‹ Back to Archive Search

Beige Book: National Summary

September 9, 1980

Overview
Reports from Reserve Banks this month are, on balance, more cheerful than were those of last month, at least with regard to both current and prospective business activity. The improvement in the assessment of business conditions is attributable primarily to several Districts who see the recession as having bottomed out or as ending soon. Several other Reserve Banks, however, continue to report weakening economic activity, with no prospects for a recovery beginning before the end of the year. With regard to inflation, a consensus view is not clearly discernible. Some Districts report an easing of price pressures at the materials and retail levels because of weak demand, while others hear nothing from manufacturers that suggests a slowing rate of inflation. Most Districts report slowly rising deposits at commercial banks and at thrift institutions. Commercial banks say their interest rates are higher and their lending is on the weak side. The most notable development appears to have been in mortgage lending, where renewed strength is being sapped by rising mortgage rates.

Business Conditions and Outlook
Production and sales in the United States stabilized further in recent weeks and prospects for recovery improved, judging from Reserve Bank reports. Boston, Philadelphia, Richmond, St. Louis, and Minneapolis, who last month reported further deterioration in their District economies, now report business conditions are firming up. Atlanta and Chicago are also more upbeat in their assessments this month. Cleveland respondents still expect a sluggish recovery will begin next quarter. Dallas sees a quickening in the pace of economic activity, up from the slow rate of expansion reported last month. San Francisco identifies several favorable developments, but believes the recession has months to go, while New York and Kansas City report, as they did a month ago, continued weakness in their District economies, with a likelihood of more weakening until yearend.

Prices
Weak demand is apparently reducing price pressures at the retail and commodity levels. St. Louis, Kansas City, and Dallas report reduced profit margins at retail stores, where cost increases are being absorbed rather than passed on, and prices are being cut to move merchandise. Boston and Chicago are hearing about moderation in price pressures for some materials, but manufacturers responding to Philadelphia and Richmond say they can relay no evidence of relief from inflation. Recent increases in farm product prices are reported by Chicago, Minneapolis, and Kansas City. Chicago and San Francisco call attention to the inflationary implications of the rising cost of inputs, especially labor.

Financial Developments
Commercial bank lending continues sluggish except in parts of the Southwest, and scattered exceptions elsewhere. Weakness in consumer credit is explicit in the reports of most Reserve Banks, and implicit in the rest. San Francisco says financial institutions are concerned that the rise in interest rates may result in deposit outflows, although neither San Francisco nor any other Reserve Bank tells of any decline in deposits. Atlanta notes the rapid growth of international banking in south Florida.

Consumer Spending
Lackluster retail sales characterize District reports. Atlanta and Chicago think consumer confidence is improving, but San Francisco does not. Dallas and Atlanta find their dealers in domestic autos increasingly optimistic about the new model year, but New York does not. Most department stores are not counting on sales to improve much in coming months.

Residential Construction
The summer improvement in homebuilding activity has been reversed by higher mortgage rates, according to Chicago, St. Louis, and San Francisco respondents. Other Districts relay concern about the possibility of such a reversal, or point to recent declines in mortgage lending (New York, Cleveland, Richmond, Atlanta, Minneapolis, Kansas City, Dallas).

Business Fixed Investment
Business spending on plant and equipment is expected to decline. New orders for capital goods are weak, except for oil field equipment (Cleveland, Chicago, St. Louis, Dallas). Boston and New York report that sales of capital goods are holding up, but only because of backlogs of unfilled orders. Richmond notes that low rates of capacity utilization in most manufacturing worsen the outlook for business fixed investment.

Inventories
With a few exceptions, businesses consider their stocks of goods and materials to be just about where they want them (Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Kansas City, Minneapolis).

Agriculture
The hot dry weather this summer seriously damaged several crops, reduced weight gains in livestock, and forced sales of livestock intended for breeding herds. Although farmers in some regions will suffer large income losses, net farm income in certain other areas and perhaps in the nation as a whole, will be higher than it would have been otherwise because of higher farm product prices resulting from reduced marketings (Richmond, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, San Francisco).

Professors and Financial Panel. Professors Eckstein, Samuelson, and Tobin agree that monetary and fiscal policies now in place will generate a sluggish recovery. Eckstein, concerned about the snugness of monetary growth targets, says allowing another housing setback would be "pointless nonsense." Samuelson believes the Fed should make clear its willingness to violate the targets if they interfere with a satisfactory recovery. Tobin thinks an incomes policy is required in addition to monetary and fiscal policies to reduce inflation, and he considers targets for monetary aggregates to be ridiculous. New York now features the views of a Financial Panel as a regular part of its report, beginning this month with Henry Kaufman, James O'Leary, and Albert Wojnilower. Kaufman expects the economy to begin recovering next quarter, despite the backup in interest rates which, he says, is slowing the reliquefaction of businesses. O'Leary finds a universal expectation of no decline in the basic inflation rate-an expectation that he believes is not fully appreciated by the authorities. Wojnilower feels the recession is ending, and anticipates surprises on the high side in business conditions.