Beige Book: National Summary
December 14, 1977
Business continues to improve, if somewhat unevenly across the nation, according to District reports, and businessmen remain optimistic that economic activity will expand further in the year ahead. Respondents in every District expect at least satisfactory growth in retail sales this holiday season, although sales of new domestic cars may be below amounts projected earlier for some regions. Despite good to excellent prospects for Christmas sales, inventories at retail are still regarded as above desired levels in several Districts.
In manufacturing and other nonretail industrial activity, the overall impression is of a slight upward trend nationally, with District reports on production and sales varying from spotty and unchanged to generally expanding. Strikes are again mentioned in several reports as factors influencing business activity. And the Administrations still uncertain economic policies are said to be one of the main barriers to capital spending. Improvements in the prices of some agricultural products have helped the incomes of farmers who are now using strike and protest techniques to draw attention to their plight.
Credit demands are reported as strong in financial markets. Thrift institutions are apparently having no problems supplying mortgage funds for the booming housing industry. Demands for bank credit, business loans in particular, appear to be growing rapidly in most Districts outside the money centers of New York and San Francisco.
Everyone may not be optimistic about business conditions in 1978 but, as Chicago puts it, no one seems to be forecasting a recession. Cleveland and Richmond report increases in business confidence this past month, and it might be inferred from some other district comments that their respondents are also more optimistic than a month ago. For example, Minneapolis finds manufacturing sales stronger than expected.
Retailers' concerns about excessive inventories were relayed by Boston, New York, Atlanta, St. Louis, and Kansas City. Philadelphia also reports relatively high retail inventories, but these stocks are expected to be worked down without difficulty by early next year. Softening in auto sales is concerning suppliers to the auto industry, according to Cleveland. Although new car sales are up in St. Louis, Atlanta, and most of San Francisco's District, inventories of new cars are described as ranging from near normal in Kansas City and Atlanta to very high in New York. Chicago, however, summarizes the story of new car sales nationwide by noting that recent adjustments in auto production schedules clearly reflect sales falling short of expectations.
Some Reserve Banks commented on special topics. San Francisco directors estimate that the average wage increase for western industries in 1978 will be between 7 and 8 per cent. Richmond expects serious consequences to its District economy from the United Mine Workers strike. Cleveland finds capital-goods producers to be more optimistic about capital spending for the first half of 1978 than indicated by the latest estimate of the Department of Commerce. Boston respondents have seen no sharp industrial price increases in recent months, and they are not concerned about shortages of materials or fuels in 1978. Dallas says petroleum refining capacity is not being expanded because of unresolved economic and political issues, but New York observes that well drilling by the oil industry is at a 16-year high.>
Richmond and Atlanta report District farmers are joining in nationwide protests against low prices of farm products. Chicago notes that some rural banks are hard-pressed to accommodate farmers who have been forced to renew loans. St. Louis, Kansas City, Dallas, and Richmond call attention to the recent improvement in prices received by farmers for some products, while Minneapolis reminds us of subsidy payments now being made to wheat farmers. San Francisco says that it is not yet clear that the drought in the western states is over. St. Louis reports farmers storing more of their crops than usual. Only about 25 per cent of the 1977 cotton crop and about 10 per cent of the soybean crop has been sold. Kansas City suggests that it is likely that wheat and corn prices may peak earlier than usual in this marketing year—if they have not already done so.
Increases in business loan demand are reported by Kansas City, Richmond St. Louis, Boston, and. Philadelphia, with adjectives ranging from robust to less-than-hoped-for. Broad-based loan growth continues in the Sixth District, says Atlanta. New York and San Francisco, however, describe their demands for business loans as persistently sluggish and limping, respectively. Some softening of terms and new lending programs are reported by New York. Philadelphia bankers expect at least one round of prime rate hikes between now and June. Saving and loan associations in the Dallas District suggest mortgage demands will slow in coming months, but in the meantime, mortgage rates are expected to remain near present levels. Problems with disintermediation are not anticipated by S&L executives interviewed for the Dallas report; in Minneapolis, the disintermediation possibility that concerned directors last month has not materialized. Inflows into S&Ls are reported to be increasing by St. Louis, but at a more moderate rate than earlier in the year.