Beige Book Report: Boston
August 5, 1980
Economic activity in the First District is slowing further. However, the character of the slowdown is essentially the same as described in earlier reports. Among manufacturers, firms which produce consumer goods or which are associated with the housing and auto industries are experiencing weak sales. High technology companies and those in the defense business are doing well. Retail sales are up significantly over year ago levels which were depressed by the gasoline shortage. There has been a slight revival in housing activity.
Surveys of manufacturers show fewer and fewer firms with increases in new orders and more and more with reductions. Declines in production and shipments are less common, but in one recent survey of purchasing managers 40 percent of the respondents reported lower production levels compared to 20 percent reporting increases. The brunt of the slowdown thus far has been felt by manufacturers of consumer goods, automotive products and items associated with the housing industry. The tire manufacturers in New England are having a particularly difficult time. Production is down at the region's sawmills. Sales of siding and roofing material are weak although the worst occurred in March and April; there has been some recovery since then. On the other hand, many of New England's high technology firms, particularly those in instruments and electrical equipment, continue to operate at high levels. The defense business remains very strong.
Aside from those firms associated with the auto industry and housing, the recession seems to be falling most heavily on firms which were already in some difficulty. Frequently, weak sales and financial problems are attributed to inadequate management in the past rather than to the recession. One respondent in northern New England reports several closings of older, high cost operations of national companies; he does not consider the recession responsible. However, such reports are more common than during the expansion period.
The retail sales situation in the First District is difficult to assess because sales a year ago were very adversely impacted by the gasoline shortage. Most retailers have seen a significant year over year increase in sales, and those respondents with national affiliations report that sales in New England seem to be stronger than in the country as a whole. Even so, sales are probably not keeping pace with inflation. Two respondents observe that discount operations are faring somewhat better than traditional stores; this pattern is seen as a sign of recession-induced price consciousness.
In the banking sector, loan demand declined earlier in the year and is now holding steady at the reduced volume. Two smaller banks say that they are putting more emphasis on collections than selling loans. These respondents feel that the quality of loans has deteriorated. This deterioration is attributed to special factors rather than to the recession. However, as mentioned, special factors seem to be more prevalent and more acute than in the past. Mortgage demand has increased slightly.
Professors Eckstein and Samuelson were available for comment this month. Both remarked on the widespread confusion about current monetary policy. Both interpreted Chairman Volcker's congressional testimony as "backing away from true monetarism."
Eckstein describes current monetary policy as "rudderless at sea" and fears that policy has returned to interest rate management. Until a superior alternative is known he hopes that policy will aim at reasonable growth in the aggregates.
Professor Samuelson feels it is too early in the recession for interest rates to rise. He is concerned that policy has returned to the late 1950s mode of concentrating on restraining the expansion before the recession is over. He is encouraged by the recent pick-up in monetary growth and acknowledges that "the light at the end of the tunnel" is becoming visible. Nevertheless, he warns against a "Thatcher-like crusade against inflation" with several years of below-trend growth. Such a policy has many counter-productive consequences. For example, it may encourage protectionism by invalidating the counterargument that displaced workers can find employment elsewhere.