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Beige Book Report: Richmond

December 15, 1982

Overview
Recent economic and business activity in the Fifth District could best be described as flat. On balance, manufacturing activity showed little change over the past month, although within the sector substantial differences persist among industries. Shipments and new orders were essentially flat, overall, and manufacturer's inventories were down slightly, as was employment. Retailing showed much the same pattern with total sales, relative sales of big ticket items, and inventories all holding at month earlier levels. There appear to be significant differences among areas and among product categories, however. According to some reports, housing sales and construction have been picking up, perhaps substantially. Expectations are more positive than in recent weeks as most respondents anticipate improvement in their business activity in the near term.

Manufacturing
Manufacturing activity across the district held its own over the past month, although for a number of industries current operating levels are quite low. Survey responses suggest little, if any, net change in the level of shipments, new orders, or order backlogs. This aggregate stability, however, masks some interesting developments. Chief among them is an apparent sharp rebound in the textile industry where several respondents report gains in shipments and orders. Another is the at least temporary arrest of the decline in activity among building materials and furniture manufacturers. Also, there is no discernible concentration, but only isolated reports of further declines in activity over the past month.

On the other hand, there is no evidence of any improvement on the manufacturing employment front. In fact, responses suggest further declines in employment since the last survey. Inventories were brought down somewhat, and most respondents are now comfortable with current levels.

Consumer Spending
By all accounts the consumption sector has been a mixed bag in recent weeks. Reports vary widely from sector to sector and from locality to locality. It appears that consumer activity is picking up, but that it remains very spotty. Consumer durables other than autos continue to languish nearly everywhere. Auto sales are showing marked improvement in some areas, but continue generally weak. General merchandise lines are experiencing typical holiday buoyancy in some localities, continued softness in others.

Housing and Construction
There is growing evidence that the housing sector is in a modest upswing that began some 2-3 months ago. Permits and construction activity seem to be up generally, although this is not true everywhere. Also, sales activity is reported to be improving in many areas, significantly in some. Commercial and industrial activity is very strong in some areas and reports of improved conditions in markets for this property are becoming more widespread.

The Financial Sector
Financial institutions are generally preoccupied with the coming of the MMDA. Promotion has been moderately heavy but short on the specific terms to be offered on the accounts. Bankers seem to be expecting relatively little new money to be available to individual banks as a result of this account. Most bankers contacted expect only very modest inroads against MMFs in the near term. They see perhaps 5-10% of MMF assets as potentially available initially. Further, they expect most of the growth in MMDA in the early stages to be at the expense of savings accounts. Most District institutions have been holding back on announcing pricing arrangements. Some advertising of specifics has been designed to capture new deposits at the outset and offers initial yields in the 12-15% range and 2-3 points above the 91 day T-Bill rate beyond that. It is too early to tell what will happen beyond the first month or two of the new deposit instrument.

Agriculture
Fifth District farm credit conditions in the third quarter of 1982 were marked by declining interest rates, continued sluggishness in farm loan demand, slow farm loan repayment rates, and an increase in requests for loan renewals and extensions. Fund availability again improved, and liquidity pressures on rural banks eased. The downturn in farmland values continued, further eroding farmers' equity positions. Moreover, the proportion of District farmers that went out of business, filed for bankruptcy, or liquidated part of their assets in the past six months was said to be much larger than normal.