Beige Book Report: Richmond
September 29, 1982
Overview
Fifth District business activity remains generally weak, with little
substantive evidence of any significant improvement in recent weeks.
Manufacturers report some further declines in shipments, orders, and
order backlogs. Reports suggest, however, that there may have been
some increase in employment and only a very slight rise in
inventories. The retail sector was perhaps the weakest recently with
general merchandise sales off somewhat. There are reports of
stirrings in the early stages of homebuilding projects, but many
houses remain on the market and sales activity has picked up little,
if at all. There are no apparent trends in bank lending activity as
reports from around the District are conflicting. On balance, total
crop production prospects in the District changed little during
August.
Manufacturing
In the manufacturing sector shipments, new orders, and order
backlogs all declined somewhat over the past month. There were
scattered reports of improvement in those measures, however, and
there is no clear pattern either by industry or location.
Inventories were virtually unchanged as stocks of materials were
steady and finished goods on hand rose only very slightly.
Nonetheless, nearly half our respondents find inventories above
desired levels. The employment situation was also mixed. Responses
suggest a net increase in total manufacturing employment, but quite
a few establishments continue to report employment on the decline.
Also, the average number of hours worked per week continued to fall.
Prices at the manufacturing level apparently rose more broadly than
in the past several survey periods. Plant and equipment capacity
remains well above current needs. Expansion plans are generally
viewed as about right. Considerable optimism continues to
characterize our manufacturing respondents. As a group, they expect
economic conditions nationally and within their respective markets
to improve over the next two quarters. They are slightly less
enthusiastic about the prospects for the level of production in
their own firms, but even these remain generally positive.
Retail Sales
Responses from the retail sector suggest that retail sales have yet
to get on track. Our survey indicates further declines in total
sales and in relative sales of big ticket items since the last
survey. One respondent terms it the worst one month decline in his
more than thirty years of experience. Inventories were unchanged to
up slightly. Surprisingly, respondents, on balance, report
inventories and the number and size of outlets as inadequate. Also,
this group is divided on the future course of the economy. There is
no generally held view as to the direction of activity over the next
six months.
Housing and Construction
There is very little evidence of any significant change in housing
and construction since the last report. There are scattered reports,
however, that activity or at least the contemplation of activity is
being revived, if slowly. Most Richmond directors expect housing
starts to be little changed to somewhat higher over the remainder of
the year despite the recent easing of mortgage rates. Several points
are made to support this view. Many unsold houses, new and used,
remain on the market. Builders are reported to have been buying
interest rates down into the 13-13 1/2% range in recent months with
little effect. Some feel that rates will have to demonstrate some
stability at lower levels before there is a significant response.
In some areas commercial construction is still giving a boost to the industry, but this is less generally the case than a few months ago.
The Financial Sector
Our directors report loan demand little changed to down somewhat in
recent weeks. In the business loan area, inventory reductions and a
lack of expansion activity have contributed. Consumers seem to be
concentrating on reducing debt and increasing savings. Delinquencies
are reportedly normal to low suggesting that consumers are managing
their finances cautiously.
Bankruptcies remain a concern. Most Richmond directors from the financial sector expect little improvement, and perhaps some further deterioration, in bankruptcy rates.
Agriculture
September 1st estimates of 1982 output pointed to much smaller crops
of tobacco, peanuts, and cotton than in 1981, due to both reduced
acreage and lower yields per acre. Feed grain output is forecast at
about the same level as last year. The soybean crop is expected to
be at a record level, however, showing a sizable gain over 1981.
Flue-cured tobacco prices have been stronger in recent weeks and have averaged 6 percent above the year-ago level for the season to date. Marketings have been down, however, so the value of gross sales is running only 2 percent above a year earlier. The projected increase in production expenses, plus the additional marketing fees required by the new tobacco program, suggest that tobacco producers will realize little profit from the 1982 crop.