January 27, 1982
According to this month's district reports, economic activity in the nation remains very weak. Retail sales, after finishing 1981 with a robust performance, have sagged again, and prospects for a quick recovery are not widely perceived. Auto sales are down across the country. In the manufacturing sector, softness cuts across geographic and industry lines, as unwanted stock piles up and leads to production cutbacks. Financial institutions say business loan demand continues to be strong, but consumer borrowing is still in the doldrums. Deposit flows are mixed, and response to IRAs has been disappointing for the most part. The housing market is universally acknowledged to be depressed, and will probably remain so until interest rates come down and the economy picks up, according to builders and brokers. Finally, reports from the agricultural sector indicate falling commodity prices, with farmland prices dropping too, as many farmers find it impossible to stay in business.
Retail Trade
Most districts report weak consumer spending in early
January, the result of a combination of factors. Many retailers feel
that the strong sales experienced in the week before Christmas were
basically borrowed from January sales. That is, consumers simply
burned themselves out taking advantage of unusual pre-holiday
markdowns, and simply have no money to spend now. Frigid weather has
also played a part in holding sales down, with a large portion of
the country held in the icy grip of one of the coldest winters on
record. Finally, there is some feeling on the part of retail
merchants that the flow of dollars into IRA accounts has also acted
to take the wind out of the consumer's sails. (This is unlikely,
given the reports on IRAs. See FINANCE.) The softness in retail
spending has led to an inventory buildup in some areas. Atlanta,
Chicago, and St. Louis all report inventory accumulation. On the
other hand, stock levels in Minneapolis, Kansas City, and Dallas are
reported to be in reasonable shape.
Looking ahead, retailers around the country do not seem to expect much from the first half of 1982. Although contacts in Kansas City and Philadelphia are optimistic, they are exceptions. Most other districts say merchants expect the current sluggishness to continue at least through the first quarter, and possibly through the first half of the year.
Auto sales are depressed nationwide. The recession has combined with high interest rates to give auto dealers their worst year in many. There is some hope for improvement though, should price reductions follow the General Motors-United Auto Workers negotiations. That might be good news for consumers, but, as noted by St. Louis, could put a squeeze on used car dealers if price cuts in that market follow.
Manufacturing
Weakness in the manufacturing sector is widespread
according to district reports, and industry still appears to be on a
downtrend in many areas. While the softness spreads across many
industries, a few seem to be particularly hard hit-automotive
products, building materials, and steel. Inventory growth has led to
production cutbacks, furloughs, and temporary plant closings in an
effort to let accumulated stock run off. Just where the industrial
sector is heading, and how long it will take to get there, is a
matter of diverse opinion. Manufacturers in Philadelphia, New York,
and Richmond seem to think that the trough is near. On the other
hand, reports from St. Louis and Minneapolis point to further
deterioration. Contacts that do see improvement in the situation
don't expect it to come until at least the second quarter, and many
expect it to be only slight at that.
Finance
The year-end surge in business loan demand has held over
into 1982 in most districts, but some bankers interpret that as a
sign of weakness on the part of borrowers. Many firms are borrowing
to finance unwanted inventory accumulation. Some cutbacks in credit
extension may be anticipated, as banks are becoming more and more
concerned with the creditworthiness of their customers. Consumer
lending remains weak across the board.
Deposit flows are mixed. S&Ls continue to have trouble attracting money in most areas. The response to IRA plans has been sluggish in most districts, despite heavy promotion in some parts of the country, and banks that have experienced a strong demand for IRA deposits have often found very little new money going into them.
Real Estate and Construction
The residential housing market is
universally depressed, with the worst conditions indicated by
Philadelphia, Richmond, San Francisco, and New York. Only houses in
the highest price brackets are selling. A retightening of the
mortgage market has held home loan rates in the 17 to 18 percent
range and effectively choked off demand. Home prices are reported
falling in several districts. Residential construction is at a
virtual standstill in many districts, as homebuilders try to work
off inventories.
As for the future, reactions are mixed. While most real estate businesspeople agree that a large drop in mortgage rates will have to proceed any increase in demand, there is also some feeling that that alone won't be enough. Public confidence in the economy may have to be restored, through general economic improvement, before a housing recovery is seen.
Commercial construction, while sluggish in some areas, is generally better than residential, and is even reported to be strong in Dallas.
Agriculture
Weakness in agriculture rounds out the generally gloomy
economic picture painted by this month's Redbook reports. Falling
commodity prices combined with rising costs have put a squeeze on
many farmers and placed them in a precarious financial position.
Agriculture banks, concerned over the creditworthiness of many
farmers at this time, have been monitoring borrowers closely and
tightening policies on credit extension. The result has been
foreclosures in some areas, and an increased number of farms on the
market. Farmland markets are thus weak in many areas, with price
declines noted by Chicago, Minneapolis, and Kansas City.