Beige Book: National Summary
March 11, 1980
The REDBOOK reports this month indicate that business activity is holding quite steady in most districts, with few widespread signs of weakness. High technology and defense-related industries are performing particularly well. The major exceptions to this pattern are the housing and automobile industries, which are exhibiting considerable weakness. Most districts report very strong volumes of retail sales—a phenomenon which several reports ascribed to a pervasive "spend it now" psychology on the part of consumers. Reports of continued inflation are also widespread. With the exception of home mortgages, loan volumes were reported to be strong in most districts prior to the recent runup in rates. Spotty current reports indicate a subsequent weakening of loan demand. Financial institutions are experiencing considerable conversion of savings deposits into money-market liabilities, and there is widespread concern about the consequent effect on the cost of funds and institutional profitability. The agricultural sector is apparently in good shape in most districts.
Most districts report generally strong industrial activity. New York, for example, reports brisk new orders and generally steady activity. Minneapolis finds industrial output and employment expanding; manufacturing employment is up 14 percent from a year ago. Dallas finds continued, but slowing, growth in manufacturing. Activity related to high-technology, defense and energy-saving products is reported to be particularly vigorous by Boston, New York and San Francisco. Dallas finds high levels of activity in the petroleum industry.
In contrast to these reports, Philadelphia describes weakening manufacturing activity and the trimming of factory payrolls. Kansas City and Richmond also find some softening in the general level of business activity. The automobile industry continues to be weak, evidenced by a pattern of temporary furloughs of workers. Chicago calls the industry "seriously depressed."
The housing industry has been hit hard by recent high interest
rates. Starts are reported down 20 percent or more by Kansas City,
for example, with prices weakening on new homes. Chicago and San
Francisco report that homebuilding activity has been sensitive to
interest-rate movements; softening of rates earlier in the quarter
caused some builders to develop new tracts but the recent runup in
rates has curtailed this development. Dallas reports that
non-residential construction is helping to offset the impact of the
housing decline on the construction industry.
Throughout the economy, retail sales have been holding steady or growing relative to this time last year. Boston reports "good" sales volumes. Department store sales were 8 to 20 percent over last year according to Philadelphia. Some New York retailers report "staggeringly good" sales, although this is partly ascribed to the exceptionally mild weather in the region. The volume of sales in the Dallas district has held up well in real terms. Kansas City describes sales gains as "moderate," and Minneapolis reports "spotty" or "steady" sales volumes. Throughout the districts, sales of large automobiles are weak, however, with 15 percent declines in overall sales reported by Minneapolis and San Francisco despite vigorous small-car sales.
Loan demand generally appears strong, except for mortgages. Philadelphia, for example, finds commercial-loan volumes up 5 to 18 percent over last year. Richmond and St. Louis find that demand is particularly strong on the part of corporations for interim financing rather than long-term credit. In locations where usury limits are not binding, consumer loan flows appear to be strong. Chicago reports an increase in consumer-credit delinquencies, however, and Philadelphia notes that repayments are slowing. The high interest rates have had a significant effect on the mortgage market. Applications for mortgages are down 75 percent in Tennessee, for example, and New York describes a "collapsed" mortgage market.
Many of the reports for the REDBOOK this month were received before the recent runup in interest rates. However, a few very current reports suggest that high rates have sharply reduced credit demand. New York City recently withdrew a $125 million bond offering, for example. Chicago reports that the "bite" of high rates is particularly apparent from reports from car dealers. San Francisco indicates that frozen-food processors and other industries for whom inventory is important are being hurt by high rates.
Financial institutions throughout the various districts are experiencing conversion of savings accounts to money-market forms of liabilities. Deposit outflows are not widely reported, although Dallas and New York report some disintermediation at district S&Ls. Kansas City reports that S&Ls are pessimistic about deposit inflows, and St. Louis finds that fears of a "liquidity bind" are growing at financial institutions.
The agricultural sector appears to be relatively healthy in most districts. Strong Pacific Rim export demand is helping farmers in the San Francisco district. Also, grain prices have not been depressed by the embargo of sales to the Soviets, according to San Francisco and Minneapolis. Atlanta reports that the Florida citrus crop escaped major damage from recent frosts, but Richmond reports extensive damage to poultry operations in North Carolina.
Reports of continued inflation are widespread. Boston reports that a large food chain has experienced price increases from a greater number of vendors than ever before. Philadelphia's poll of manufacturers reveals that three-quarters of the respondents report paying higher prices for raw materials this month, and 70 percent plan price hikes for the goods they sell. Chicago notes that rumors of wage and price controls abound and that this has triggered anticipatory price increases.