Beige Book: National Summary
March 23, 1982
Introduction
While economic conditions remain very depressed
throughout the nation, there is a widespread view that a bottom was
reached in the first quarter, possibly in January when severe
weather hampered activity over a large portion of the nation.
Allowing for weather effects, retail sales, manufacturing,
employment, and construction have been about level since late last
year. Despite deep pessimism, panic has been avoided. Sluggishness
is expected to continue in the second quarter with some improvement
about midyear, hopefully aided by lower interest rates. Price
inflation continues to slow. With a downturn developing in oil and
gas development, defense procurement becomes the principal expanding
sector. Finished goods inventories are too high in some sectors, but
most purchased materials are under close control. Capital spending
plans generally are being reduced. Auto and appliance sales remain
weak. Extreme caution holds back decisions on consumption and
investment, especially on major items. Housing remains severely
depressed everywhere, but some districts report incipient
improvement. Office building construction is still vigorous in some
large centers. Crop prices remain low partly because of large
harvests projected for this year, but livestock prices have
increased. Several districts report increased bankruptcies and more
problem credits for consumers, business, and agriculture. The
financial condition of S&Ls continues to deteriorate and they
probably will not be able to finance a resurgence in housing.
Several districts report business loan demand as "flat," but
outstandings are buoyed up by expanding energy loans, and loans that
are not being paid on schedule because of financial problems
afflicting various borrowers.
Regional differences
All of the district reports follow, in
general, the outline described above, but there are noticeable
differences. The Chicago and Cleveland districts with their emphasis
on hard goods continue to present the blackest pictures. New York,
on the other hand, finds that the Second District is "weathering the
recession quite well." Philadelphia may be "on the verge of a
turnaround." Minneapolis sees "hints of recovery." Dallas reports
autos and housing "showing initial signs of recovery." At the other
extreme, San Francisco (in the past one of the most vigorous growth
regions) has "slipped deeper into recession," with home-building at
the lowest level since World War II, and distress in housing
replacing the fabulous boom of the late 1970s.
Inflation
Price increases clearly have slowed, with exceptions in
some lines. Philadelphia reported, however, that increases in
industrial prices were more prevalent in March. Cleveland and
Chicago note substantial pressure by producers on labor and
suppliers to cut costs. Goods and services are readily available,
and price discounting is widespread. Chicago noted far-reaching
ramifications of the declines in crude oil and oil product prices,
as a result of the world-wide excess supply of oil.
Employment
Additional layoffs and reduced hours, affecting full-time and part-time workers in a wide variety of lines of business,
were reported by most districts. New York characterized overall
labor market conditions there as relatively strong. Dallas noted
deterioration since December, due to layoffs and immigration of the
unemployed from other districts, but reported an unemployment rate
in February of only 5.8%. Layoffs in the Fourth District included
workers from the last auto passenger tire plant in Akron. San
Francisco indicated that most of the boost to employment from rising
defense spending will occur in 1983-1984, not this year. In response
to widespread layoffs and reduced job opportunities, unionized
workers have been increasingly willing to grant concessions.
Consumption
Retail sales reports are mixed, but generally indicate
sluggish or weak spending. Lack of confidence and negative
expectations were noted as restraining outlays. Those who commented
on the outlook project a rise in consumer expenditures in the second
half of this year. Minneapolis and Dallas noted signs of recovery in
auto sales in response to rebates. Evidence of financial strains—consumer loan delinquencies, rising personal bankruptcies, and
closing of retail stores—was reported.
Inventories
Reports on inventories are difficult to characterize
because of a highly mixed picture by industry, by stage of
fabrication and distribution, and by region. In general, raw
materials and purchased components are low, while finished goods
have become excessive when sales sagged. San Francisco tells of
"involuntary" accumulation. Philadelphia reports retail inventories
"pretty clean", in general. Richmond notes a rise in manufacturing
inventories. Boston finds stocks generally too high, but packaging
materials "very low." Cleveland says oil product inventories are
being cut, but not crude oil. Aluminum is high at the producer
level, and "extremely low" at the fabricator level. To sum up,
except for particular imbalances, inventories are low relative to
normal standards because of heavy finance charges and uncertain
sales prospects. Chicago and Kansas City warn that a rise in final
sales could quickly bring longer lead times and higher prices.
Capital spending
District reports suggest a significant decline in
capital spending in 1982. Low business confidence is a major factor.
San Francisco and Boston are affected by layoffs related to reduced
demand for commercial aircraft. The drop in oil prices has brought a
reduction in drilling in all producing regions. Demand for related
equipment has dropped, and a proposed oil pipe mill has been
canceled. New York and Cleveland report cancellations of orders for
machine tools. The TVA has halted construction on three nuclear
plants. Commercial construction is weak except for large office
building in centers such as New York, Chicago, Cleveland, and
Dallas.
Manufacturing
Defense procurement is vigorous, but these activities
are most significant in a few districts: San Francisco, Dallas, St.
Louis, and Boston. Steel and motor vehicle output are down sharply,
but there are signs of improvement. Appliance output also is down
currently. Textiles are down in Atlanta and apparel in Dallas.
Petrochemical output is off in several districts. Richmond reports a
rise in demand for cigarettes. Overall, manufacturing output remains
depressed but may be past its low point.
Housing
The housing picture varies from bad to worse throughout the
nation. Dallas and Minneapolis report a recent rise in home sales,
but Richmond, San Francisco, St. Louis, Chicago and most other
districts have observed no improvement in starts from an extremely
low level. A backlog of demand for housing is building up with few
unsold units, as reported by Kansas City. Lower interest rates are
the only hope for home building this year and time is running out,
at least for the northern states. More builders and subcontractors
are leaving the field. "Creative financing" has not proved of much
help.
Agriculture
Large crops are forecast for the South, the Midwest,
and the Great Plains—especially wheat, soybeans, and corn.
Production plans indicate large plantings, and subsoil moisture
conditions are excellent. Large crops suggest further downward
pressure on prices. Livestock prices have been rising, but most
experts project a further decline in net farm income. Farm land
prices are declining and delinquencies and bankruptcies are rising.
Heavy debts at high interest rates, combined with lower income,
could cause further deterioration in the financial condition of
agriculture.
Finance
Uncertainty continues to characterize the financial
markets. Business loan demand is described as weak or flat in most
districts. Business credit ratings are being downgraded, and more
loans require special attention. New York experts say business
liquidity continues to deteriorate, and more ratings will be
downgraded soon. Mortgage credit is very tight, both for housing and
commercial projects. Usury rates are impeding credit use in some
states, especially for credit cards and auto loans.