Beige Book: National Summary
August 11, 1976
This month's District reports suggest that the economic advance has continued at about the moderate second-quarter rate. Automobile sales remain strong, but department store sales softened in July. Retailers are still generally optimistic about the sales outlook, however. Manufacturing activity appears to be expanding, albeit at a modest pace, and there are indications that firms are beginning to revise capital spending plans upward. Capacity appears ample for the time being. While construction of single-family residences continues to increase, building of multiple-family dwellings remains very sluggish. The agricultural situation is generally favorable, although inadequate moisture may reduce crop production in some areas. Commercial bank lending to business continues to show little if any strength; loans to consumers are still on an uptrend.
Readings on consumer spending are mixed. Automobile sales remain strong, with demand favoring large- and intermediate-size American cars, some of which are in short supply. Department store sales, on the other hand, softened in July and generally have been below expected levels, although Atlanta reports healthy gains stemming from expanding convention and tourist trade. While retailers for the most part remain optimistic, there are indications that some have scaled back sales forecasts for the second half of this year (Boston, Minneapolis, Kansas City). There are also scattered reports of heavier than desired inventories at the retail level, but serious imbalances thus far have been avoided, in part because of cautious inventory policies.
Manufacturing activity appears to be expanding at a moderate rate. Increases in new orders and shipments are reported by Philadelphia, and Chicago indicates that order backlogs for steel remain substantial. Richmond and St. Louis, however, report a leveling-off in manufacturing activity. Cleveland indicates an easing of tight supplies of certain steel and chemical products as a result of a slowing in orders. While the rubber and coal strikes have not had much impact as yet, the coal strike could affect steel output because coke is already in short supply. Further increases in industrial materials prices are in the offing, although these may be of relatively modest proportions (New York, San Francisco).
Capacity remains adequate in most sectors, and outright shortages so far have not materialized. Steel lead times have shortened recently, and steel capacity is judged sufficient for the remainder of this year and most of 1977. Similarly, chemicals and most capital goods industries have ample capacity. There is concern about the future availability of a variety of metal products and of natural gas, although in this regard Chicago and Dallas indicate that a pickup in drilling of gas wells is expected once the new ceiling prices on interstate natural gas shipments become effective. Manufacturers continue to manage inventories cautiously, and changes in stocks are generally small. There are scattered reports of inventories above desired levels, but others indicate that producers' inventories are lean.
The recovery in capital spending remains modest. There are signs, however, that firms are beginning to reuse capital spending programs upward. Chicago reports that plans previously shelved by automobile and steel companies are being revived; orders for transportation equipment have also improved. Atlanta indicates that capital spending plans have been raised by chemicals and by textiles and related industries. Moreover, export demand for capital equipment is reported strong, with significant orders from the USSR and from OPEC.
Some Districts report continued growth in home building, with activity concentrated in construction of single-family units. Apartment construction remains sluggish. Demand for mobile homes is very strong (Dallas). Comments on nonresidential construction suggest that it is still weak (Minneapolis, New York), although the possibility of some pickup in activity is foreseen. Mortgage funds are generally available, although St. Louis notes some recent upward pressure on mortgage rates and the full effects of the sale of the 8 percent Treasury note on savings flows are not yet apparent.
Business loans continue to show little if any growth, and bank lending rates have tended to decline. Kansas City reports, however, that most of the District commercial banks contacted were slow to move to the 7 percent prime rate, with some respondents still posting a rate of 7 1/2 percent. Consumer loans are generally rising moderately. Loans to agribusinesses and farmers are increasing.
The agricultural outlook is favorable for the most part. St. Louis reports that recent rains have improved yield prospects for some crops, and Atlanta notes that a new irrigation system is enhancing yields in part of Georgia. Kansas City suggests that increases in cattle prices will be only modest over the remainder of this year. Inadequate moisture has caused concern in some areas (Richmond, Chicago), while cotton acreage has been adversely affected because of excessively wet weather.