Most Districts report modest economic growth, with particular strength in New England and weaker conditions in the Dallas and Kansas City Districts. Few District reports cite economic impacts from the stock market decline last October. The Christmas retail season appears to have been satisfactory nationwide, with modest dollar sales gains over last year's levels. In some areas, however, discounting reduced profit margins significantly. Agriculture and forest products industries have seen improved conditions in recent months, with higher prices and strong export demand for many products. Manufacturing orders and production have strengthened considerably in recent months, due in part to expanding exports. Inventories have accumulated for many raw materials and finished products. Construction and financial activity are mixed, both among different types of activity and among regions.

Consumer Spending
Most Districts report 5 to 10 percent gains in the value of Christmas sales over last year's level, with St. Louis and Dallas near the bottom of the range, and Boston and New York close to the top. Boston and Minneapolis report that surveyed retailers held profit margins steady, but reports from New York, Atlanta, St. Louis, and Dallas indicate that heavy discounting in those Districts cut into many stores' profit margins. Retailers in the Philadelphia area report that stores' profit margins on imported products are being squeezed between rapidly increasing costs and consumer resistance to higher prices, so these stores increasingly are turning to domestic suppliers. In contrast, Boston area retailers report that domestic suppliers are unable to meet their needs, so the falling dollar will cause them to switch to suppliers whose currencies have not appreciated with respect to the dollar.

Reports on retail inventories are mixed, with about equal numbers of Banks reporting inventory accumulation and inventory depletion.

December auto sales are reported to be weak in the Kansas City, Dallas, and San Francisco Districts, and auto inventories have accumulated in these areas as a result. In contrast, Cleveland and Atlanta report satisfactory December sales.

Manufacturing activity is reported to be strong in all Districts, with increased orders and, in many cases, increased backlogs as well. Currently, a large western aerospace firm has more than two years' worth of orders for commercial aircraft on its books.

Cleveland and San Francisco report that exports continue to be largely responsible for their regions' increases in manufacturing activity, and respondents noted changes in relative prices that should lead to further improvements. A Cleveland area business now is able to sell machine tools to various Asian countries for the first time, and respondents in the San Francisco District reported sharp increases in foreign equipment prices during early January.

Reports from most Districts indicate increased inventories of raw materials and manufactured products. Several automobile plants in the Chicago and St. Louis Districts have been closed temporarily to control inventories. However, Richmond reports stable inventories of finished goods, and respondents to the Kansas City survey generally are satisfied with current inventory levels. Airplane inventories at western aerospace companies are very lean, due in part to strong export demand.

Manufacturers in many Districts note increases in input and output prices, with steel prices up dramatically. Several Districts report problems obtaining sufficient supplies of some raw materials, particularly steel products, and some textile and apparel producers in western Tennessee are having difficulty finding sufficient workers for their rapidly expanding operations. Kansas City reports that, despite shortages of quality steel materials, most materials are readily available and few respondents noted bottlenecks in labor or plant capacity.

Agriculture and Resource Related Industries
The lower exchange value of the dollar continues to stimulate demand for many U.S. products. As a result, exports of several agricultural and forest products are up, depleting inventories in some cases. Prices for soybeans and some other major products have risen. Price increases for poultry in the Texas area are widely expected in the wake of extensive snow damage to poultry operations. The outlook for the energy sector remains weak, with a number of analysts increasingly "bearish" about energy prices.

Construction and Real Estate
Homebuilding and real estate activity were seasonally slack during late 1987 in most of the nation, but have resumed modest activity levels in New England, New York, and Minnesota since the new year began. The winter slowdown, coupled with continued economic uncertainty, has reduced housing sales and construction in the Atlanta District.

Nonresidential construction activity continues mixed, with several Banks reporting continued high vacancy rates and slow building activity. The New York Bank reports that the turmoil in the financial markets apparently has had little or no effect on office leasing outside the New York Metropolitan area, but that activity has slowed in downtown and midtown Manhattan, and on Long Island. Atlanta reports that high absorption and a cutback in development in 1987 caused a significant drop in Orlando's office vacancy rate.

Financial Sector
In New York City, additional cutbacks are taking place in the brokerage and banking sectors as a result of both the stock market crash and basic restructuring.

Application for consumer loans are weak overall, with significant declines in the rates of growth reported in the New York, Philadelphia, Atlanta, St. Louis, and Seattle areas. Some banks attribute the current weakness in part to declines in applications for car loans, and none attribute it to the stock market crash.

Demand for mortgages is weaker than it was last year in most parts of the country, partly due to vigorous refinancing activity last year. Several western bankers report that demand for home equity loans was strong throughout 1987, and Atlanta reports that homeowners drew down home equity lines to finance Christmas purchases. In the suburbs surrounding New York City, demand for home equity loans generally is weak.