Beige Book: National Summary
December 16, 1981
Overview
Economic conditions deteriorated further during November,
according to the District reports. Growth in consumer spending
slowed or tell in many regions. The slump in manufacturing worsened,
and layoffs, production cuts, and plant shutdowns appeared to be
spreading. Residential construction failed to revive despite a
decline in interest rates. Nonresidential construction activity
continued strong in some Districts. While consumer lending remained
soft, business borrowing strengthened in a few Districts. Low prices
depressed agricultural incomes and created anxiety about farmers'
abilities to meet loan obligations. Economists have revised their
forecasts of near-term economic growth sharply downward. Many
believe the downturn will reach the trough by the first or second
quarter of 1981 and that the economy will then rally over the second
half of the year.
Consumer Spending
The retail sector was soft throughout the country
during November. Many areas experienced reduced sales growth or
actual declines, although the pace improved after Thanksgiving in
the Northeast. Real sales, however, were lower in Richmond, Atlanta,
Chicago, and Minneapolis. After falling in October, nominal retail
spending in San Francisco recouped the loss in November, but in real
terms holiday expenditures are not expected to reach last year's
mark. Although high quality products were selling better than low-
cost goods in Boston, durables and other big-ticket items were
moving especially slowly in many other locations. Merchants in
numerous Districts were counting on a late surge to produce an
acceptable holiday season, with some stores relying on heavy
promotions and price markdowns to increase activity. Despite the
overall sluggishness in retail sales, inventories were mentioned as
a problem in only five Districts. No improvement in automobile sales
was evident, and dealers in Cleveland were prepared for one of the
worst months ever.
Manufacturing
Manufacturing activity nationwide appeared to be
worsening from last month's depressed levels. All Districts reported
drops in new orders or shipments for at least some industries. Hard
hit by the downturn were producers of capital goods, building
materials, textiles, paper, steel, and consumer durables. Even
demand for high technology products has slipped. Difficult
conditions persisted in mining in Minneapolis and San Francisco.
Strong spots were noted in defense industries in Boston and New York
and energy-related industries in St. Louis and Cleveland. Layoffs
rose in all Districts but Dallas. Manufacturers in Philadelphia and
Chicago indicated an easing of price pressures.
Construction
Residential construction and home sales remained
virtually at a standstill, as little additional activity resulted
from recent declines in interest rates. Housing prices have begun to
fall in Atlanta and Chicago, but Dallas reported that further
interest rate reductions were likely to cause prices to jump
sharply.
Nonresidential construction continued to be strong in New York, St. Louis, and Dallas. Office construction in Chicago received a boost when financing problems were resolved for some large projects. Richmond, Atlanta, and San Francisco had moderate activity in the nonresidential sector.
Financial Developments
Consumer loans continued to languish, but
increased demand for business loans was observed in some areas. In
Philadelphia, consumer loans declined by as much as 20 percent. In
contrast, business loans were rising in New York, Philadelphia,
Kansas City, and Dallas. Inventory financing, mergers, cash
shortages, energy development, and below-prime lending were cited as
factors contributing to the upturn.
Agriculture
Although good-to-excellent crops were reported in
several Districts, lower-than-expected prices were reducing net
returns in agriculture. Consequently, the financial positions of
farmers prompted growing concern. In Kansas City, the low prices
prevented any improvement in customers' creditworthiness as interest
rates fell. Agricultural loan delinquencies continued to climb in
Atlanta, but lenders hoped foreclosures could be held to moderate
levels. In Dallas, private lenders were carefully watching their
agricultural loan portfolios, although few immediate problems were
foreseen.
The Outlook
In the face of widespread sluggishness, economists
lowered their forecasts of real GNP growth. Fourth quarter declines
are projected to be as large as 7 percent, but the recession is
generally expected to bottom out in the first or second quarter of
1982. Many observers anticipated a strong recovery by the second
half of the year, although Chicago warned that any subsequent upturn
expected next year; would leave that District far short of full
prosperity. Manufacturers differed about when they thought that
business would pick up. At the extremes, Philadelphia firms hoped
for expanding orders between now and June, while many Richmond
companies believed the slump will deepen over the same period. Fears
that increased inflation will accompany the recovery were voiced.