Beige Book: National Summary
September 12, 1979
This month's Redbook reports indicate that there are areas of weakness in the economy, but also that evidence of a recession is not widespread. The major area of decline has been automobile manufacturing. Other manufacturing activity—particularly capital goods production—appears to be holding its own. Residential construction remains weak, but its losses have been offset by gains in non-residential construction. Record crops are reported in most parts of the country, and no petroleum supply problems have been noted. Demand remains strong for most types of credit, and with the exception of thrifts, lending institutions report relatively strong deposit flows. Widespread price inflation continues, however, apart from declines in prices of certain farm products. Also, most businesses surveyed remain pessimistic about the future strength of the economy.
Virtually all of the districts reported continued weakness in retail sales, although back-to-school purchases have added temporary strength to the figures. New York was the major exception to this picture; one large chain headquartered there reported sales 20 percent ahead of last year. The more typical response was that of Boston, which reported "disappointing" retail sales volume.
Automobile sales have recovered somewhat in most districts. The manufacturers' program of rebates on large cars generally has stimulated sales and pared inventories, although St. Louis and Minneapolis still report excessive inventories. Small-car sales are especially brisk in Atlanta and New York. Heavy truck sales appear to be holding at record levels, but the recreational-vehicle market Is still very weak.>
Automobile manufacturing, however, shows pronounced signs of weakness. All three plants in St. Louis have reduced their work force substantially. Chicago reports that about one-third of Chrysler's hourly workforce is on indefinite layoff. It is feared that at least one major plant will be closed permanently.
Most other manufacturing activity has been flat or growing, although Philadelphia observes deterioration in the industrial sector. Capital-goods manufacturers in the various districts generally report increases in sales and backlogs. Machine-tool manufacturers in the Cleveland district, for example, report delivery times extended well into 1980. Although new orders for steel dropped sharply in August—in line with the cut in automobile production schedules—shipments to most other industries remain above last year's level, and the industry does not expect a worsening picture.
Residential-construction activity continued its slide from last month in most districts, although there are spots of strength in areas such as Florida. Nonresidential-construction activity has compensated for this weakness in many districts, however.
>As a result of the relatively stable condition of the non-automotive sector, employment remains high in most areas. Several districts—notably San Francisco and Kansas City—report shortages of specialized labor. Demand is particularly strong in commercial construction, aerospace, aluminum and tool-and-die manufacturing. The continued rapid growth of the Pacific Northwest economy has particularly strengthened the demand for labor in that region.
Farm production reports are generally favorable. Kansas City and Chicago expect record crops in such commodities as wheat and soybeans, although storms recently damaged grapefruit crops in Florida and 600,000 acres of cotton in Texas. Pork and poultry production have increased. As a result of the increased production in many commodities, farm prices have fallen, so that farm incomes are likely to fall considerably short of earlier Department of Agriculture forecasts. The. Rock Island strike and the grain- handler's strike at Duluth/Superior pose grain transportation problems.
Most districts report continued strength in demand for all types of loans. However, Atlanta reports slack loan demand, and Dallas reports resistance to high residential-mortgage rates. The supply of funds at commercial banks appears to be holding up, with money- market certificates compensating for outflows from other savings categories. Cleveland and Richmond observe, however, that thrifts are experiencing more difficulty obtaining funds. Atlanta sees a "softening" of deposit flows in general.
Although the economic picture remains relatively good at the present time, the business community generally appears pessimistic about the future. Respondents to Philadelphia's Business Outlook Survey appear to be bracing for a further slowdown. Boston reports that business firms have learned a lesson from the last recession, and that they are watching inventories closely; throughout the districts, this is reflected in moderate levels of inventories in most industries. Meanwhile, reports of continued inflation in input prices are widespread.