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Beige Book: National Summary

December 5, 1985

Overview
The economy appears to be growing slowly at best. Only Richmond describes its District economy as strong, although there is some optimism in the reports from Philadelphia and New York. Retail sales gains are uneven, and less-than-robust Christmas sales are expected. Auto sales are low now that special interest rate incentives have largely ended. Industrial activity continues quite sluggish with few gains yet from dollar depreciation. Residential construction is improving but non-residential construction is uneven. Agricultural prices remain weak despite some rises in meat prices; agricultural land prices continue to fall and farm finances remain weak. Commercial bank consumer and real estate lending is rising further but business lending is declining in most Districts.

Retail Sales
October retail sales other than autos are mind, with most Districts reporting moderate year-over-year gains. Sales are frequently described as strong for apparel and weak for various hardgoods. Inventories are generally at desired levels and are being built cautiously as most retailers expect Christmas sales to show only moderate increases from 1984. New car sales continue to run well below year-ago levels in most Districts in reaction to the end of most special financing. However, Richmond and Dallas report sales were stronger than usual in October.

Manufacturing and Mining
Industrial activity continues to be quite sluggish. There is little indication in the District reports that dollar depreciation has resulted in higher prices or stronger demand for domestic producers, although Chicago reports "limited evidence of increased orders for mechanical capital goods." Defense goods producers report order gains and rising production. Domestic auto manufacturers are said to plan to continue high production levels into early 1986. Production and sales of heavy trucks have declined. Prices and sales of primary metals remain weak. Cleveland reports continued weakness in machine tool orders and prices. Atlanta reports textile employment has stabilized in recent months after a sharp decline, and Richmond reports "some pickup in textile and apparel exports" and that a recent small gain in textile employment is being sustained. Manufacturing firms generally report prices of materials and components are stable. Boston reports many firms are unable to raise their own prices and large firms "are refusing to accept increases from suppliers." Inventory levels are generally considered satisfactory, although Dallas reports semiconductor industry inventories are excessive and Cleveland reports raw materials inventories falling sharply. San Francisco reports that the lumber industry in the Northwest continues to be hurt by competition from the South and British Columbia, and by low prices, even though the price decline has been smaller this year than last. Coal production continues lower than in 1984. Drilling activity in the Dallas District "continues to decline at accelerating rates."

Construction and Real Estate
Residential real estate markets are doing well generally but not in all areas. Listings and sales of used homes are rising and plans for construction and starts of new homes are increasing. Mortgage rate declines are a source of strength, but credit standards are being tightened by lenders and mortgage insurers, leading to some concern that effective demand may be crimped. District reports generally are moderately optimistic about 1986.

Non-residential property construction and vacancy rates are uneven. Construction is reported as still strong in some parts of the Atlanta, Chicago, St. Louis, and Dallas Districts. San Francisco reports high commercial vacancy rates in many areas are causing construction permits to slow. New York reports that overall demand for commercial real estate generally remains satisfactory and that work has recently begun on a "$10 billion community planned for the New Jersey waterfront across from Manhattan." Chicago and Dallas report strong road building and repaving activity.

Agriculture
Most harvests are bountiful, most agricultural prices are low, and farm financial difficulties continue. Although vet weather has delayed the corn and soybean harvest in some parts of the midwest, yields are high and prices remain weak. Grain sorghum yields are high. Cattle and hog prices are low but have risen recently, and meat production is lower. Atlanta and Minneapolis report favorable conditions for poultry producers. Cotton yields are expected to be normal in Oklahoma but high in the Atlanta District, and the cotton price remains low. The Louisiana sugarcane crop has been damaged by hurricanes. Kansas City reports that continuing liquidations and foreclosures have "saturated the farm real estate market," causing farmland prices to continue to fall although very little land is changing hands.

Commercial Banking
Most Districts report increases in commercial bank consumer lending, with some noting it has been boosted by the ending of most special financing rates on autos by automobile finance companies. Real estate lending continues to grow, partly because of mortgage rate reductions. Business loan volume is falling in most Districts. However, Philadelphia reports substantial growth in business loan demand, particularly "from middle-market companies that do not have convenient access to the commercial paper market." Kansas City reports agricultural lending is flat or slightly down, and Kansas City and Minneapolis report continued banker concern about the quality of agricultural credit.