Beige Book Report: Richmond
August 6, 1985
Overview
Business and economic conditions in the Fifth District continue to
reflect somewhat disparate performance across sectors. On balance,
activity seems flat to rising slightly. Some of the areas of earlier
strength continue to lend support, while others, notably the retail
sector, have softened markedly. Construction activity and house
sales remain upbeat. Manufacturing is flat to down slightly,
although there is some indication that the slide in manufacturing
employment has been arrested. Coal production remains below year
earlier, although stocks have been drawn down significantly since
year-end. The service sector remains the primary source of
employment growth. The outlook fur agriculture has improved somewhat
of late because of much improved weather conditions.
Manufacturing
There is little evidence of any significant turnaround in the
manufacturing sector despite a modestly improved employment
situation. According to our reports, manufacturing shipments
stabilized over the past month, although new orders and order
backlogs both declined. Month to month changes continue to be
dominated by such sectors as textiles, apparel, and furniture where
imports continue to gain market share. Some of this weakness has
been offset recently by very modest gains in primary and fabricated
metals, food products, and segments of the chemicals industry.
Coal production continues to run slightly below year ago levels, but recent employment losses appear to have been stemmed in this industry as well. Nonetheless, mining employment remains well below the levels of a year ago. There is generally widespread feeling that output of coal will be on the rise shortly. Consumption, particularly by electric utilities, is running strong, and stocks on hand are down sharply from only a few moths ago.
Consumer Activity
After providing major support to the District economy for quite some
time, the consumer has retrenched significantly in recent weeks. The
slowing of sales appears to cut across most product lines, and is by
most accounts widespread geographically as well. It has been noted
also that many of the aggressive promotions of late 1984 and early
1985 have come to an end. Retailers have responded to the weakness
in sales by cutting orders, despite already lean inventory
positions.
The reported weakness in sales of goods has not spread to tourist related services, however. Most reports are that tourist areas are doing quite well, so well, in fact, that they are exhibiting more general economic strength, such as in commercial and residential construction.
Housing and Construction
Both residential and commercial construction retain much of the
strength they have shown for more than a year now. Gains in housing
starts and sales have slowed in some areas, but there is no
indication that levels have fallen. Activity remains quite strong by
historical standards. Commercial activity also continues apace in
most metropolitan areas, as well as in several large tourism
centers. Outside these areas there are several areas showing
substantial strength in industrial building. There is little
indication that activity in any of these sectors is likely to slow
any time soon.
Financial Sector
District financial institutions are reporting a mixed situation with
respect to loans. Commercial and industrial lending is growing
somewhat, but consumer lending reflects the weakness reported in the
retail sector. Residential mortgage activity remains buoyant in most
areas. Financial institutions do not appear to anticipate any
difficulty in supporting continued loan expansion.
The Outlook
On balance, the outlook among District businesses has deteriorated
in recent weeks. Surprisingly, however, retailers have become
slightly more optimistic regarding the near term outlook for sales.
Otherwise, there is very little optimism in evidence around the
District. There is some feeling, nonetheless, that recent movements
in interest rates, the dollar exchange rate, and overall business
inventories bode well for future economic activity. To date,
however, that feeling has not been incorporated into the outlook of
District businesses and consumers.