Beige Book Report: Richmond
December 10, 1980
Fifth District business was characterized by change in November. In most sectors and in most areas that change was toward somewhat weaker performance. Some areas of strength seem to have emerged, however. Retail sales, in particular, picked up over the past month according to our survey. Sales of consumer durables have kept pace recently but have not reversed earlier declines. Manufacturers surveyed report declines in new orders, order backlogs, inventories, and employment over the latest survey period. Inventories, of other than automobiles, have not become a problem for most businesses. Housing sales and construction showed renewed weakness in recent weeks after having recovered somewhat in most areas. Price increases continue widespread. The outlook for business activity over the next six months remains generally positive.
Consumer Spending
Sales at department stores showed some improvement over the past
month. One respondent terms the improvement over the past two weeks
dramatic. Pervasive strength is not evident, however. Sales of big
items and such lines as building materials continue to languish.
Inventories are up from a month ago and are somewhat above desired
levels. Inventories will not present a problem to most retailers
unless Christmas sales come in substantially below expectations.
Current expectations are apparently for healthy, though
unspectacular, Christmas sales. Sales in the automobile sector
remain soft and inventories are of some concern there.
The Manufacturing Sector
Manufacturers surveyed recently report shipments holding steady but
new orders, order backlogs, and inventories all declined over the
past month. Employment and the length of the average workweek were
also down from a month earlier. These declines, while not deep, seem
to have cut across most industry groups. The effects appear to have
been greatest in the electrical machinery and equipment group and
least in the furniture industry. Inventories, while declining in
absolute terms, also fell relative to desired levels. There remains
some concern over current stocks, but this concern seems to have
diminished over the last month. There appears to have been some
effort among manufacturers to draw down inventories slightly. Many
have been able to do so without significantly reducing production.
Monitoring inventories carefully, many manufacturers have allowed
minor gains in shipments in recent months to reduce inventories
while production was held stable. Current plant and equipment
capacity remains above desired levels, but there is some scattered
sentiment for enlarging expansion plans. Increases in prices, other
than employee compensation, were more widespread last month than in
other recent survey periods.
Housing
Almost all of our directors questioned perceive a weakening of
housing activity over the last month or so. In several areas housing
starts are described as nearly nonexistent. Single-family starts,
and particularly speculative building, are severely depressed almost
across the district. Some multi-family construction is being
supported by subsidy programs. Inventories of new and resale housing
units are substantial. Sales activity is also down in recent weeks.
In many areas the improvement registered in late summer has been
lost. In some areas no improvement developed and housing activity is
continuing to trend downward. Expectations are that there will be
little improvement before spring.
The Economic Outlook
Despite recent reverses in business activity, survey respondents
remain generally optimistic. Manufacturers expecting activity to
improve over the next six months out number those who expect a
worsening by about two to one. Nearly half of those surveyed expect
the level of business activity nationally to improve, while nearly
as many expect improvement in their respective firms and market
areas. Half the retailers surveyed expect similar improvement.
The Financial Sector
Commercial and industrial lending has been very nearly level
recently. Lenders expect little change in business loan demand in
coming months. For the most part lenders left have standards of
credit worthiness unchanged. Their response to market conditions has
been almost entirely in the form of interest rate increases. There
have been only moderate increases in consumer installment debt in
recent weeks. Richmond directors expect little change in the near
future although some feel that consumer installment debt may rise
slightly in the near term.