May 6, 1985
Overview
Economic activity in the Fifth District appears to have retained
much of the momentum lost earlier in the year. There has been some
pickup in the manufacturing sector where most of the earlier slack
has appeared, and nearly all other areas of activity are holding
their own at quite high levels or making further gains. The only
area in which activity has slowed in recent weeks is automobile
sales. Overall, however, consumer activity continues very strong, as
do construction, mining, and tourism. Furthermore, the earlier lull
in the District is not generally perceived as commensurate with the
slowing of growth recently reported at the national level. In many
respects the District has lagged the U.S. economy during this
recovery, and perhaps some catching up is underway. Loan demand,
apart from auto loans, continues strong. Progress in the farm sector
is being impeded by unusually dry weather.
Manufacturing
The earlier deterioration of conditions in District manufacturing
has been arrested, and even reversed in some sectors. New orders
hive picked up, as have shipments, and order backlogs have
stabilized. There seems to have been some further accumulation of
inventories at the manufacturing level, primarily in materials, but
the rate of accumulation slowed markedly from previous months. There
is still some concern that current levels might be excessive.
Despite this generally positive overview, however, conditions across the manufacturing sector are by no means uniform. Much of the recent improvement may well be in a relatively few sectors. Forest products, building materials, and furniture all appear to be doing quite well, and machinery and equipment are at least holding their own. Elsewhere, conditions are less buoyant.
Coal production, however, is off to another good start in 1985, despite having had a few bad weeks as a result of severe winter weather. Weekly production is near year-ago levels, and year-to-date is only slightly below. Exports have improved, especially in the metallurgical segment which contributed so much to last year's outstanding performance in the industry.
Consumer Activity
The consumer remains a major force propelling business activity in
the District. Despite some recent softening in automobile sales,
consumer activity is almost uniformly described as strong to very
strong. Apart from autos, the strength is essentially across the
board. Non-durables, durables such as furniture, and services,
especially those related to tourism, are performing well. Tourism
is, in fact, a surprisingly bright spot in the District at present.
Even relatively optimistic forecasts of tourist trade are being
exceeded in many areas. Also, there seems to be a modest move
underway to get away from the discounting that became so widespread
in late 1984 and carried over into early 1985.
Construction
Construction activity also remains a major positive force in the
District economy. Activity in the commercial and residential sectors
is almost uniformly strong, although activity remains slightly
weaker away from the metropolitan and tourist centers.
Housing activity has been very encouraging to most industry participants. With construction quite strong and sales keeping market supplies moderate, the prospects for continued strength in residential building are quite good. Also, the surprising strength of tourist activity has spurred what was already a very active hotel and other facilities sector in the tourism centers. In addition, hotel, office, and shopping center construction remains very strong in most of the District's metropolitan areas.
Financial Sector
District financial institutions continue to experience moderate to
strong growth of loan demand. Once again, apart from automobile
loans, the gains have been generally across the board. There is no
evidence of any strains developing as institutions meet this growing
demand for credit, and there does not seem to be any expectation
that such strains will develop over the next several months.
Agriculture
Problems continue to confront farmers in the Fifth District. A lack
of rainfall during the spring has delayed the planting of some crops
and is causing those already planted to develop slowly. Price levels
of crops and livestock continue to be under downward pressure as
weak export demand results in large domestic supplies of farm
commodities. Cash flow is tight, as lower incomes and limited
borrowing ability are barely adequate to service the debt loads
facing farmers.
According to a recent survey of District agricultural lenders, loan repayment rates from farmers are becoming more sluggish than in 1984. In addition, bankers foresee financial stress increasing throughout the year.
Expectations
Expectations around the District remain neutral to slightly
positive, although there is evidence of modest improvement in recent
weeks. That improvement, however, generally reflects the improvement
in local market conditions and does not seem to carry over into the
outlook for national business activity.