November 9, 1977
The district bank reports indicate that the economy is still expanding; however, the pattern is mixed. A few banks observed no change from the previous month. Consumer spending continues up. Inventory levels are in line with expected sales except in a few instances. Overall credit demands are rising. Some districts pointed to the high loan to deposit ratios outside the urban areas which reflects the high farm loan demand. Production generally continues up; however, a number of specific district problems were mentioned including: loss of production caused by strikes (New York, Atlanta, Minneapolis) and declining farm income or harvest problems (New York, Richmond, Atlanta, St. Louis, Minneapolis, Kansas City, and Dallas).
With few exceptions consumer spending continues up across the nation according to the district reports. For example, in the Boston and New York Districts, where little change was observed in the overall economy, some gains in sales or consumer spending were reported. Other districts reported consumer buying or retail sales as: up (Philadelphia), further improvement (Richmond), continues to advance (Atlanta), vigorous (Chicago), some gains (St. Louis), and very good (Minneapolis).
While inventories are generally at or near desired levels a few excesses were indicated. They are being watched closely and those few excesses reported are not believed to be widespread or burdensome. Also, some "shortages" continue in the building industry in a few districts.
Typical of the inventory reports were: being watched closely (Boston), in good shape (Philadelphia), at a desirable level (St. Louis), levels are good to adequate (Dallas), and at desired levels (San Francisco). Some inventory imbalances were reported by New York, Richmond, and Minneapolis. On the other hand, Chicago reported shortages of insulation, and shortages or poor quality of a long list of other building components and of skilled trades workers.
Credit demand continues generally upward in most of the districts. There has apparently been no letup in consumer and real estate credit demands, and a number of districts report a pickup in commercial and industrial loan demand. Richmond reported commercial and industrial loan demand to be quite strong. Indications of rising overall loan demand were also reported by Richmond, Atlanta, Chicago, St. Louis, and Kansas City. Savings inflows were reported to be slowing somewhat in a number of districts, but no serious disintermediation was indicated.
The high demand for and slow repayment of agricultural loans were alluded to in a number of District reports. Richmond reported a strong farm loan demand and further deterioration in loan repayment rates. Chicago reported significant deterioration in farm credit conditions in recent months. On the other hand, Kansas City reported some easing in the farmer's cash flow problem.
Further expansion occurred in production during recent weeks, but the overall pattern was variable. Manufacturing and industrial activity varied from no change in Boston and Richmond to a rebound in Dallas after a brief lull. Construction of homes is apparently slowing somewhat from the high levels of the summer months; however, a pickup was noted in commercial and industrial building by a few Districts. Some easing in the rate of home building was indicated by Minneapolis and Dallas, and San Francisco reported more caution by developers in putting up blocks of houses. San Francisco, however, reports a shift from single family to multiple units and non-residential construction. Gains in non-residential construction were also reported by Atlanta and Chicago.
The reports indicate that farm production will be up, gross farm income will be somewhat higher, and net farm income will be down from last year. Nevertheless, some districts reported a slight improvement in farm income expectations in recent weeks. Minneapolis reported an improved outlook for farm income, and Kansas City, while recognizing a farm commodity price squeeze, noted recent improvement in the cash flow position of farmers. Atlanta reported wider profit margins in broiler and egg production. Indicative of the lower farm income outlook, the last quarterly survey of farmland values in the Chicago District shows a decline for the first time since 1960. This followed an increase of 160 percent during the past five years.