Beige Book: National Summary
May 14, 1980
Economic activity slowed markedly across the country according to this month's district reports. Led by a sharp falloff in automobile sales, consumer spending has weakened substantially. There is evidence of a contraction in sales of other durable goods as well as of nondurables. The outlook outside the consumer sector was generally pessimistic as well. Residential construction has ground to a virtual halt, although nonresidential building remained brisk in several districts. With a few notable exceptions, mainly the defense, energy and machine tool industries, a wide cross section of manufacturing firms reduced their workforces in the face of declining new orders, shrinking backlogs and rising inventories. Many firms also began to reassess capital spending plans, but other than in the auto industry, there has been little actual retrenchment thus far. On the financial scene, despite lower interest rates, business and consumer loan activity remained dormant. Agricultural loan demand, however, rose about in line with past seasonal patterns.
Consumer spending weakened across the nation in April. While the largest cutbacks continued to be in big-ticket durable items especially autos, purchases of nondurable goods also slackened. As a result, there were reports of excessive retail inventories in several districts. In the Chicago area, where demand was particularly depressed, merchants offered large price reductions and discount programs to trim accumulating stocks. In contrast, inventory-sales ratios were reported as acceptable in both Philadelphia and New York. Auto stocks were generally lean. Nevertheless, many dealerships have gone out of business in the Atlanta, Dallas and San Francisco regions. Declining consumer credit card usage nationwide contributed importantly to weakening demand. Existing credit balances were significantly reduced according to Atlanta and Richmond, and new credit purchases were down as much as 20 percent from last April in Dallas with cash buying, as evidenced in the weak growth in currency nationally, not taking up the slack. Slower debt collection and bill payments were noted in Philadelphia, Chicago and San Francisco.
Outside the consumer sector, overall business conditions deteriorated in recent weeks. Backlogs were worked down, as new orders declined and lead times were shortened in a variety of industries ranging from steel in Cleveland and Chicago, to furniture and floor covering in Boston, to chemicals and electronic supplies in New York. Inventory liquidation was reported in Philadelphia, Chicago and Kansas City although excessive stocks are not yet a problem for New York manufacturers. As a result of decreased production activity, workweeks were shortened in Richmond, Philadelphia and Chicago, and layoffs—both temporary and permanent—have spread. Both hourly and salaried employees have been dismissed in the automobile and related industries in the Chicago and Cleveland areas, while workers in homebuilding and construction industries have been particularly hard hit in Atlanta and San Francisco. Reassessments of capital investment plans were underway by firms in Boston, New York and St. Louis, but little actual retrenchment has taken place except in the auto industry. As with auto employment, these cutbacks have been concentrated in the nation's midsection. Input prices continued to rise in Philadelphia and Kansas City although metals, lumber and paper prices have all softened in the Boston district.
In contrast to these generally bleak conditions, machine tool manufacturers in New York and Cleveland appear relatively insulated from the recession. In Boston, Dallas, San Francisco and St. Louis the manufacturing base has been strengthened by the defense industry. In Minneapolis, defense procurement contracts have grown by 30 percent in the last two years.
Residential construction continued to stagnate with activity at a virtual standstill in Atlanta, Cleveland and St. Louis. Housing starts are 50 percent below last year in Kansas City. Industries related to home building have also been especially depressed. The plywood industry in San Francisco has been operating at less than half capacity. Estimated joblessness in construction and related industries ranged between 20 and 40 percent in Chicago. At major lumber and plywood mills in the San Francisco district, one-sixth or more of the workers have been furloughed. Nonresidential building, however, remained brisk in Minneapolis, St. Louis and San Francisco.
Reflecting weakening loan demand across the nation, short- term interest rates declined sharply. Still, relatively high interest rates and growing economic uncertainty continued to discourage business and consumer borrowers alike. Moreover, nonprice lending terms were tightened in Kansas City, New York and San Francisco. Business loan demand eased in all districts although demand by energy industries remained strong in Dallas. New York reported some companies shifted to the long-term bond and commercial paper markets to meet credit needs. Although home mortgage rates are well below recent peaks, little activity was noted in Kansas City or Cleveland although in Chicago and St. Louis, a few loans were made. In Atlanta, a surge in personal bankruptcies was noted. Auto installment loans were especially weak in Richmond.
Agricultural loan demand rose seasonally but this sector, as others, was affected by comparatively high interest rates and escalating uncertainty. Some bankers are concerned about repayment ability because of generally rising agricultural costs and declining prices for food. Farm credit was tight in Chicago but adequate in Atlanta, Dallas and Richmond. Slower repayments and increased renewals and extensions, however, became common in Richmond, while in Chicago many farmers restricted purchases, especially of equipment, in order to ease their credit needs.