Beige Book: National Summary
August 10, 1977
The rate of growth in business activity may have slowed recently according to this month's District reports, but the trend continues moderately upward. Consumer spending continues to increase; however, demand for soft goods was reported to be weak in some of the Districts. Inventories are generally being maintained at satisfactory levels. Business loan demand remains relatively weak at the larger centers, but some pickup in demand is reported by a few Districts. Mortgage funds are ample at current interest rates. Strong loan demand and high loan-to-deposit ratios were reported in some of the agricultural communities. Residential construction continues at a high rate and signs of rising industrial construction were noted. Upward price pressures remain strong, particularly for construction materials. Prospects are for a relatively large output of farm commodities, lower average farm product prices, and little growth in cash farm receipts from a year ago.
Consumer spending generally continues up, but signs of weakness were noted in some of the Districts. Apparel and soft goods sales were reported to be weak by Chicago and St. Louis. Reduced sales were reported in the rural communities by Minneapolis. Prior to an upsurge in July, an overall trend toward slower retail sales growth in the second quarter was reported by San Francisco. On the other hand, sales of hardware, excluding automobiles, continued persistently upward and a recent upturn in total retail sales was reported by Philadelphia, Cleveland, and San Francisco. Automobile sales were mixed with Dallas and San Francisco reporting continuing strong sales while Cleveland and St. Louis reported some easing off of such sales in July.
Business inventories, with a few exceptions, are in satisfactory condition. Continued shortages and delays in delivery are still found in the construction industry. Chicago and St. Louis, for example, reported some delivery lags for insulation, brick, drywall, plumbing fixtures, lumber, and millwork. San Francisco reported that automobile dealers are having difficulty in stocking all types of cars. Somewhat fewer "shortages," however, were reported in inventory items than heretofore, especially for raw materials used in making tools and metal fixtures. Also a few inventory excesses were reported. New York reported that mounting inventories are becoming a problem for some businesses, and Cleveland reported that, while inventories are not excessive, they are sufficient to dampen further inventory growth this quarter.
Manufacturing activity continued strongly upward according to most District reports. Boston reported rising capital goods output and a buildup in order backlogs. Further gains in the manufacturing sector were reported by Philadelphia, Atlanta, Chicago, St. Louis, Kansas City, Dallas, and San Francisco. Somewhat counter to the general movement was the mixed situation reported by New York and some leveling off by Richmond.
Those Districts commenting on construction indicate a continuing up trend in residential building and the beginning of a recovery in commercial and industrial building. Construction of homes was reported at virtual capacity by Chicago, strongly upward by St. Louis, and strong by Minneapolis and Dallas. New York reports tentative signs of a recovery in real estate and construction, and San Francisco reported early indications of a pickup in nonresidential construction.
The comments on price expectations varied greatly from District to District. However, the prices of construction materials appear to be rising rapidly and prices for most farm products are declining. Boston sees no escalation in the rate of price increases. Less widespread price increases were reported by Richmond and a leveling off of housing prices was reported by San Francisco. Lower farm commodity prices were reported by a number of Districts. Nevertheless, generally upward price pressures were reported by Chicago, and sharply higher construction materials prices were reported by St. Louis and Kansas City.
The financial sector is characterized by relatively high demand for consumer and farm loans, but sluggish demand for business loans. High or rising demand for consumer loans was reported by Philadelphia, Richmond, and San Francisco. Chicago, Minneapolis, and Kansas City report farm loan demand to be exceptionally strong. Strong real estate loan demand was reported by Richmond. While most of the Districts report that business loan demand remains relatively weak, there are indications that such demand is beginning to pick up. Boston reported some rise in industrial loan demand. Richmond noted some increased demand for loans by wholesalers and retailers. Sluggish business loan demand in New York has prompted several banks to seek out medium-sized regional borrowing customers. Some flew York banks have already established out-of-state loan production offices and others are contemplating similar action. Some moderation in the rate of savings growth was indicated by reports from Philadelphia, Cleveland, St. Louis, Minneapolis, and parts of the Dallas District. Kansas City, however, reported strong deposit and loan growth.
No upsurge in interest rates is expected. Philadelphia reported that the prime rate was expected to move up to about the 7-7-1/4 range by the end of the year.
Overall prospects for crop yields and production this year are generally good. An abundance of grain and lower cost livestock feed is in prospect for the year ahead. These developments point to rising supplies of livestock products. Drought has had some adverse impact on crop prospects in parts of the Richmond, Atlanta, Chicago, and San Francisco Districts, but recent rains have improved the outlook for crops. Of great concern to the farm sector, however, is the decline in prices of major farm commodities and the impact on farm incomes. The generally unfavorable farm income outlook was expressed by Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The lower farm commodity prices, especially grains, are already having an unfavorable impact on bank credit conditions in rural communities in a number of the Districts. Chicago reported that deposit growth in agricultural area banks has slowed, that loan demand is exceptionally strong, and loan-to-deposit ratios are above desired levels. Kansas City reported some serious farm cash flow problems.