replacement hiring. Other areas, such as Minneapolis and St. Louis, report employment losses over the past month or two.

The effect of the depreciation of the dollar on manufacturing is still mixed. Boston reports that none of its respondents attribute the gain in domestic orders to an easing of import competition. San Francisco, on the other hand, finds that manufacturers of some products that compete against low-cost imports report strengthening in sales and orders. In general, strong domestic demand appears to be the major force behind improvement in manufacturing. The increase in steel production, for example, appears to be attributable to increases in construction and in oil drilling operations, despite cutbacks in automobile production.

Most districts report that input prices are stable. There is some upward price pressure as certain products, especially steel products, continue to be in short supply.

Capital spending is reported to be moderately high by some Districts. Chicago reports sizable investments in upgrading facilities in the traditional, heavy-manufacturing industries.

Energy
The energy sector remains depressed, despite the increase in domestic crude oil prices. Atlanta and Kansas City report that exploration and development are below levels of a year ago. Dallas, however, reports that drilling continues to increase. In May, the rig count was only 4 percent below a year ago, and it was above the levels of earlier months in 1987. The recent increase in domestic oil prices is expected to sustain this trend.

Coal production has increased slightly in recent weeks, but both Atlanta and Richmond report that output is below last year's level. Some coal producers anticipate that the increase in oil prices nay help to shore up demand.

Agriculture and Forestry
Although a few agricultural sectors have shown signs of improvement in recent months, conditions are still generally depressed. Increases in cattle and hog prices and lower feed costs have raised short-term earnings of cattle and hog producers. However, prospects for the future are mixed. Atlanta and Chicago report that hog and cattle herds are being rebuilt and that feedlots are presently full. Kansas City, on the other hand, indicates that while feedlots are near capacity, few feeders are expanding capacity and cow-calf and stocker-cattle operators do not appear to be adding to their herds.

Most Districts report favorable crop conditions. A relatively dry spring has allowed crop planting to be finished ahead of schedule. Crop development appears good. although St. Louis reports that its dry spring may reduce wheat yields by as much as 20 percent. Crop prices, although slightly higher in the past few months, are anticipated to fall back to around the government subsidy levels.

Lumber production in the Pacific Northwest is running near peak capacity, primarily due to strong demand from China, Japan, and Europe. Recent interest-rate hikes temporarily reduced the volume of orders in April, but orders have picked up as mortgage rates have stabilized.

Construction and Real Estate
Residential construction remains strong in all Districts except for Dallas and St. Louis. The jump in mortgage rates during April and May has had little effect on housing activity. Housing starts in many Districts continue to run ahead of last year's numbers. New York reports that anticipation of further rate increases generated additional demand. High vacancy rates, higher interest rates, and the new tax laws have caused a slowdown in commercial construction in many Districts. However, the New York City area continues to experience brisk commercial construction activity.

Finance
Growth in loans and deposits is generally weak. Commercial and real estate loans remain strong, but the volume of consumer loans has fallen off substantially. Some bank contacts attribute the decline in consumer loan demand to the attractiveness of home equity loans, high consumer indebtedness, and competition from auto finance companies. To attract additional borrowers, several banks have pursued aggressive marketing strategies, which include increased advertising and proposals to offer loans with variable rates, similar to financing arrangements available from home equity loans. Some banks have lowered (or plan to lower) rates on their fixed-rate loans in order to be more competitive.