Beige Book: National Summary
September 29, 1982
Overview
The economic retrenchment reported earlier this summer appears to
have slowed or stabilized in August and September, but District
reports continue to show almost no indications of recovery. Consumer
spending remains cautious, and after a disappointing back-to-school
season retailers as well are ordering with prudence. Manufacturing
activity is widely described as deteriorating: new layoffs are
reported; capital spending plans have been further deferred; and
inventories in many industries are mounting. Residential
construction shows signs of improvement in a few Districts, but
commercial building activity is still on the wane. Abundant
agricultural supplies threaten to depress many crop prices, thereby
reducing net farm income even further despite more favorable
conditions for livestock producers. In the financial sector demand
for both business and consumer loans in most Districts is
characterized as soft, while deposit growth remains sluggish. Most
Districts are not optimistic regarding the outlook for recovery in
1982.
Retail Sales
There is virtually no indication that a consumer-led economic
recovery is underway. Back-to-school and total retail sales are
generally reported as sluggish or disappointing. Sales of soft goods
continue to outperform such consumer durables as household
furnishings, and new auto sales remain depressed.
Caution seems to be the key trait in the retail sector. Despite slow-rising retail sales, due in part to buyer uncertainty about jobs and still high interest rates, merchants are apparently satisfied with inventory levels. Retailers have been trying to keep a tight rein on inventories and are buying cautiously for the December holiday season and winter.
Scattered signs of optimism for faster-growing retail sales later this year include reports from Boston and Philadelphia that a strong post-Thanksgiving selling season is expected and from Kansas City that merchandise cost and profit margins are stabilizing. Chicago, on the other hand, finds orders of goods for the winter season considerably below normal and store closings increasingly frequent; Dallas notes a faster-than-usual deceleration of sales following the back-to-school selling period.
Manufacturing
With the exceptions of Dallas and New York, most
Districts describe a further slowing of industrial activity in
September. Production, employment, orders, and shipments are weak,
and additional layoffs and shortened workweeks are reported.
Cleveland finds that manufacturing activity has yet to trough and the outlook for the steel industry is dismal. Inventories of oil- field equipment continue to climb; Dallas and Atlanta report that petroleum refineries and chemical plants are operating far below capacity. With the exception of defense-oriented industries, orders at most manufacturing firms have contracted further. Defense contracts are shoring up electronics, aerospace, and related manufacturers in Dallas, San Francisco, Atlanta, and St. Louis. Chicago observes that imports, aided by the high value of the dollar, are taking a growing share of the markets for machine tools and farm and construction equipment.
Capital spending plans are conservative at best. Low demand for the services of plant location advisors in Atlanta and Chicago suggests little new capital expansion for some time. San Francisco reports scant response to the recent decline in interest rates from corporate investors.
Construction and Real Estate
Residential construction evidences
some signs of improvement in several Districts, but the
nonresidential sector continues to decline slowly almost everywhere.
The number of building permits issued and of new homes sold has
increased in several areas, particularly Dallas and Atlanta. Lower
mortgage rates have attracted more buyers to the housing market, but
most are waiting to see whether rates continue to fall or stabilize
before they purchase. Realtors claim the industry needs a 12-13
percent "stable" mortgage rate before activity perks up
substantially.
Commercial construction is no longer supporting the rest of the construction sector to the extent it did earlier in the recession. In the Cleveland District industrial construction is in a state of "depression"; only St. Louis reports any improvement in commercial building activity. The market for office space remains soft to weak.
Agriculture
Substantial stocks, expected large harvests, and weak
demand have caused prices of most field crops to fall sharply. In
the Minneapolis and Kansas City Districts late plantings and delayed
maturation of crops have given rise to fears of frost damage. Large
grain harvests in the Midwest threaten to overtax storage capacity.
Higher costs and lower prices render increasingly remote the possibility of substantial debt reduction for the farm economy in 1982. Atlanta finds growing indications that farm bankruptcies and liquidations will rise in coming months. Bright spots in the farm economy do exist, however. Hog producers and tobacco farmers are in a position to take profits, and lower feed costs should benefit the entire livestock and poultry sectors. Nonetheless, net income for the farm sector as a whole is likely to be below that of 1981.
Financial Conditions
Reduced inventories and low utilization rates
are keeping business lending soft. Philadelphia, however, notices an
increase in such lending and attributes it to distress borrowing.
Dallas reports a similar rise but points instead to greater
stability as the cause. Other Districts characterize business loans
as flat or down.
Although isolated, there are reports of increased consumer borrowing in the aftermath of declining interest rates. Kansas City finds improved loan quality as well. San Francisco, in contrast, witnesses a sharp increase in delinquencies and foreclosures. Deposit growth remains sluggish. Atlanta and San Francisco observe little interest in the 7- to 31-day certificates.