Beige Book Report: Richmond
August 11, 1981
Overview
Despite scattered sources and areas of strength it is apparent that
business activity in the Fifth District has turned decidedly
sluggish. The manufacturing sector where orders, shipments, and
employment have recently declined is indicative of this general
weakness. Retail sales are spotty with the durable goods sector
serving as a depressant. Construction activity continues slow and is
characterized as weak to severely depressed in many areas of the
District. The recent strength of the dollar on foreign exchange
markets is a factor, having apparently curtailed export demand in
some manufacturing sectors, notably textile products. The rebound
from the end of the coal strike is a positive factor in some areas
lending support to retail sales and consumer lending, but some
secondary effects of the strike persist.
Consumer Spending
Retail sales appear to have weakened over the past month although
reports are somewhat mixed. Indications are that sales of department
and general merchandise stores have held up reasonably well and that
even big ticket items are continuing to hold their own. In addition,
there has been a rebound in sales in those areas directly affected
by the coal strike. More generally, however, retail sales,
particularly of durable goods such as autos and furniture have
declined, at least in terms of unit sales. Building materials also
appear to be moving slowly at the retail as well as the wholesale
level.
Manufacturing
District manufacturers surveyed experienced minor declines in both
shipments and new orders over the past month. Backlogs of orders and
materials inventories were essentially unchanged, but stocks of
finished goods grew and remain above desired levels. Manufacturing
employment also declined in recent weeks, but the length of the
average work week was unchanged. Current plant and equipment
capacity also remains somewhat in excess. Nearly half of the
manufacturers responding to the question on the effects of the
recent strength of the dollar report that business has been
affected. From this sample it would appear that export demand for
textile products, primary metals and machinery and equipment has
declined as a result of the dollar's appreciation. One textile
manufacturer reports a drastic decline in export demand. A major
manufacturer in the machinery and equipment sector notes a
significant impact on international business while another in the
same line finds both import and export sectors being affected and
new business opportunities restricted.
Housing and Construction
Housing and construction generally appear to have weakened further
in recent weeks, although conditions vary widely from area to area.
Some areas are now reporting a virtual dearth of construction. In
some scattered areas housing is holding up reasonably well and in a
number of localities commercial and industrial activity is
supporting the industry at a modest level.
Prices and Expectations
Price increases have become significantly less widespread in the
past month judging from responses to our survey. A large majority of
the manufacturing respondents, for instance, report no change in
prices paid or received over the month. Increases in employee
compensation seem also to have moderated. This latter impression is
supported by Richmond directors who perceive a moderation in wage
demands by labor in their respective areas. Survey respondents still
expect little change in the level of business activity over the next
six months, but one-third of the manufacturers expect production in
their respective firms or establishments to improve over that
period. Retailers are somewhat less optimistic but most foresee
little change in the level of activity nationally, locally, or in
their individual firms.
Agriculture
Generally improved crop production prospects so far this year, a
better quality crop of flue-cured tobacco, plus stronger demand and
higher grade prices for the golden leaf, are encouraging to both
District farmers and farm lenders. While these conditions suggest
increased farm income, better repayment rates, and fewer renewals
this fall, weather and price developments the remainder of the year
will, of course, determine whether or not current favorable farm
income prospects materialize.
Farm credit conditions at midyear were similar to those in the first quarter. Both the slowdown in farm loan demand at banks and growth in the availability of loanable funds continued in the second quarter but at an accelerated pace. Bank interest rates on farm loans remained volatile, registering sizable increases over rates in both the spring quarter and a year ago. There was some improvement over the previous quarter in loan repayment rates and requests for renewals. Repayment rates were below these at this same time last year, however. Liquidity pressures of banks active in farm lending rose slightly but remained well below a year earlier.