Beige Book Report: Richmond
June 24, 1986
Overview
Directors report a generally strong regional economy, which includes
depressed pockets such as the coal fields in West Virginia as well
as booming areas such as those around Washington, D.C., and
Charlotte, North Carolina. Production and final sales of goods have
been about flat in recent weeks, but most service industries,
especially those tied to tourism, are doing very well. New orders
for manufactured goods are up, and most manufacturers are optimistic
about where the economy will be in six months. At S&Ls, mortgage
applications are still heavy, despite a rise in rates, while
depositors are shifting funds to shorter maturities. In the
agricultural sector, drought conditions exist in several areas.
Consumer Spending
Major department stores report only a slight increase in activity in
recent weeks as compared with the surge in sales they reported
several weeks ago. Sales of nondurable goods continue strong, but
sales of big ticket durable goods, such as video and stereo
components, are down somewhat. Most of the respondents expect
increases in real retail sales in the months ahead.
Manufacturing and Mining
Manufacturing and mining activity are little changed from a month
ago, according to our survey of business conditions. In coal mining,
however, one large firm has just closed down some mines. In
manufacturing, 58 percent of the respondents report no change in
employment, and 65 percent report no change in the workweek. The
remaining percentages are fairly evenly split between those
reporting increases and those reporting decreases. Forty percent of
the manufacturers report increases in new orders, but an even larger
percentage report increases in shipments. Consequently, unfilled
orders are reported as down by 30 percent of manufacturers, as
compared with the 20 percent who report increases. Manufacturers
report prices of both materials and finished goods are about the
sane as a month ago. Looking ahead six months, 70 percent of
manufacturers expect general business conditions to improve. By
then, 37 percent expect capital expenditures to be above current
levels, as compared to 14 percent who foresee reductions.
Within the manufacturing sector, textile activity remains mostly unchanged while apparel shipments and new orders have increased over a month ago. Import competition remains the main concern of apparel manufacturers. Furniture manufacturers report heavier-than-normal inventories for this time of year, so they plan to close down for two weeks instead of one week in early July. According to furniture manufacturers, their excess inventories are due to lower-than- expected sales, and to retailers holding less in stock. Manufacturers of machinery report an average capacity utilization rate of 51 percent, the lowest of the industries surveyed. On the brighter side, manufacturers of stone, clay and glass products, fabricated metals, and transportation equipment all report increased shipments, orders, and levels of employment.
Financial
Deposit activity at savings and loans is generally reported to be
normal. There are, however, many reports of depositors shifting
funds from longer term accounts to 6-to-12 month accounts. Most
respondents feel the shift reflects their depositors' impressions
that interest rates are likely to move up in the near future.
Meanwhile, mortgage rates are rising, with several reports of
increases from bottoms of around 9-3/4 percent a few weeks ago to
current rates of around 11 percent on 30-year fixed-rate mortgages.
Mortgage loan applicants continue to experience long delays in obtaining approvals. The delays—often 60 to 90 days, or twice the time it took a year ago—are attributable in part to the time required to obtain appraisals, credit reports, and title searches. Much of the heavy volume is due to applications for refinancing mortgages, but first-time mortgage demand also continues very strong.
Agriculture
Below normal rainfall remains a major problem facing crop producers
around the District. Although precipitation over the last few weeks
has brought relief to some areas, soil moisture levels remain well
below normal. Small grain harvests, already well underway, are
producing below normal yields. Hay and pasture conditions are
generally fair to poor. Recent rains have kept most of the corn crop
in good condition and tobacco is also reportedly not experiencing
significant drought stress in most of the District at this time,
although some corn and tobacco areas are very dry.
Livestock producers continue to face low prices. Beef and pork prices have been held down by large supplies. Poultry prices on the other hand, although also experiencing some downward pressure, should be sufficiently high to yield adequate profit margins, given the lower costs of grain.