March 20, 1986
Overview
Economic activity in the Fifth District, on average, remains
moderately strong. There are, however, many booming areas, such as
the Research Triangle area in North Carolina and suburban
Washington, as well as depressed areas such as West Virginia.
Consumer spending has not shown signs of accelerating, and reports
of increasing delinquencies on installment debt are beginning to
appear. Manufacturing, on the whole, is steady. Single-family
housing appears to be the strongest segment of the construction
industry. High inventories are depressing prices and expected
production for several crops; the demand for poultry products,
however, is high and growing.
Consumer Spending
Consumer spending in early 1986 has not been as robust in most areas
of the District as many observers had wished. Two executives from
major department stores noted that January and early February sales
were flat, and they were concerned about the success of spring
promotions. It was noted, however, that some specialty stores in the
District had fairly strong sales gains. A furniture manufacturer
also noted lackluster retail sales in January and early February. A
survey of directors revealed that none saw rapid growth in consumer
spending in their own areas, a few saw little or no growth, and most
saw moderate growth. Projections for tourism in the Carolinas call
for further gains in 1986.
Manufacturing
In contrast to 1985, inventories of textiles and textile products
are, on the whole, tolerable, and are not putting severe pressure on
manufacturers to cut production and employment. Although employment
is not increasing, some evidence of an increase in the length of the
workweek is beginning to surface.
The strength of the housing market has begun to affect the lumber industry. Mill orders for products made from southern pine have increased in January and February from levels in the fourth quarter 1985.
Also, a chemical producer expressed guarded optimism concerning the outlook for the chemical industry in 1986, due to low oil prices and rising growth in Europe. In South Carolina, several new manufacturing plants have recently been announced, including plants owned by Pirelli, Mack Trucks, and United Technologies. In general, manufacturers' inventories in the District appear to be in line with sales.
Construction
Concern continues to be expressed about the potential for
overbuilding in office space in several areas of the fifth District.
Also, vacancy rates of apartments appear to be rising in some, but
not all, areas of the District; single-family housing has recently
been strong in many localities in the District, with observers
noting the possibility of even stronger growth in 1986 in response
to recent declines in mortgage interest rates. Demand for
residential mortgages is high, due to the strength of home sales and
the refinancing of existing mortgages.
Financial Institutions
Most directors associated with financial institutions are seeing
rising delinquencies of consumer installment debt. A few directors
are also noting higher delinquencies for revolving credit and home
mortgages. The volume of lending is following the national pattern,
with large increases over year ago levels.
Agriculture
Inventories of most crops, including peanuts, corn, wheat, and
soybeans, are very high, resulting in downward pressure on prices
(excluding some seasonal increases). Corn production in the District
will not necessarily decline, however, due to strong demand from
poultry raisers. Also, in North Carolina, it is estimated that
growing corn will be profitable for many producers, due to low
production costs. Production of cotton, however, is likely to be
unprofitable due to declining demand from textile mills. High
inventories are putting downward pressure on peanut prices. Weak
export demand for tobacco is also evident.
Cattle prices are at unusually low levels. Producers of pork and beef products are expected to benefit from lower grain costs, however.
The poultry industry is the bright spot of District agriculture, with production high in 1985 and expected to rise in 1986. Per capita chicken consumption is expected to rise by two pounds in 1986. Turkey production is also rising. Scattered outbreaks of avian flu, however, concern poultry producers in the District.