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Beige Book: National Summary

May 8, 1984

The overall economic picture in the nation is fairly bright, according to reports from the twelve Federal Reserve Districts, although a few industries are still weak. Retail sales in many Districts bounced back in April from a March slump and are expected to continue their growth. Auto sales are very strong, with near-capacity production levels at many auto plants. Other manufacturing industries are also doing well, especially paper products and consumer durables. Residential construction remains strong, although some signs of slowing have appeared in recent weeks. Bankers in the Eastern and Southern parts of the nation report increases in both business and consumer loans, while borrowing in other areas has remained flat. Probably the weakest sector in the economy at this time is agriculture.

Agriculture
The agricultural sector has suffered in recent months due to a combination of factors. Plantings in the Southeast and Midwest have been delayed by heavy rains, while Dallas and Minneapolis report that overly dry conditions have held down winter wheat production. Both Dallas and San Francisco, however, say cotton growers are having a good year.

Pork farmers in the Atlanta District have been reducing inventories in response to higher feed prices, but that cutback might be near an end. Dairy farmers in the northern Midwest continue to experience financial problems, and they do not expect much help from the new Federal diversion program. Contacts in Kansas City say this year's calf crop is about average. Poultry farmers in the Richmond District continue to be troubled by avian influenza outbreaks.

Both Chicago aid Kansas City report a further drop in farmland values. Kansas City also says farm credit problems are as bad this year as they were last year, and that farm asset liquidation is likely to increase unless debt is reduced.

Mining/Energy
Business activity in the mining and energy sector appears to be mixed in April. Both production and prices are up in the coal industry in the Midwest. Cleveland attributes some of the strength to utilities' stockpiling coal against the possibility of a strike by the United Mine Workers in September. San Francisco reports, however, that the coal companies in the West have been laying off workers.

The oil industry remains weak. The increase in drilling apparently stems from lower costs and more favorable leasing terms rather than from growth in demand. Dallas says these factors have accounted for a 38 percent increase in the number of offshore rigs since the first of the year.

Construction/Real Estate
The underlying upward trend in the residential construction industry persists, according to most Districts, despite a recent slowdown and anxiety about the future course of interest rates. New York and Cleveland report brisk sales of homes, but indicate that buyers and builders are very conscious of mortgage rates. In most other Districts, residential sales slowed in recent weeks, the result of a combination of bad weather and higher mortgage rates. Higher rates have given a further boost to adjustable rate mortgages (ARMs). Kansas City reports that over 80 percent of new mortgage loans in that District are ARMs.

Nonresidential construction remains generally strong despite concern about overbuilding. In New York and Chicago the demand for office space continues to grow. The market for industrial space, however, is mixed.

Manufacturing
The nation's industrial sector is continuing along a path of expansion. Although capital goods industries are weak in some Districts, the overall picture is bright in virtually all areas. The paper industry is probably the strongest at this time, followed by consumer durables, primary and fabricated metals, and electronics. San Francisco indicates rapid gains in the production of missiles and space vehicles, and Cleveland and Chicago both report that many motor vehicle manufacturing plants are operating at capacity. Manufacturers' stock levels are generally stable, and there are no reported plans for significant inventory-building. Industrial prices are mixed. The only real weakness in manufacturing is in exports. Boston reports, however, that there has been a pickup in sales of foreign subsidiaries of domestic firms.

Retail/Consumer Spending
About half of the District report that retail sales have made a brisk comeback in April after a sluggish March. The strongest gains were posted in Philadelphia, where sales are running as much as 35 percent ahead of the same time last year; about half of that gain was due to the later Easter holiday this year. In other Districts reporting rebounds, gains range from 8 percent to 26 percent. Even in those areas which have not seen an increase in sales, retailers believe the underlying strength in consumer spending is still present. Consumer durables appear to be leading the surge in spending, bolstered by the strength of the housing market. Nondurables, however, are also doing quite well. Retail inventories in most Districts have increased relative to sales, but merchants are not concerned and are not planning any special moves to cut back. At least part of the inventory buildup is intentional and being undertaken in response to continued strength in demand.

Auto sales are also reported to be vigorous. Foreign cars and larger domestic autos seem to be leading the pack, although Atlanta reports healthy sales of compact vehicles as well. Some shortages of the more popular domestic models are reported, and delivery times for foreign cars are being stretched out. Recent increases in consumer loan rates in some parts of the country do not appear to have dampened the demand for cars.

Banking and Finance
Virtually all Districts in the Eastern and Southern parts of the nation report strong growth in loan demand this month. Business loans remain brisk in those areas, with both large and small companies borrowing for a variety of reasons. Consumer borrowing is also up, especially loans for autos. Deposit flows, however, are weak at many financial institutions, and loans are being made with borrowed funds. Districts in the Western part of the country say there has been little or no loan growth in March and April.