Beige Book: National Summary
June 24, 1986
Moderate growth is being reported by most Federal Reserve Districts, although the regional variations in economic conditions are substantial. Retail sales are expanding slowly, but several Districts report an acceleration in sales in recent months. Automobile sales are declining from their year-earlier levels and inventories have grown, but remain within acceptable ranges. Manufacturing activity is weak, especially in energy-dependent industries and regions. Past reductions in oil prizes have led to significant declines in drilling. Residential construction activity remains strong overall. Nonresidential building, while maintaining a high level, is beginning to decline. Loan demand has been stable in most Districts. Agriculture is still facing low prices.
Consumer Spending
Retail sales have been growing moderately in most Districts.
Cleveland, New York, Chicago, and Philadelphia report accelerating
rates of expansion, but Dallas and St. Louis note absolute declines
from a year earlier. Little change is cited in inventories, which
are generally said to be tightly managed. Prices are stable,
although some Districts say that respondents expect price increases
for imported goods.
Automobile sales are sluggish in most Districts. The exception is Chicago, where sales have been matching last year's levels. Respondents report that a significant portion of the decline was anticipated because of the exceptionally strong sales of preceding years. In the Atlanta, Minneapolis, and Cleveland Districts, sales have been increasing in the second quarter over the first quarter levels, but remain below a year earlier. Inventories are growing, but are still within acceptable levels. For some particularly popular models, however, inventories are lean.
Early reports on tourism support the outlook for increased domestic travel this summer. Respondents report that lower gasoline prices, the weaker dollar, and preference for domestic vacations are the contributing factors. New York reports that foreign tourism is buoying retail sales.
Manufacturing
Manufacturing remains weak overall. Although several Districts note
growing manufacturing output and employment, Cleveland, Chicago, and
Dallas all report that the slump in energy has markedly reduced
demand for manufactured goods, particularly steel and machinery. A
number of Districts, however, cite industries such as tire
manufacturing and petrochemicals that are benefiting from lower
energy costs. Increased construction activity nationally is buoying
orders to lumber and wood products firms and paper goods producers
in the Atlanta and Minneapolis Districts, but it is providing little
impetus to these industries elsewhere. Richmond notes that furniture
manufacturers have excessive inventories due to lower-than-expected
orders, and that longer-than-normal plant closures are planned for
this summer. Boston's respondents have noticed some increased prices
for imported manufactured goods, but they have seen little effect on
sales or output. San Francisco's comments on weak employment growth
in the electronic equipment sector seem to reflect this industry's
national experience, especially with regard to computer-related
goods.
Construction
In general, the strongest construction sector is single-family
residential building, but this strength is not uniform. New York,
Cleveland, and San Francisco all describe booming residential
construction, aided by falling mortgage interest rates. In the
Boston and Chicago Districts, shortages of skilled construction
labor are now providing a drag on residential building. In contrast,
home building in the Dallas District, and in some states of the
Minneapolis and Atlanta Districts, has been stymied by weak economic
conditions in these areas. Atlanta, Kansas City, and Dallas all cite
sluggishness in multifamily building.
Growth rates of nonresidential building activity are declining or negative in every District that mentions this indicator. Nevertheless, the pace of nonresidential construction remains high in some Districts, notably Chicago, Atlanta, and New York. Retail building is generally the most active nonresidential category. Office construction is the weakest category, with rent concessions resulting from overbuilding in many major cities nationwide. St. Louis and Dallas report absolutely declining commercial construction.
Mining
The oil and gas extraction industry continues to reel as a result of
falling oil prices. Dallas, Atlanta, San Francisco, and Minneapolis
note reduced exploration and development activity in their
Districts. The number of drilling rigs in operation is dropping
nationwide. Richmond and Cleveland say that competition from oil and
gas is reducing output and employment among coal mining firms.
Agriculture
Favorable weather is facilitating crop planting in the Chicago, St.
Louis, and Minneapolis Districts, while adverse weather has hindered
such activities in the Richmond, Atlanta, and Kansas City Districts.
Low crop prices are mentioned as a concern in most agricultural
regions. Chicago and Minneapolis note that increased dairy herd
slaughter is depressing prices for cattle. Despite their uncertainty
about the effects of the federal program to buy out dairy herds,
cattle feeders in the Kansas City District are marketing their
livestock on schedule. Both beef and poultry producers are expected
to benefit from reductions in feeding costs. A slowing rate of
increase in overdue agricultural loans is cited by St. Louis.
Banking and Finance
Loan demand has been stable in most Districts. Continuing strong
demand for mortgage refinancing is cited by San Francisco, Richmond,
Chicago, and Kansas City. A result has been higher mortgage rates
and delays in closing. Cleveland, Philadelphia, Atlanta, and Dallas
note growth in real estate and construction lending. The demand for
commercial and business loans has been soft in Cleveland,
Minneapolis, and Dallas, while increasing in Philadelphia. Consumer
lending has been rising with particular vigor. New York, Cleveland,
Atlanta, and Philadelphia all report strong growth in this asset
category.