Beige Book: National Summary
February 2, 1983
Outlook and Overview
The outlook seems considerably brighter compared to the December
Redbook. Most Districts report definite signs of improvement in
economic activity, or at least judge that improvement is imminent.
Least optimistic are Richmond and Dallas (both reported "little
change" recently), Cleveland ("the bottom may be near") and Kansas
City ("recovery to get underway during the second or third
quarter"). Retail sales (ex-autos) are brisk and expected to remain
strong in most Districts. Sales of domestic automobiles, especially
large models, are improved. Manufacturing activity is mixed, with
improved orders from the automotive, electronics and housing
sectors, while only the business equipment sector continues to
decline. Inventories appear to have fallen to desired levels in most
sectors. While further declines are more likely than increases,
there is no indication that declines would be sharp. Residential
construction continues to improve as sales of new and pre-owned
homes have been boosted by mortgage interest rate declines.
Agriculture remains a weak spot with farm income down and many
farmers in financial difficulty. Bank lending activity is generally
flat; business loans are expected to stay flat while consumer loans
are expected to improve.
Consumer Spending
Retail sales (ex-autos) in most Districts are brisk and are expected
to remain strong. January department store sales were especially
good in Philadelphia ("off to a flying start") and in Cleveland ("a
fundamental upswing in demand"). Exceptions were Kansas City,
Dallas, and San Francisco, where either sales showed less strength
or retailers were cautious about the outlook. Sales of non-auto
consumer durables were generally weak except in Atlanta, where they
have been spurred by a resurgence in housing. Some Districts report
retail sales have benefited from unseasonally warm weather, but
Chicago reports warm weather has hurt apparel sales.
Automobile sales, especially of large domestic models, are improved in most Districts. Dallas reports sales of imported cars remain low. Atlanta notes that sales have been assisted by exceptionally low financing rates ("5.9-6.9 percent and even as low as 2.9 percent").
Manufacturing and Mining Activity
Industrial activity is mixed, suggesting that a trough may have been
reached. Most Districts report orders and activity up at some firms
but down at others. Orders have improved for automobiles and trucks,
defense and consumer electronics, and products to construct and
furnish new houses. Some improvement in orders for steel are
reported but steel plant shutdowns continue to be announced. Mining
continues very weak, with additional mine shutdowns reported.
Business equipment manufacturing is probably the weakest sector,
with additional declines in sales and production expected for 1983.
Inventories
Inventories seem to have fallen to desired levels in most sectors,
but declines remain more likely than increases. Retail inventories
are lean and at desired levels almost everywhere but there is little
sentiment for increasing them. Some manufacturers continued to cut
inventories in January while others had already reached their
desired inventory levels. Few manufacturers plan to build
inventories, even those with rising orders. Inventories of oil
drilling supplies remain excessive, and Richmond reports many
manufacturers' inventories are well above desired levels.
Construction and Real Estate
Residential construction continues to improve. Most Districts report
sales of new and pre-owned homes have been spurred by declines in
mortgage interest rates, and permit issuance and housing starts have
increased. Exceptions are Southern California, where the unsold
inventory is still large; Philadelphia, where "housing starts remain
stalled and new home prices continue to drop;" and Richmond, where
the pace of the housing recovery has moderated in recent weeks.
Chicago reports house construction has benefited from unusually mild
weather.
There are scattered reports of improvement in non-residential construction, but Chicago expects a downturn.
Agriculture
Farmers continue under pressure. Farm income has fallen in several
Districts and farmers are reported having difficulty repaying loans.
Chicago reports agricultural land prices 20 percent below their
late-1970s peak. The payment-in-kind or crop-swap program is
expected to achieve a high farmer participation rate in several
Districts, reducing production expenses in 1983 and increasing crop
prices in 1984. Suppliers of seeds, fertilizer, pesticides, and fuel
are expected to be hurt by the program.
Finance
Bank lending activity is mixed. Several Districts describe business
loan demand as relatively flat, with little growth expected in the
next few months. Consumer loan demand, commented on by only three
Districts, is flat or up slightly, with near-term growth expected as
consumer optimism improves. Minneapolis reports demand for new
agricultural credit is low but demand for farm debt refinancing is
greater than normal. Demand for mortgage loans is reported up in a
few Districts, and the 30-year fixed rate loan is the most popular.
Conventional mortgage rates edged up in January in Atlanta.
The new deposit accounts differ sharply in popularity. The money market deposit account (MMDA) has been marketed aggressively and has achieved rapid growth. Atlanta reports very little attrition from these accounts following expiration of bonus interest rates. Estimates of the share of MMDA deposits that are "new: money" to the institution range from 15 to 60 percent. Public response to the Super NOW account seems to be uniformly unenthusiastic. Kansas City attributes the apathetic response to weak promotion, consumer confusion, and MMDA competitive superiority because of higher yields and lower service charges.