Beige Book: National Summary
December 1, 1986
District Reserve Banks report economic conditions ranging from sluggish to generally good with more than half indicating some recent improvement. Strength in consumer spending is somewhat more widespread than in the last report, and most retailers anticipate a moderate to good holiday season. Residential construction continues at a healthy pace, but nonresidential construction has slowed as a result of oversupply. Manufacturing is still relatively weak, and some increase in input prices has been noted. While the energy sector remains depressed, an increase in the number of operating oil rigs has occurred. Farmers experienced near-record corn and soybean yields in some areas despite heavy rainfall, and livestock producers are benefitting from higher prices. Commercial bank loan activity has improved because of some upturn in business lending and strength in real estate and consumer lending. Many commercial banks are actively promoting the use of home equity lines of credit for consumers to retain interest deductibility under the new tax law.
Consumer Spending
Most districts see an improvement in retail sales. Philadelphia
states that sales were up strongly, and California and Richmond also
had generally good gains. Sales were sluggish in Boston, Cleveland,
Dallas and St. Louis, but the remaining districts report moderate
increases. Items in strong demand were apparel, electronics,
furniture, and other home furnishings. As a result of the recent
improvement in sales, retailers for the most part anticipate a
moderate to good holiday season. Inventories are at satisfactory or
manageable levels. Prices (when mentioned) were generally reported
as stable. However, Chicago attributed a jump in textile and apparel
prices to recently imposed import restraints, and Dallas saw a
significant increase in prices of imported electronics.
All districts reporting on auto sales had strong gains in September and a sharp dropoff in October, mirroring the national pattern.
Construction and Real Estate
Most districts report healthy residential construction activity,
though at a somewhat slower pace than earlier this year. The
Richmond district notes that home sales have been weakening due to
the high level of home prices there. Atlanta reports a shift away
from construction of multi-family units because of a high level of
condominium inventories and generally poor demand. In contrast to
most other areas, residential building in the Dallas district is
substantially below a year earlier.
Nonresidential construction has slowed in Atlanta, Dallas and parts of New York where an oversupply of office space now exists. In Chicago and Minneapolis, however, work on new office buildings continues at a steady pace. Reflecting higher demand for space, vacancy rates in the Minneapolis district fell between June and September for both office and industrial buildings.
Manufacturing
Industrial activity remains relatively weak, and plans have recently
been announced for additional plant closings and layoffs in several
districts. The largest is the scheduled G.M. cutback, which will
result in more than 20,000 job losses in the Chicago district and
will affect other areas as well. Some industries and districts do
report gains, however. The Philadelphia and Cleveland districts have
seen an overall improvement in their manufacturing sectors in recent
months. Both Boston and San Francisco state that the aerospace
industry is doing well, and the USX strike continues to benefit
competing steel producers in the Chicago and Cleveland areas. Many
districts (Boston, Chicago, New York, Philadelphia. Cleveland,
Kansas City and Dallas) mentioned an increase in input prices, which
some attributed to the decline in the dollar. Most manufacturers are
holding their own prices firm, however. Several districts reported
no discernible benefit from the dollar's decline. San Francisco
noted that increased exports of electronic products and higher
capital goods orders have resulted from the weaker dollar.
Energy and Resources
The stabilization of oil prices at a somewhat higher level led to an
increased number of operating oil and gas drilling rigs. However,
the total is less than half the number in operation a year ago in
the oil-producing states. Chicago found that the oil and gas
industry's demand for steel pipe is up somewhat from a recent very
low level. The wood and forest products industries of Minneapolis
and San Francisco have improved further. These districts also report
an upturn and brighter outlook in copper mining.
Agriculture
Despite heavy rainfall and flooding in many areas, farmers
experienced record or near-record corn and soybean yields in the
Cleveland, Kansas City, Minneapolis and St. Louis districts.
Moreover, a feared storage crunch was alleviated by the rain-induced
stretch-out of the harvest season. Attractive alternatives that
encouraged farmers to redeem their PIK certificates and sell rather
than store grain also helped avert excess stockpiling. Livestock
producers and dairy farmers in several districts are benefitting
from lower feed costs and from higher livestock and milk prices. The
San Francisco district reports a record pistachio crop and higher
potato and grape prices, while Florida expects an 8 percent increase
in orange and grapefruit production over the year.
Financial Sector
Loan activity improved somewhat in recent weeks. Philadelphia
reports continued strength in commercial and industrial loans and an
upturn in consumer loans, and Atlanta also states that lending has
remained strong. Cleveland notes that loan demand rose slightly in
all major categories, with real estate and consumer loans
registering the greatest growth. A marginal increase in Cleveland's
C&I loans represents an improvement following no growth in the third
quarter. St. Louis also reported strong real estate and consumer
lending as well as some growth in commercial loans.
Several districts noted that banks are promoting the use of home equity lines of credit as a means for consumers to retain some measure of interest deductibility under the new tax law. Atlanta reported that demand for home equity loans "has surged across the region", while Chicago, New York, Philadelphia, Richmond and St. Louis noted an expansion in banks' promotion of these credit lines.