Beige Book Report: Richmond
September 30, 1981
Overview
There are numerous signs that Fifth District business activity has
slowed in recent weeks. Manufacturers have experienced declines in
new orders and order backlogs. Manufacturing employment appears to
have softened during September after a period of significant growth.
Retail sales, particularly of durable goods, have also weakened.
Housing construction continues depressed and sales of houses are
very slow in most areas. There remain pockets of strength in
commercial and industrial construction, however. Loan demand also
seems to have slowed generally. Indications at this time suggest
that gross income of most District farmers this year will be well
above last year's level.
The Manufacturing Sector
According to District manufacturers surveyed this month shipments
held steady while new orders and order backlogs fell sharply. The
performance of inventories was mixed as stocks of materials fell
while finished goods on hand were somewhat higher than a month
earlier. Inventories generally grew relative to desired levels,
however, and now nearly 40 percent of the manufacturers surveyed
feel current stocks are excessive. Survey results also suggest a
reduction in employment among manufacturing respondents and the
first reduction in the average work week in quite some time.
Approximately one third of the respondents find current plant and
equipment capacity somewhat in excess, but there is virtually no
sentiment for altering current expansion plans. Survey responses
further suggest, however, that much of the weakness in the
manufacturing sector was concentrated in the various consumer goods
industries. Responses from such diverse industries as textiles and
apparel, furniture, and consumer electronics indicate weakness. On
the other hand, the primary metals, chemicals, machinery and
equipment, and shipbuilding groups seem to have held their own.
Consumer Spending
The retail sector also appears to have slumped over the past month.
Total sales and relative sales of big ticket items were reported to
have declined. Indications are that durable goods accounted for
much, although by no means all, of the weakness. Employment by
retail respondents was unchanged to down slightly. Inventories at
the retail level, exclusive of automobiles, showed little change
according to our respondents. Automobile sales continue weak and
inventories in that sector remain a problem. Other retail
inventories are viewed as somewhat higher than desired.
Housing and Construction
Residential construction continues very weak in most areas of the
District. Inventories of new and previously owned housing are
substantial and, according to our Directors, are having the effect
of holding the line on sale prices, at least once financing
concessions are factored in. There is still evidence that commercial
and industrial construction is taking up some of the slack created
by the residential sector. In addition, public sector construction
is proceeding as planned in most areas, as projects already funded
are being pushed to completion. Several of our Directors, however,
note an increasing reluctance of state and local governments to
begin moving on new projects. Financing costs and rising operating
expenses are tending to cap future capital projects. There is some
concern about what this portends for construction once projects now
in the pipeline are completed.
The Financial Sector
According to our Directors there has been a noticeable easing of
loan demand in recent weeks. Demand for home mortgages has weakened
almost across the District. Weakness in consumer installment loan
demand has also been widespread. There is increasing evidence of a
general softening of business loan demand.
Agriculture
During the first half of the year. total cash receipts from farm
marketings were 13 percent above those in the same period last year,
with gains recorded in all states except South Carolina. Crop
production prospects as of September 1 were even brighter than they
were a month ago, pointing to significant increases over last year
in the peanut, cotton, soybean, and corn crops. Marketing of a good
quality crop of flue-cured tobacco continues, with the general
average price 15 percent above a year ago and the value of gross
sales up 21 percent. But of course final crop output is still far
from certain, and the improvement in crop prospects nationally has
weakened prices.