Beige Book Report: Richmond
August 18, 1982
Overview
Nearly all indications are that business activity in the Fifth
District continues very weak, and may still be declining. Our recent
surveys suggest further deterioration of business at both the
manufacturing and retail levels in recent weeks. We continue to hear
of layoffs and the number of unemployed is apparently still on the
rise, although unemployment rates have turned down in some areas.
Inventories have apparently turned up over the past month to six
weeks. Survey responses are to the effect that prices are actually
falling. There has been no evidence of any revival in the housing
industry and other construction seems to be lagging as well. Credit
demands remain generally soft, particularly in the consumer and real
estate sectors. Delinquency rates are up modestly on most types of
loans. Expectations for business performance remain generally
positive, but have weakened somewhat in recent weeks.
The Manufacturing Sector
Activity in the manufacturing sector appears to have weakened since
our last survey. Respondents report declines in shipments, new
orders, and order backlogs. Also, employment has been cut back
further and the average workweek has been shortened. Inventories, of
finished goods and materials, moved back up over the month leaving
total stocks generally above desired levels. Current plant and
equipment capacity is also well above present needs according to
respondents.
In this area the greatest difficulties are being felt in such industries as textiles, furniture, building materials, metals, and machinery and equipment. Much of what little support the manufacturing sector has gotten recently has come from seasonal strength in the tobacco and food processing sectors.
Consumer Spending
Retailers responding to our latest survey experienced declines in
total sales and in relative sales of big ticket items over the past
month. They further report declines in inventories, which remain
somewhat above desired levels, and in employment. Indications are
that prices remain weak and that retailers are offering heavy
promotions and discounts to keep the goods moving. Despite the
efforts, a common view around the District is that the consumer has
withdrawn and is awaiting some encouragement from other sectors of
the economy. In the meantime, consumers are generally managing their
existing debt with only a modest increase in delinquencies, and
increasing savings. Many believe that postponement of purchases is
setting the stage for a significant rebound in sales of autos and
other durables once attitudes begin to improve.
Housing and Construction
Housing continues to contribute disproportionately to the overall
weakness in District business activity. The overall construction
sector is lagging, having lost the support until recently furnished
by the commercial and industrial area. The residential sector
remains the weakest, however. Sales of existing houses also remain
very slow.
The Financial Sector
Loan demand is very soft overall. In the real estate area it is
described as virtually non-existent, and the consumer sector is
doing little better. Business loans are also down considerably in
the face of an inventory liquidation which may now have run its
course.
Delinquency rates are being held to modest increases in nearly all areas, but several Richmond directors mentioned the growing numbers of business and personal bankruptcies as an area of concern. One noted that a loan need not go delinquent before it goes bad, as in the case of a bankruptcy.
Our directors generally believe that if interest rates continue to fall borrowing could rise substantially. Most believe that the strength will appear first in the consumer and real estate areas.
Agriculture
Fifth District farmers' financial difficulties continued unabated
during the second quarter of 1982, according to this Bank's survey
of farm credit conditions. Moreover, farmland values are trending
downward, eroding farmers' equity positions. Under these
circumstances, farm loan demand remained sluggish and bank supplies
of farm loan funds were plentiful. Farm loan repayment rates and
requests for loan renewals and extensions, although showing slight
improvement over the spring quarter, were equally as poor as during
the same period last year. Bankers were requiring significantly more
collateral to secure farm loans than they did a year ago. Meanwhile,
liquidity pressures facing some rural banks eased slightly from
year-earlier levels.
Marketing of this season's flue-cured tobacco crop, under way for two weeks, has been characterized by lower grade prices and slightly poorer quality than a year earlier. Because of dissatisfaction with prices, growers have placed more than one-third of gross sales thus far under the government loan program. The crop is some 13 percent under 1981's output.