Beige Book: National Summary
September 16, 1985
Introduction
This month's commentaries on economic developments by the twelve
Federal Reserve banks suggest general stability, with neither
accelerating growth nor significant deterioration as near term
prospects. This is indicated in key words and phrases in district
summaries: Boston, "retail sales improving, manufacturing in the
doldrums"; New York, "little growth"; Philadelphia, "same as
August"; Cleveland, "soft and uneven"; Richmond, no "broadbased
improvement"; Atlanta, "healthy on balance"; Chicago, "no overall
pickup or weakening"; St. Louis, "continues to lag"; Minneapolis, "a
bit weaker"; Kansas City and Dallas, "sluggish"; and San Francisco,
"signals are mixed". Among economic sectors, however, there are
significant variations. Perhaps the most troubled sector, at
present, is agriculture, with prices and income severely depressed.
Total employment is growing moderately, but with great variation by region. Manufacturing output, overall, is about stable. Mining, including oil and gas development, is depressed. Retail sales are somewhat stronger, but mainly disappointing. Auto sales have been stimulated by special financing. Inventories are in fairly good balance, and all types of goods readily available. General price inflation is still in check—partly because of the heavy influx of imports of a wide range of goods. Business purchases of equipment are cautious. Residential construction and demand for building materials is vigorous. Nonresidential construction is strong, but with concern about overbuilding. Bountiful harvests arc pushing down farm prices and income, and causing increasing concern over farm credits. Interest rates have not changed much in recent weeks. Private credit demand is about stable, with mortgage and consumer loans growing, and business loans soft.
Inflation
Little change is expected in wholesale prices, which are held down
by ample domestic capacity, large agricultural crops, weak oil and
gas prices, import competition, and sluggish growth in total
spending. Surveys in Kansas City, Richmond, and St. Louis suggest
little change in input or selling prices of manufacturers, and only
moderate increases at retail.
Employment
Several districts are not participating in the strong employment
growth reported for the nation in recent months. Weakest job markets
are in the Midwest, especially in the Chicago, Cleveland, and St.
Louis districts. But even San Francisco reports widespread layoffs
because of the slump in electronics. The strongest job markets may
be in the Northeast, especially parts of' the Boston and New York
districts.
Consumer Spending
Reports on retail sales are mixed. Boston, Philadelphia, and
Richmond see improvement, while Kansas City and San Francisco find
sales stable or down somewhat. Consumer price resistance and heavy
promotion activity to move merchandise are common. Inventories,
overall, seem to be in good condition, with increases in line with
plans. Auto sales have responded strongly to cut rate financing
programs, but Philadelphia reports concern that sales may drop when
incentives expire. Cleveland indicates some car dealers regard
inventories as excessive and may cut orders significantly. Atlanta
reports increased attendance at District tourist attractions, except
during the Labor Day weekend, disrupted by Hurricane Elena.
Manufacturing
Factory output, overall, has changed little in the past year, and is
not likely to rise significantly in the months ahead. Imports
continue to account for a large, and often growing, share of
domestic consumption of steel, vehicles, machinery, wood products,
furniture, textiles and apparel, and chemicals. Among the strongest
manufacturing sectors are building materials and food processing.
Motor vehicle production is holding at high levels, but is not
expected to rise further. Producers of advanced electronics are in a
severe slump after a rapid rise in 1983-84.
Capital Expenditures
Business capital spending prospects appear somewhat weaker, with
cuts in plans in Philadelphia, Boston, and San Francisco. Chicago
and Cleveland report reduced demand for heavy trucks and trailers.
Machine tool orders are mainly for the auto industry and defense,
with total backlogs far below the levels of the late 1970s.
Inventories
With some exceptions, business inventories are at acceptable levels,
even low. Cleveland states that some manufacturers are cutting
stocks, but Boston reports factory inventories to be "very lean".
All items are readily available, and, with wholesale prices soft,
there is no incentive to accumulate.
Extractive Industries
Declines in oil and gas drilling and synfuel facility construction
are depressing activity in the Atlanta, Dallas, Minneapolis, and San
Francisco districts. A further drop in world oil prices could hit
these activities even harder. Mining of metal ores is very
depressed. Richmond reports coal mining as "flat", but likely to
improve because of low inventories.
Housing
Residential construction is generally strong, though Chicago reports
activity far short of peaks in the late 1970s, and Minneapolis and
San Francisco note that activity varies widely among areas.
Respondents in Cleveland expect current strength, helped by state
subsidized mortgage funds as well as lower mortgage rates, to wane.
New York, however, reports that a high level of activity is expected
through 1985, with shortages of skilled labor and certain materials.
Home prices are generally rising in the New York District but co-op
and condo prices have fallen. Atlanta and San Francisco note that
the condo market is depressed in some areas. Dallas, in contrast,
has seen a rise in multifamily permits, after earlier declines.
Apartment building has been vigorous in the Chicago area, and has
been boosted in Manhattan ahead of expiration of a local tax break.
New York and Cleveland report minimal speculative building.
Philadelphia and Cleveland say demand for mortgages is concentrated
in fixed-rate loans. San Francisco reports strong demand to
refinance fixed-rate mortgage loans at lower fixed rates.
Nonresidential Construction
Commercial construction is reported strong in several districts, but
vacancy rates are rising. Boston and New York note use of
concessions such as free rent. Bidding volume suggests continued
strength in nonresidential building in Chicago into 1986. However,
Dallas reports that plans are being deferred, suggesting a decline
in contracts soon. Kansas City notes a shift from office building
construction toward shopping centers. Construction of streets,
highways, and water treatment plants is also strong, according to
several reports.
Agriculture
All districts with extensive agriculture report excellent harvests,
low farm prices, and depressed income. Farm sector problems in
paying bills and servicing debt are growing. Strong statements on
the "plight or the farmer" are made by Atlanta, Chicago, Dallas,
Kansas City, Minneapolis, St. Louis, and San Francisco. Perhaps the
greatest stress is in the corn and soybean areas. Farmers in the
western plains have the additional problem of low yields caused by
drought.