Beige Book: National Summary
January 11, 1978
The overall impression that emerges from this month's Current Economic Comments is one of no significant change over the past month in the business and financial situation. According to these reports, retailers in most Districts enjoyed a good to excellent Christmas selling season, although the sale of domestically produced autos continued weak. Retail inventories are generally at or even below desired levels, and manufacturing inventories are in line with sale expectations. Residential construction remains strong. There were further, albeit limited, indications of a strengthening of business plant and equipment expenditures. No significant disintermediation has developed, although savings inflows apparently have slowed down. Demand for bank credit, notably consumer loans, was strong.
Virtually all Districts report a good to excellent Christmas selling season at non-auto retailers, with business generally exceeding already high expectations. Sales thus are characterized as "fantastic" by some Boston respondents, and as breaking all records by Atlanta. A good to excellent selling season is reported by Cleveland, Chicago, San Francisco, New York, and Minneapolis and as substantially above expectations by Dallas. A number of Districts report continued brisk sales since Christmas, including Chicago, Philadelphia, Atlanta, Boston and San Francisco. Sluggish auto sales, however, are reported in about half of the reports. Among others, Chicago reports December auto sales to have been a distinct disappointment, while St. Louis and New York also note that such sales have been less than expected. Auto dealers in the Dallas District look for sales of the 1978 models to exceed those of the 1977 models, but Cleveland characterizes prospects for new car sales and production as "highly uncertain". Continued strong sales of imported cars, however, are noted in Atlanta, Dallas and New York. Regarding consumer outlay on tourism, a good ski season is reported by Boston and San Francisco.
The high level of non-auto retail sales has apparently reduced retail inventories to desired levels, indeed in a number of cases to below such levels. Boston thus reports that strong Christmas sales has enabled retailers to work off any excess stocks that may have developed earlier, while Dallas reports inventory levels to have been drawn down to low levels at many stores. Similar sentiments are expressed by respondents in the Cleveland and San Francisco Districts. Chicago characterizes current retail inventory positions as on the "slim side", St. Louis as "trim", Minneapolis and New York as posing no problems, and Philadelphia and Richmond as consistent with sale expectations. Similarly, according to several reports, inventories at the manufacturing level are generally well balanced. Manufacturing respondents in the Kansas District thus reported their inventories as neither excessive nor inadequate, while Boston respondents felt inventories were unlikely to create problems. Philadelphia manufacturers plan to maintain their inventories at current levels, while St. Louis reports manufacturing inventories excluding autos to be generally in line with expected sales. However, the view that inventories are too high is widely held among manufacturers in the Richmond District.
Residential construction remains strong, according to those reports that comment on this sector. Atlanta perceives an acceleration in the pace of such construction, led by single-family units but with quickening of the rate at which apartment projects are coming on stream as vacancies dwindle and rents climb. St. Louis reports home building to be strong, with recent home sales in some areas of the District the largest in several years for the winter season. Minneapolis notes that home building in its District has remained well above the previous record pace of 1972, and is expected to remain strong in the coming months, while housing experts in the Chicago District also believe home building will be strong again in 1978.
Regarding business capital outlays, Chicago reports that the demand for most types of capital goods has continued in a modest uptrend, and that a majority of purchasing agents in areas heavily emphasizing capital goods production expect improved conditions this year. Similarly, capital goods producers in the Cleveland District expect business to be as good or better this year than in 1977, with a sharp step-up in capital spending in the aerospace and communication industries. Respondents in New York and Cleveland note that currently ample capacity obviates the need for additional investment in the chemical industry, but Boston reports increased capital goods orders by that industry. Dallas reports that many oil field machinery and equipment manufacturers are expanding production facilities.
No significant change on balance appears to have occurred in manufacturing output and sales, which in general continued to advance. An improvement in the steel industry is noted by several banks, including Chicago, Cleveland and St. Louis. Philadelphia reports that the strike in the coal industry as yet has had little effect on the District's economy, although Richmond reports the strike to be a major factor in the District's economy.
On the banking scene, no indications of significant disintermediation have emerged, although a low or slower rate of growth in time deposits and passbook saving accounts is noted by several Banks, including Richmond, Cleveland, St. Louis and Dallas. Concern was expressed by some respondents, however, that such disintermediation would occur should money rates rise much further. The demand for credit continues strong, particularly for consumer and real estate loans.