December 6, 1983
Overview
Strength in retail sales continues to be a major factor contributing
to economic growth in most parts of the country. Still, for a few
isolated regions—the mining areas of northern Minnesota and
Michigan, the State of Oregon, and the energy-dependent areas of the
Dallas District—the economic recovery has not yet begun. But in
many of the regions that bore the brunt of the 1982 recession—Cleveland, Pittsburgh, St. Louis and upstate New York, for example—the recovery is well established.
The 1983 Christmas season looks to be the best for retailers since 1978. In manufacturing the reports are of across-the-board improvement, while real estate sales and construction activity appear to be suffering little more than seasonal slowdowns in some areas and are quite strong in others. On the financial side, business loan demand at banks has been sluggish, reflecting the strong cash position of many firms. Agriculture, however, remains a troubled sector.
Retail Sales
With striking uniformity the twelve Federal Reserve Districts report
very strong growth in retail sales. Apparel, home furnishings, and
home appliances are most frequently mentioned as the fastest moving
items, and automobile sales continue to increase. In Boston and
Dallas retail sales are so strong that many stores report especially
tight inventories. Only Chicago and Kansas City report a somewhat
mixed picture, with the former noting a few areas of weakness and
the latter mentioning a general slowdown in sales growth over the
past three months.
Despite the continued marked improvement in sales, retailers continue to be cautious. Chicago and San Francisco indicate that retailers have been slow to expand inventories, and only Philadelphia reports much optimism about rapid growth continuing into next spring.
Manufacturing and Employment
Manufacturing activity continues to expand: orders are up, backlogs
are increasing, and many firms are implementing capital acquisition
plans. Capital spending, however, still appears to be mostly aimed
at productivity improvements rather than capacity expansion. Several
districts report particularly high levels of activity in the pulp
and paper and aluminum products industries. Defense orders have
started increasing again in St. Louis, and Cleveland indicates that
plants manufacturing flat rolled steel products are now operating at
close to capacity.
The capital goods industry is beginning to pick up in New York and Dallas, but continues to lag the recovery. One of Chicago's informants indicated the level of activity in the machine tool industry remains at only about 50 percent of a "good" year. San Francisco and Cleveland report that manufacturers, like retailers, remain quite cautious about accumulating inventory.
The expansion in industry continues to lead to lower unemployment rates nationwide. However, the labor markets in Chicago and parts of New York are still weak, with both employment and unemployment lower than at this time last year.
Real Estate and Construction
Conditions in the real estate market differ somewhat across
districts, but sales and construction activity appear to be strong
in more places than they are weak. In New York, St. Louis, Dallas
and Atlanta levels of activity remain high, especially in the
commercial sector, although analysts in Dallas expect a slowdown
before long.
Finance
Commercial and industrial loan demand has been sluggish in recent
months, and most districts attribute this to strong cash positions
in the business sector. Only Cleveland reports a general increase in
loan demand, while San Francisco notes an increase in such lending
but only by smaller banks. Bankers in the Philadelphia District
expect business lending to pick up in the spring as corporations use
up their cash and begin to finance plant expansion and inventory
accumulation.
Consumer lending is strong in most districts, but the picture is mixed with respect to mortgage lending. Richmond reports that the recent stabilization of mortgage interest rates has led to some increase in demand. Cleveland, however, is still experiencing a slowdown in lending attributable to the earlier rise in mortgage rates.
Agriculture
The PIK program has added to the 1983 incomes of farmers, but not
all farmers are out of trouble. Atlanta, Minneapolis and Dallas
report that increases in feed prices have narrowed margins on
livestock operations.