Beige Book: National Summary
October 23, 1986
Summary
District Reserve Banks report overall economic growth ranging from
relatively stable to slightly improved, with conditions varying
considerably by region and economic sector. Strength in consumer
spending is somewhat less evident than in last month's reports.
While residential construction activity remains relatively strong,
reports of some weakening come from several regions. Manufacturing
activity continues to be weak, with some specific exceptions.
Prices, both at retail and for materials inputs, are generally
reported to be steady. The serious slump in the energy industry
continues, though some hints of modest improvement are reported. The
depressed farm economy has been put under additional stress in some
areas by drought and by heavy rains and floods. Loan activity at
commercial banks is reported to be generally weak, with business
lending relatively weak and real estate and consumer lending
relatively strong.
Consumer Spending
The general strength in retail sales reported in the last Beige Book
is less evident in this month's reports. Improved retail sales, with
gains in some instances greater than expected, were reported in half
of the districts. The remaining six districts reported some recent
weakening in sales (Boston, Cleveland, Atlanta, Chicago), continued
slow sales (Dallas), or sales growth slower than expected
(Philadelphia). Where specific goods lines were mentioned, hard
goods (especially appliances and home furnishings) were generally
selling better than soft goods, though apparel sales were strong in
several districts. Retailers in the Boston, New York, Chicago, and
Richmond districts are optimistic about sales through the rest of
the year, including the Christmas season. Concern about Christmas
season sales is expressed in the Philadelphia, Cleveland, and Dallas
districts. Inventory levels are generally viewed as ranging from
slightly low to satisfactory. Retail prices are described as steady
to "remarkably stable."
Domestic new car sales responded strongly in all districts to national incentives, and 1986 model inventories have been generally worked off. Concern is expressed in some districts about an expected sharp deluxe in auto sales and about the effect of large monthly car payments on discretionary income and other consumer purchases.
Foreign and domestic tourists have bolstered consumer spending in the New York area. Tourism was up modestly in the Richmond district, but not as much as expected. In the Atlanta district, tourism remains strong but construction of many new lodging facilities has held down the benefits to individual hotels. Tourist traffic has been strong in the Pacific Northwest but disappointing in southern California.
Construction and Real Estate
Residential construction activity remains relatively strong, but
reports of weakening come from several areas. The pace of
homebuilding activity is reported to be vigorous by New York and
Atlanta; New York reports no let-up in sight but Atlanta expects
some slowing soon. Housing activity in the Boston district remains
strong, but is moving back towards normal after the fast pace of
recent years. Residential construction is likely to continue at a
high level in Chicago into 1987. Minneapolis reports strength in
housing in Upper Michigan and North Dakota as well as in Minnesota.
Residential construction activity is reported to be generally good
in the San Francisco district, except in Idaho and Alaska. Both
Cleveland and Richmond see a slowdown in housing activity, while
both Kansas City and Dallas report a recent slippage in residential
construction.
Nonresidential real estate activity is reported as mixed. Commercial vacancy rates are rising in New England's urban centers but suburban shopping mall space is still in demand. Contacts in New York report some pick-up in commercial and industrial leasing. Commercial construction is weaker in the Richmond district, and Atlanta reports sizable concessions on office leasing. The vigorous pace of office and retail building in Chicago is expected to continue into 1987. Moderate expansion in nonresidential construction activity in the St. Louis district has been spurred by vigorous growth in Arkansas, Kentucky, and Missouri.
Manufacturing activity continues to be generally weak, but with some exceptions—such as defense-dependent businesses in New England, and aerospace and related electronics businesses in the San Francisco district. This generalization holds even though contacts report modest improvement in some areas and some industries, such as furniture and textiles and apparel in the Richmond and Atlanta districts. Capital spending continues to be weak, with productivity enhancement a much more important factor than expansion. Manufacturing employment continues to contract, and prices of materials inputs are generally reported to be steady. The USX strike benefited other steel producers in both the Cleveland and the Chicago districts. Steel demand is reported good for autos, appliances, and construction uses; weak for equipment, railroads and shipbuilding. Automobile output has been falling persistently short of plans in recent months, and fourth quarter output plans have been reduced from earlier projections. Although light truck sales are setting records, medium and heavy truck sales have been steady to down.
Energy and Resources
The serious slump in the energy industry continues despite somewhat
firmer prices. Some slight stirrings are reported, however. While
leading indicators of gas and oil drilling activity are still mixed,
Atlanta, Dallas, and Kansas City report a very alight upturn in the
drilling rig count. Chicago notes that while orders for steel for
use in the oil and gas sector remain very low, they are up from zero
earlier this year. Minneapolis reports a little activity in the oil
and gas fields of North Dakota. Some improvement in the timber and
forest products industry is reported by Atlanta, Minneapolis, and
San Francisco.
Agriculture
The farm economy remains depressed, and additional stress has been
put on parts of the industry by drought and by heavy rains and
floods. Grain crops, hay, and tobacco suffered from drought in the
southeastern states, reducing cash receipts. Heavy rains and
flooding in parts of the Chicago, St. Louis, and Kansas City
districts delayed fall crop harvests, reduced yields, and also
delayed winter wheat planting. But overall reductions from projected
record yields of corn and soybeans are believed to be only modest.
Government payments are expected to be a substantial support to
grain, cotton, and rice farmers. San Francisco notes increased
cotton exports, along with good fruit, potato, and bean crops in the
northern states of its district. Livestock producers generally face
a positive income outlook, due to strong meat prices and low feed
costs.
Banking and Finance
Total loan activity appears to be generally weak, with business
lending typically reported as relatively weak and both real estate
and consumer lending relatively strong. One exception is
Philadelphia, which notes that demand for commercial and industrial
loans remains strong. Philadelphia also says that banks are
implementing more stringent credit qualifications for business
borrowers. Atlanta notes a "more cautious lending atmosphere" for
consumer loans, and St. Louis states that most district banks and
thrift institutions have tightened lending policies for
nonresidential real estate loans.
Small and medium-sized banks in the New York district are coming under competitive pressure to lower lending rates. They are also lowering rates paid on variable rate accounts, and reluctantly beginning to look at "fixed rate" accounts. Some banks in the Richmond district have lowered passbook rates, but with a wary eye on the competition.