Beige Book: National Summary
June 23, 1982
Overview
Reports from the twelve Districts suggest that on balance
the economy may have reached its trough but few signs of recovery
are seen. Only Atlanta, St. Louis, and Kansas City report signs of
improvement. Other Districts report either flat or deteriorating
conditions. Retail sales improved in May but were mixed in June, and
retailers remain very cautious. Manufacturing activity remains
depressed with new production cutbacks seeming to outweigh the few
production increases. Additional, although slower, inventory
liquidation seems likely. Construction, mining, and agriculture
remain weak. There are some signs that inflation continues to abate.
Consumer and real estate lending is weak, while business loan demand
is mixed. Bankers are concerned about delinquencies and loan
quality.
Retail Sales
Retail sales improved in May but were mixed in June
and retailers are cautious about the second half. The May
improvement reported by most Districts was mostly in non-durable
goods. Sales of household durable goods generally are weak, except
in San Francisco. Several Districts report sales gains were achieved
only because of strong promotions and large markdowns. Discount
stores are doing better than full-price stores. San Francisco, St.
Louis and Minneapolis report improvement in car and/or light truck
sales, but Dallas reports car sales fell after GM's low interest
rate promotion ended. Some Districts report continued improvement in
early June while others report retail sales falling back from their
May levels. Retailers are at best cautiously optimistic about sales
for the second half. They are reported to be conservative about
ordering goods and keeping a tight rein on inventories. While some
look for sales to increase in response to the tax cut and social
security increase, others expect consumers to emphasize saving and
paying down debt.
Manufacturing and Mining
Manufacturing activity generally remains
depressed, with new production cutbacks seeming to outweigh the few
production gains. Most Districts report either declining or flat
orders, shipments and backlogs. Some increases in motor vehicle
production are reported, but production of steel and machinery is
depressed. Dallas reports firms selling to the petroleum industry
are making particularly large cutbacks. Paper production is still
being cut but lumber production has stabilized at a depressed level.
San Francisco reports cutbacks in commercial aircraft and electronic
equipment production more than offset gains in aerospace defense
equipment.
Reductions in mining activity are widespread. Minneapolis reports sharp curtailment of iron and copper output, a modest reduction in coal production, and oil and gas drilling activity at less than half the year-ago level. Dallas reports oil drilling rates are low, but increased slightly at the beginning of June. San Francisco reports copper and silver mine production at 50 percent of capacity.
Inventories
Many firms have reduced their inventories to desired
levels, but there are widespread reports of continued liquidation,
and few reports of plans to build inventories. Most Districts report
retail inventories are at desired levels but some suggest
inventories are still on the high side. Retailers are reported to be
extremely cautious about building inventories. Cleveland reports
that liquidation of inventories of consumer goods and some
industrial products "has probably run its course" but further
liquidation of inventories is likely in primary metals and capital
goods. Other Districts generally report significant proportions of
manufacturers still planning further reduction of inventories.
Richmond reports nearly one-third of manufacturers still view
inventories as excessive, and Boston reports many manufacturers plan
to reduce inventories over the next three to six months. Dallas
reports many firms have excess inventories, particularly those
selling to the petroleum industry. Philadelphia reports the pace of
inventory liquidation is tapering off from May's peak rate of
reduction.
Construction
Most Districts that commented on residential
construction report very low levels of activity with no indications
of improvement. Two exceptions are Dallas, where starts are "up
strongly from April," and San Francisco, where homebuilding "appears
to be picking up," albeit from a post-World War II low.
The outlook for commercial construction is weakening. New York and Chicago report postponements of new projects and Dallas reports a decline in the number of new project announcements. Softening in office rental markets is reported by New York, Atlanta, Chicago, and San Francisco.
Agriculture
The situation in agriculture is generally gloomy. Grain
prices are depressed while input prices continue to rise. Low farm
income, high interest rates, and falling land prices make financing
difficult. Financial strains are reported by Atlanta, St. Louis,
Dallas, and San Francisco. Several Districts report spring planting
delayed by wet weather. A bright spot for farmers is livestock
prices, reported up by St. Louis, Minneapolis, Kansas City, Dallas,
and San Francisco.
Inflation
There are some signs that inflation continues to abate.
Prices in department stores are reported to be sharply discounted in
most Districts. San Francisco reports food supermarket price wars.
Commercial property rental markets are soft in some Districts.
Chicago reports construction project bids "10 to 20 percent below
estimates," and sharp price discounts in building materials and
paper prices. Prices for basic metals and grains also are weak.
Manufacturers in the Richmond District report declines in prices
paid and received in the past month. Chicago reports "unilateral
cuts" in salaries of nonunion employees and negotiations with unions
to adjust compensation and work rules. Philadelphia reports
industrial prices stabilized in May and June. However, prices of
livestock and crude oil are rising.
Financial Conditions
Consumer loan demand is generally weak and
business loan demand is mixed. Bankers are concerned about
delinquencies and loan quality. Little, if any, growth is reported
in bank consumer lending. Loans to finance purchases of automobiles
are reported to be constrained by usury laws. No strength is
reported in real estate lending.
Business loan demand is reported strong in some Districts and weak in others. Where strong, it is variously described as distress borrowing and as a substitute for tapping the bond market, but there is little indication of borrowing for plant expansion. Several Districts report bankers are concerned with the quality of existing loans and are very cautious about the quality of new credits. Delinquencies have risen, and San Francisco reports concern about the "level of nonperforming business loans, particularly to the construction, forest products and aerospace industries."