Beige Book Report: Richmond
October 23, 1986
Overview
Manufacturing and retail sales are stronger, and producers and
retailers expect further improvement in the months ahead. Sales by
service firms continue to grow. Residential and commercial
construction are weaker, and lenders expect building activity to
slow further. Loan demand is weak at depository institutions, but
earnings are up. The drought-depressed agricultural harvest and low
crop prices are putting additional stress on the region's farmers.
Consumer Spending
Forty-six percent of the retailers responding to our survey this
month report increases in sales; last month, only 23 percent
reported increases. On the other hand, 39 percent of this month's
respondents report declines in sales, compared with 27 percent last
month. Looking ahead six months, 69 percent of retailers expect
increases in sales, and 10 percent expect declines. The
corresponding percentages from last month's survey were 54 and 8.
Summer tourism in the District was up about 5 percent this year aver last year. An even larger increase had been expected because of low gasoline prices and the decreased appeal of traveling abroad.
Manufacturing
Manufacturing activity is increasing, according to our survey of
District firms. Fifty-seven percent of this month's respondents
report increases in shipments, and 41 percent report increases in
new orders. The corresponding percentages from the previous survey
were 34 and 28. The survey results also indicate increases in
manufacturing employment and the length of the workweek. Inventories
of materials and finished goods declined slightly for the third
consecutive month. Within manufacturing, increases in activity are
most notable in nondurable goods industries, including textile and
apparel firms. Durable goods industries such as furniture
manufacturers, however, also report improved business conditions. In
general, manufacturing firms expect activity to improve further in
the months ahead.
Services
Service sector respondents report continued growth in activity.
Forty-four percent report sales increases, while 20 percent report
declines. The corresponding percentages from the previous survey
were 41 and 24. Services respondents are less ebullient about the
future than they were a few weeks ago; the percentage expecting
sales increases over the next six months declined from 68 last month
to 53 this month.
Longshoremen have signed new contracts in North and South Carolina, and are working under contract extensions in Maryland and Virginia. Unions working without new contracts refused to accept the two-tier wage scale, which pays lower rates for certain kinds of cargo, that was agreed to by locals at other ports.
Financial
Bank and savings and loan executives report high earnings and
plentiful supplies of loanable funds. Banks in some cities are
competing aggressively for home equity lines of credit as well as
new car loans now that most manufacturers' promotions are over. Loan
demand for residential and office building construction and mortgage
loan demand are weakening and are expected to decline further. Some
depository institutions have lowered their passbook rates. Others
would do so, they say, if it were not for their fear of losing
deposits to competitors.
Agriculture
The District fall harvest is in full swing and the impact of the
summer's prolonged drought is being felt. Yields of the field crops—corn, soybeans, and some small grains—have beer hurt the most, but
hay and tobacco yields are also down significantly. Low yields and
downward pressure on crop prices are expected to result in a 20 to
30 percent decrease in crop cash receipts compared with last year.
Livestock producers may fare better this fall as strong meat prices
will combine with lower feed costs to widen their margins and offset
the heat- and drought-related losses of the summer. The availability
of agricultural credit remains generally good throughout the
District, but bankers believe that the financial position of farmers
will deteriorate further this year. The extent to which federal
loans will ease the shortfall in agricultural income is not yet
known.