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Beige Book: National Summary

December 15, 1982

Overview
Economic activity in most Districts showed some signs of improvement except in the manufacturing sector. Weakness in manufacturing remained pervasive with some further layoffs reported and, for the most part, little or no upturn in new orders. Consumer spending strengthened in November but several Districts noted sluggish early-December sales. Housing sales and starts registered gains in most regions although the oversupply of office space kept nonresidential construction generally slow. In several agricultural areas a further decline in farm income and land values overshadowed the few bright spots that appeared. Commercial bank lending was essentially flat in most reporting Districts. The general outlook ranges from a slight upturn during the next six months to little pickup until late 1983.

Consumer Spending
Since the last report, consumer expenditures posted some gains on both a month-to-month and year-over-year basis, helped in part by promotional activity. Nonetheless, no real exuberance was displayed. Auto sales picked up in several areas in response to lower finance charges but these lower rates are scheduled to end soon. With regard to the overall outlook for retail sales during the holiday season, the most optimistic report was from Boston ("solid but unspectacular"). Several Districts experienced good consumer buying immediately after Thanksgiving but sluggish sales thereafter. One factor cited was the trend in recent years of a shift in sales to the end of the holiday season. Inventories were generally in line though one District reported that inventories overall were high. The San Francisco and Atlanta Banks noted relatively strong tourist demand at areas in Hawaii, Oregon and Florida.

Manufacturing and Mining Activity
The manufacturing and mining sectors continued to languish throughout the nation. Although a few Districts observed scattered signs of improvement, most reported that shipments and new orders remained stagnant or declined further in a broad range of industries. San Francisco, Minneapolis, and Chicago reported that timber mills, iron mines, and producers of steel, industrial equipment, and castings were operating at half capacity or less. In Cleveland, manufacturers of steel mill and other industrial equipment were hurt by the cancellation of customers capital expansion plans. Boston and New York expressed some concern for future bankruptcies in manufacturing if sales did not turn up soon. Even the business of high technology firms slackened in some areas. In many industries, widespread cost-cutting measures continued, including layoffs, shorter workweeks, and longer-than-usual Christmas shutdowns. Despite the pervasive sense of sluggishness, however, a few bright spots emerged. In Richmond, sales of textile firms increased significantly, and in St. Louis, food processors noted a slight improvement. Several Districts indicated that suppliers of building materials and selected home furnishings were beginning to feel a pickup from the increased activity in the residential construction sector. Defense contractors were still doing well.

Construction and Real Estate
The housing market improved in many parts of the country. A few Districts even experienced substantial gains. St. Louis, for example, reported that new home sales were greater this November than in any other November in recent years. In Kansas City, increased activity reduced new home inventories to an all-time low, and led to a significant increase in housing starts. These improvements in the residential real estate market were largely attributed to the decline in interest rates and to stable or lower home prices. The office market, however, continued weak in most areas of the country due to a glut of existing office space from overbuilding and decreased demand. Chicago and San Francisco were especially hard hit, whereas New York and Richmond reported modest strengthening in some areas of their Districts. These latter two Districts, along with Dallas, also noted a slight pick-up in industrial construction activity.

Agriculture
In general the agricultural sector continued to experience low net income resulting from depressed prices and little or no decline in overall costs. Grain, corn, and soybean farmers saw only a small chance of profit from the 1982 crops and Dallas beef producers were preparing cattle for slaughter rather than for breeding because of unfavorable economic conditions. Some farmers, however, were doing well. For example, prices were up and the cost of feed held steady or declined for Minneapolis and St. Louis hog producers, and good crop yields were expected to bring a profitable year for Atlanta cotton growers. The downtrend in the price of farmland continued in areas such as the Richmond District where, in addition, farm business failures were still above normal. In the Northwest the timber industry remained depressed due to low domestic and foreign demand.

Finance
Commercial bank lending was essentially flat in most reporting districts. In Minneapolis and Philadelphia corporate lending was down as businesses turned to the bond market, but consumer borrowing strengthened. In Kansas City, however, the reverse occurred: corporate loans increased while consumer loans were flat. Deposit flows improved somewhat at most commercial banks and at some thrift institutions.

Outlook
In many Districts, a number of signs pointed to somewhat brighter prospects for consumer spending and construction. Retailers were cautiously optimistic that recent gains would continue into the new year. While the outlook for commercial construction remained weak, homebuilders were hopeful that their modest pickup would accelerate. As for manufacturing, there was no consensus on how soon the advances in retail and construction activity would result in increased production. Several Districts did note that orders of a few firms were beginning to improve. But manufacturers in many Districts saw little chance of a general upturn before the second half of 1983 or even early 1984, and many have turned more pessimistic because the recovery has been so slow in coming. Inventories in manufacturing are lean in most regions and when business activity does turn up, production should rise quickly to meet the higher demand.