May 16, 1979
Most Districts report expansion of economic activity in recent weeks. Characterizations of this expansion range from very strong activity in the Boston District, to expansion at a moderate pace in New York and Philadelphia, to a rebounding from adverse weather or strikes in other areas. Atlanta, on the other hand, describes its reports as downbeat and Chicago and St. Louis perceive a slowing of activity already taking place. Nationwide, strength appears to be concentrated in manufacturing with producers goods providing much of the impetus. Those Districts commenting on construction generally cite strength here also. On balance this month's comments suggest less than buoyant retail activity but continue to reveal strength in some lines and general strength in some areas, California and the Pacific Northwest being notable examples. Inventory levels do not appear to be of particular concern among either retailers or manufacturers. Gasoline shortages, real or potential, have had little effect on economic activity other than in some closely related product lines: recreational vehicles, power boats, and light trucks, especially the four wheel drive varieties. Severe winter weather in the Northern Plains and recent flooding in the Southeast may affect crop production adversely, but increased plantings in several areas may offset much of the potential loss of output.
Reports on manufacturing activity are generally favorable, almost ebullient in the case of capital goods. Chicago sees the demand for most capital goods and their components continuing to tax capacity. New York reports manufacturing at near full employment with inventories low and backlogs extending into 1980. Minneapolis finds commercial and industrial activity expanding rapidly as does San Francisco. In the Dallas District industrial output is expanding at a moderate rate from already high levels, and capacity utilization remains high. Reports from other Districts also indicate strength in steel related industries, transportation equipment, machine tools, electronic equipment and computers, cement, and aircraft. Consumer goods industries are less buoyant. St. Louis and Richmond detect softening in production of apparel and furniture while St. Louis and New York see more broadly based weakness in consumer durables.
There is little agreement among Districts as to the state of retail sales, and even within some Districts sales are depicted as mixed. St. Louis, Kansas City, Atlanta, and Chicago all see sales as flat or declining, at least in real terms. In several Districts sales of furniture, appliances, and gasoline consuming lines are sluggish. New York terms the softening in sales of recreational vehicles remarkable. Automobile sales, while generally weak, are being hampered in several Districts by low inventories of small cars. On the other hand, retail sales are described as healthy by Boston, strong by Dallas, and booming by San Francisco.
Construction activity was mentioned by only a few Districts but those reports are basically consistent. Residential construction is down from last year, but only Chicago reports a significant decline. Strength in nonresidential activity seems to be more than offsetting weakness in residential building. Kansas City finds housing starts down from 1978 but still good. Atlanta reports thin inventories of housing and existing home sales holding up well.
Loan demand, particularly of businesses, appears to be strong throughout most of the nation. Boston terms commercial loans exceptionally strong across all segments of the economy. New York reports a surge in business loan demand at NYC banks due in part to growth in plant and equipment expenditures and inventory investment. Philadelphia, Richmond, and Minneapolis also note strength in total loan demand. Atlanta perceives some easing in business loan demand but brisk consumer and real estate lending. The overall picture concerning deposit inflows is less clear. Demand for money market certificates continues firm at commercial banks, but in some Districts bankers are reported to be seeking nondeposit sources of funds. Savings and loan associations have apparently experienced reduced deposit inflows, or even net outflows, since March. Several Districts are concerned that State usury laws are or will soon inhibit real estate lending. There are reports, however, that several States have revised or intend to revise those laws so as to keep funds in real estate loan markets.
The outlook for agricultural output is mixed. St. Louis and Minneapolis anticipate reduced yields of winter wheat, corn, and cotton due to adverse weather conditions. Atlanta now expects a significant shift from cotton to soybeans, also weather related. Kansas City, on the other hand, reports generally favorable conditions in the Southern Plains. All in all, the severe winter and the cold, wet spring will hold output below its potential, but the extent of the damage is, at this point, undetermined.