Beige Book Report: Richmond
December 16, 1981
Overview
Although there is now evidence that earlier reports may have
understated the strength of the Fifth District economy, most current
information suggests a marked deterioration of business activity in
the past month. Manufacturers surveyed report a broad decline in
shipments, new orders, and order backlogs over the past month.
Retail sales activity also softened with most respondents in this
sector also reporting month to month declines in activity.
Residential construction and sales, auto sales, and several
industries dependent on those are showing pervasive, weakness which
has led to layoffs and reduced workweeks. As a result, unemployment
has risen significantly in some, though not all, areas of the
District. Several of our Directors find the confluence of cyclical
and structural (tax changes, IRAs, etc.) factors promoting personal
savings at the further expense of retail sales, particularly of
durable goods.
Manufacturing
Somewhat more than two-thirds of the manufacturers surveyed
experienced declines in shipment, new orders, and order backlogs
over the past month. Increases in any of these measures of activity
were rare. Stocks of finished goods continued to rise and remain
somewhat worrisome. As noted, employment and the length of the
average workweek have declined among District manufacturers. The
textile industry seems to have been particularly hard hit as demand
for housing and auto related products continues extremely weak.
Such industries as furniture, primary metals, and building materials appear little better off, however. A notable change from recent periods is the virtual lack of strength in any significant District industries. Prices were essentially stable over the past month, with indications that prices received by District manufacturers may actually have declined slightly. Generally, plant and equipment capacity is in excess of present needs, but current expansion plans are considered appropriate.
Consumer Spending
Consumer spending seems to have weakened further in recent weeks.
Retailers surveyed report declines in total sales and relative sales
of big ticket items. Our impression is that this weakness has become
generalized. Sales and discounts, unusual for this time of year, are
widespread. Although our survey results suggest further inventory
reductions have occurred at the retail level there remains some
concern about current stocks. Several of our Directors attribute the
consumers' reluctance to buy to doubts about the course of the
economy, the interest rates available on savings, and the recent and
prospective changes in the tax treatment of savings (all-savers,
IRAs). Some of them perceive in this a lasting change in the
attitudes concerning consumption and savings which they find
encouraging for the longer term. Its immediate effect on economic
activity, however, is apparent and not at all encouraging.
Housing and Construction
There has been no discernible change in the construction sector in
the past month. Housing construction remains spotty, but generally
depressed. Non-residential construction continues to provide some
support, although, this too, is becoming somewhat more localized.
The Financial Sector
The shift toward savings, whether it is transitory or permanent, is
being felt by financial institutions. Bankers we have contacted have
experienced positive responses to market interest rate instruments
and expect a pickup in activity after the first of the year with the
expanded eligibility for IRAs. There is some disagreement as to the
aggregate effects of the IRA, but general agreement that it will be
a significant source of long term funds to the financial sector. It
is probably fair to say that a majority of our respondents do expect
IRAs to generate a large amount of new money for financial
institutions in the District.
The Outlook
The outlook continued to deteriorate over the month judging from our
survey responses. About half of all respondents expect the level of
business activity nationally and in their respective market areas to
decline over the next six months, while almost as many expect
further declines in business at their own firms or establishments.