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Beige Book: National Summary

May 18, 1983

Preface
This edition of Redbook contains a special section. In addition to preparing their regular reports on general economic conditions, District Bank staffs assembled and summarized additional information on conditions in their regional construction industries. The construction industry was selected for special attention because it appears to be playing an especially important role in the current economic recovery and because analysts have been concerned about the sustainability of the first quarter's marked pickup in housing starts.

District Bank contributions were assembled at the Federal Reserve Bank of New York, where a summary was prepared. That summary appears as an appendix to this Redbook.

Summary
District reports suggest that the recovery is gaining momentum. Consumer spending has strengthened further across the nation. Manufacturing activity is generally on the upswing, although weakness persists in some industries, capital goods for example. Lending activity is mixed, with mortgage loans showing a widespread increase and commercial loans sluggish. Agricultural conditions vary considerably; bad weather continues to plague farmers and there is no consensus on how much the payment-in-kind (PIK) program will help them. As more signs of recovery have emerged, businessmen have gained confidence that economic activity will continue to pick up through the rest of the year.

Consumer Spending
The recovery in consumer spending intensified in recent weeks, expanding both geographically and across product lines. All Districts reported continued or growing strength, except for Kansas City, where gains over 1982 were smaller than at last report. Boston reported the largest sales growth, more than 10 percent above 1982. Apparel and electronics continued to move well in most Districts. Many also noted increases in sales of furniture and other home durables, which some attributed to the recent strength in housing demand. Automobile sales strengthened in seven Districts. Retail inventories generally remained lean, but there were some signs of expansion in Atlanta, New York, Philadelphia, and Richmond. Optimism for future sales growth is widespread; only Atlanta reported expectations of weakening, and only for the short term.

Manufacturing and Mining Activity
District Banks reported that recovery in the manufacturing sector advanced broadly, but areas of weakness remained. Substantial increases in orders have led to backlogs and longer delivery times in many regions, and production has been stepped up accordingly. Average workweeks have been growing, and a majority of Districts indicated that employment was moving up as well, albeit slowly in many cases. Boston, Richmond, and St. Louis reported broad-based improvements affecting a wide variety of industries such as inks, castings, textiles, and furniture. In other Districts however, strength was narrower. In Atlanta, the signs were uneven, with revival in lumber and phosphates countered by continued slack in textiles and petrochemicals. The pickup in San Francisco was confined to housing-related and defense sectors, with many others still reducing production and employment. And Minneapolis reported that the pace of improvement slackened in all but paper and building input industries.

Capital goods and mining remained dark spots. Producers of machine tools and other business equipment have seen no turnaround and future prospects are uncertain. Chicago was concerned that few capital projects were being planned, and St. Louis and Cleveland also foresaw no improvement in the next few months. However, Boston and Philadelphia noted that businesses were at least beginning to express some interest in capital projects. Mining also remained depressed, with low energy prices hurting coal mine operators in the Midwest and Far West.

Finance
Loan activity remained mixed in almost all Districts. Commercial and industrial borrowing continued to be weak across the country; only St. Louis reported an increase in volume. Demand for consumer loans was somewhat stronger, growing in St. Louis, Richmond, Philadelphia, and Cleveland. Mortgage lending continued to pick up throughout most of the nation.

On the deposit side, funds continued to flow into MMDA and Super NOW accounts. The inflows appeared to be moderating in a few Districts though. Banks are reported using these accounts primarily to fund short-term or adjustable rate loans, and are selling off fixed rate mortgages in the secondary market.

Agriculture
Agricultural conditions varied among Districts in recent weeks. Unusually wet and cool weather continued in many parts of the country. As a result, planting of corn is behind schedule in a number of areas. Farmers in California face additional losses due to delays in plantings of important crops such as lettuce, tomatoes and onions. In Atlanta, however, recent improvement in the weather allowed farmers to make up much of their planting. In addition, Kansas farmers are expected to harvest the second largest wheat crop ever.

There was no consensus on the effects of the PIK program. Dallas, St. Louis, and Minneapolis expected the resulting crop reductions to improve the incomes of grain farmers. However, Atlanta noted the program was disrupting the poultry industry by pushing up feed prices. Some agricultural suppliers were aided by the increased spending associated with higher farm incomes, but others were hurt by the removal of land from cultivation.

Outlook
The emergence of more signs of recovery has engendered a climate of optimism. Businessmen in many Districts are now confident that strong consumer spending and residential construction will spur increases in demand through the rest of the year. Accordingly, they expect manufacturers to continue expanding output and employment. However, in Boston, New York, and Minneapolis, there still is concern that the recovery will be weaker than usual. And Chicago reports that much of the ground lost during the recession will not soon be regained in the Midwest. On the inflation front, the evidence is encouraging. While prices are beginning to edge up, economists do not foresee a significant acceleration of inflation over the next year.