Beige Book: National Summary
April 12, 1978
Reports from the twelve District Banks this month unanimously indicate an expanding economy. The effects of a severe winter appear to have been largely overcome, and economic activity in the regions affected by the now-settled coal strike has returned to normal levels. Retail sales are generally strong, as is the manufacturing sector. Crop prospects for this year are good, but spring planting is reported to be behind schedule, a result of the harsh winter weather. Construction activity is strong overall. Mortgage demand is maintaining its strength, but business loan demand is mixed. The fear of accelerating inflation is pervasive, and is seen as a major stumbling block to continued real growth.
Retail sales are a major source of strength in the renewed expansion, according to this month's reports. Boston and Cleveland observe some softness in this sector, but virtually all of the other Districts indicate a strong up-tick this month. Chicago notes that big-ticket items are the best sellers. In addition to gains in department store sales, automobile purchases are also reported to be up substantially. This, however, stems partly from suppressed demand in the first quarter.
Expansion in the goods-producing industries is evident in all Districts with a sizable manufacturing sector. Durable goods industries are particularly strong. Capital goods production is said to be on the upswing in Boston, New York, and Chicago, while Richmond indicates consumer goods output to be strong also. Improvement in the steel industry is cited across the board, a result of both the surprisingly effective trigger-price system, instituted by the Administration earlier this year, and a generally rising demand for steel in recent months.
Construction activity is generally strong in April. Atlanta and Cleveland report optimism among builders that 1978 will be a good year for housing. Nonresidential construction is expected to fill any gap that may occur in the housing market later this year. Chicago, on the other hand, expects commercial and industrial construction to lead the way, and housing starts to decline.
Economic conditions in the agricultural sector are favorable. Kansas City, Atlanta, and Richmond all report stronger farm prices, and farm income is projected to increase in 1978. Adverse weather conditions have delayed spring planting to some degree, but this is not thought to be a serious setback.
In the banking sector, District reports show business borrowing to be mixed this month. Minneapolis, Richmond, and Boston say demand for C&I loans is strong, while New York and Philadelphia banks show softness. Future loan demand projections are no less varied. At the same time, deposit growth in most Districts is slack. Although cash flows are said to be tightening in some areas, disintermediation doesn't appear to be a major cause for concern at this time. The mortgage market is reported to be generally tight. San Francisco and Cleveland say some S&Ls are now refusing mortgages on certain types of dwellings. Mortgage rates have risen recently and now stand in the 9 1/4 - 9 3/4 percent range.
Several Districts commented on the widespread fear of accelerating inflation in the near future. Boston, Cleveland, Minneapolis, and Atlanta all indicate concern among businessmen about a higher rate of price inflation later this year. Higher price increases are deemed a deterrent to both consumer and business confidence, and therefore to continued economic expansion. Moreover, half of the District reports indicate that inflation is, in fact, expected to heat up as we move into the second half of 1978. One reason for the upward revision of price forecasts is the coal settlement. As Chicago points out, many consider the pact to be inflationary in itself, and expect it to set the tone for labor negotiations in the future. Other factors feeding the fires of inflation are recent steel price hikes and utility rate increases.