Beige Book: National Summary
August 11, 1981
Nine Redbook reports indicated weakening in activity since the last FOMC meeting, with varying degrees of emphasis. Exceptions were Dallas and Philadelphia, where activity was judged to be expanding, and St. Louis with "no marked change". Inflation appears to have moderated, but most observers fear a resurgence. Virtually all reports commented on the depressive impact of current high interest rates, especially on housing, but also on nonresidential construction, capital goods, motor vehicles, and inventory investment. Employment is sluggish, at best, in most districts. Retail trade is mixed, but with auto sales severely depressed everywhere. Labor unrest, highlighted by the air controllers' strike, is increasing. Capital goods demand is generally weaker. Energy development and defense procurement are among the few strong sectors. The higher value of the dollar has tended to slow exports and increase imports, but quantification is difficult. Consumer credit use has slowed. New residential mortgages are difficult to negotiate under current terms. The S&L crisis deepens. C&I loan demand varies, with merger-related loans a big factor in money centers. Crop prospects are "good to excellent" in most of the nation. The new fiscal package is viewed as favorable, but no substantial early impact is foreseen. Many observers anticipate a revival in activity late in the year or in 1982, but only if interest rates decline.
Exchange value of the dollar
All districts found that the higher
value of the dollar was affecting imports and exports, but the
picture is confused by the weak economic situation in Western
Europe. Also, most observers expect the full impact to be delayed.
Boston comments on reduced exports of "high-tech" items. New York
finds exporters "worrying", but with few specific examples of
declines in sales. Cleveland reports increased foreign competition
for machine tools and pigments. Richmond finds textiles affected.
Chicago reports a drop in inquiries from abroad as to the
availability of U.S. products. San Francisco finds demand for
aircraft and forest products seriously affected. Various districts
pointed to reduced foreign demand for agricultural products, with
accompanying downward pressure on domestic prices.
Inflation
Boston, Richmond, and Kansas City reported a trend toward
price stability with fewer purchasing managers reporting paying
higher prices. Prices of building materials, especially cement, are
generally weak. Cleveland economists still see a "core" inflation
rate of about 9 percent. Chicago reports prices rising faster in
July than last year, and business equipment prices up at least 10
percent this year.
Financial institutions
Most districts commented on the growing S&L
crisis. A New York analyst fears "a mass failure of the thrifts",
and a shock to the economy. Outflows of funds continued heavy in
July, and net worth is declining. The new adjustable mortgage loans
and tax exempt "small savers" certificates may be of some help. But
the basic problem is high interest rates. Atlanta points out that
many people could not now afford to buy the houses they live in, and
Dallas warns of a wave of foreclosures when creative financing deals
must be renegotiated.
Housing
The housing industry remains depressed throughout the
country, even in the relatively strong economy of the Eleventh
District. Mortgage rates up to 18% and high prices are preventing
many potential buyers from entering the market. Some developers are
cutting prices. Bankruptcies of small builders are increasing.
Related industries continue to suffer, including building materials,
manufacturers, forest products, and appliances. Mortgage lending
activity is reported nearly nonexistent in some areas.
Manufacturing
Manufacturing production was generally reported
unchanged to down in the latest month. Industries linked to the
construction and auto sectors were particularly adversely affected,
while those producing military hardware and oil and gas equipment
benefited. In contrast with other districts, Dallas reported
continued expansion of manufacturing output, and Philadelphia noted
signs of improvement following a decline earlier.
Retail sales
Reports on consumer spending are mixed though
indications of lower, softer, or spotty sales predominant. Autos,
appliances, furniture, and building materials are particularly
sluggish. Discounting and heavy advertising to boost sales are being
reported. Auto sales are benefiting from the recently announced
promotion programs of the automakers. Additional parts and servicing
business is partially offsetting weak new car sales in some areas.
But additional auto dealers were reported to have gone out of
business. The air traffic controllers' strike is exacerbating the
problems of the airlines. Tourism, "already anemic" in the South,
has been hit hard by the strike.
Inventories
Businessmen are generally reported to be watching
inventory levels closely. Nevertheless, excessive levels have
developed in a number of industries. High interest rate levels are
encouraging tight inventory control. Kansas City noted that
inventory cutting appears to be taking place at all stages of
production. Types of inventories noted as being excessive include
motor vehicles, farm and construction equipment, construction
supplies, steel, certain lines of retail goods, and crude petroleum.
Capital investment
The Cleveland and Chicago districts, which
emphasize durable consumer and capital goods, continue to send in
pessimistic reports. Nonresidential construction is now softening in
most regions as a result of financial stringencies. A number of
districts reported reduced demand for producer equipment, including
private and commercial aircraft, freight cars, trucks and trailers,
and especially farm and construction equipment. Energy development
items, defense equipment, and high-tech items are relatively strong.
Agriculture
Among the districts reporting good-to-excellent
agricultural conditions are Richmond (tobacco), Chicago (near ideal
weather for corn and soybeans), St. Louis, Kansas City, and San
Francisco. However, Atlanta finds dry weather again restricting crop
growth, and Minneapolis complains that excess moisture now endangers
crop yields. Farm income is depressed by low farm prices and rising
costs, and farmers are restricting new investments.