Beige Book Report: Richmond
May 8, 1984
Overview
Although there are some indications that the rate of expansion of
the District economy has slowed, activity continues to increase.
Also, at least a portion of the perceived slowing is attributed to
recent weather conditions. Construction and agriculture, especially,
have been hampered. On other fronts, industrial activity, retail
sales, and mining remain robust, as do the underlying trends in
commercial and residential construction. District coal production
also continues to run well ahead of year earlier levels. In general,
loan demand is also growing, but financial institutions appear
capable of absorbing significant additional loan growth, especially
if deposit forecasts come close to the mark.
Manufacturing
After allowance for seasonal factors, manufacturing activity appears
to be still expanding generally. Shipments, orders, and order
backlogs all showed further growth over the past several weeks,
although the improvement was more narrowly based than in the
previous few months. Manufacturing employment also seems to have
gained, and the length of the average work week may have risen
sharply. Our information indicates little change in manufacturers'
inventories over the past month or so, only some very modest
accumulation in raw materials. Most of our respondents still find
current stocks at comfortable levels, although a few report them
excessive. There is some sentiment for expanding inventories if
sales continue to rise, but little expectation of a significant
accumulation in the near future.
In general, current plant and equipment capacity is considered about right. There is occasional mention, however, of plants or industries facing possible short-term constraints. In particular, the paper industry and some of its customers, such as the gypsum wall board industry, may be near capacity. Isolated plants in the textile, furniture, automobile, and printing industries are also cited as examples.
Consumer Spending
Sales of general merchandise lines have made further headway in
recent weeks despite some purportedly seasonal weakness in apparel
and related products. It is generally felt that subsequent periods
will make up for this weakness. Automobiles may also have gone
through a lull, but continued improvement is widely expected. Other
consumer durables such as furniture and appliances continue to do
quite well, perhaps even gaining a larger share of total sales.
Retailers do report some inventory accumulation recently, but are generally comfortable with current stocks, as they are with the present number and size of outlets. Also, employment by retailers appears to have expanded over the past four to six weeks.
Housing and Construction
Adverse weather conditions have undoubtedly resulted in lost
production in the construction sector since mid-March, and measured
activity will certainly reflect this. Underlying trends in the
industry remain strongly positive, however, and widely-held
expectations are that the recovery will continue when weather
permits. Both commercial and residential construction appear very
strong if gauged by projects in various stages: plans,
announcements, permits, starts, in progress, etc. Nearly all the
evidence points to continued strength in the industry. In addition,
house sales are still quite strong.
Banking and Finance
Loan demand at District financial institutions has grown somewhat
more rapidly in recent weeks than earlier in the year, particularly
on the business side. Nonetheless, consumer installment and
residential mortgage activity remain strong. Financial institutions
have the capacity to accommodate further loan growth, and many
project that deposit growth will outstrip the expansion of loan
demand in coming months.
Agriculture
Unseasonably wet weather during March and April has delayed farmers'
plantings, possibly causing a shift from corn to soybeans for some.
Avian influenza, which inflicted heavy losses on Virginia's poultry
industry in the Shenandoah Valley last winter is continuing to
plague turkey growers with sporadic outbreaks, resulting in sizeable
economic losses. On the input side, farm production expenses are
expected to increase only 2-4 percent in the current year, which,
coupled with stronger expected product prices, is causing some
optimism concerning farmers' profit positions this year.
The Outlook
The outlook around the District certainly remains positive, but is
somewhat less ebullient than in recent months. There is no sense of
an impending contraction, but more observers seem to see less and
less capacity and opportunity for further growth.