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Beige Book: National Summary

August 3, 1987

Regional reports filed in late July show little change from those filed in mid-June and indicate continued moderate economic growth. Manufacturing activity is rising in most of the country, and the energy sector shows some signs of revival. Retail sales are still increasing. Price increases are more common at producer and consumer levels. Construction activity appears somewhat weaker than reported six weeks ago, primarily because of declines in homebuilding. Bank loan and deposit activities are mixed to slightly weaker than reported in June. The financial outlook for farmers has brightened.

Consumer Spending
Most of the Reserve Banks report moderate growth in retail sales in their districts. Philadelphia and Chicago say that the hot weather has helped move summer goods. The New York district's retailers are selling more housewares, furniture, and rugs, but retailers in the Philadelphia, Cleveland, and Richmond districts say that demand for big-ticket items is low. Retail store executives across the country are generally optimistic about prospects for sales in the coming months.

The prices of apparel and certain other goods such as imported electronics continue to rise, and retail inventories are higher. Large stocks of goods in department stores have retailers somewhat concerned in the Boston and Dallas districts. Dealer inventories of new cars are up in Cleveland, Atlanta, and Minneapolis, but they are lower in Richmond and tight in Kansas City.

Three Reserve Banks see signs of a good summer tourist season. Atlanta notes increases in hotel occupancy rates, and both Minneapolis and San Francisco report heavy highway traffic.

Manufacturing
Districts generally report modest increases in shipments and new orders, although activity within particular manufacturing sectors varies by district. Atlanta indicates that oil price increases have encouraged drilling and stimulated the oil equipment industry. In the Kansas City and Dallas districts, however, the energy sector has responded only slightly to higher oil prices. Steel production fell in Cleveland, but steel mills in the Chicago district are producing sheet products at capacity. In the Boston area, sharp output gains are evident in specialty textiles and in computers and other nonelectrical machinery, while product lines dependent on the automobile, housing, and utility industries are slow. Chicago and Cleveland note declines in big-three automobile production, some of which is being offset by increases in truck production and by increases in domestic automobile production by foreign manufacturers.

Input prices may be rising faster. Reports from Boston, New York, Philadelphia, Cleveland, Richmond, Chicago, and Kansas City all include references to price increases.

Construction
A slowing in residential activity is indicated by the Boston, New York, Richmond, Atlanta, Chicago, and St. Louis Reserve Banks, while Kansas City notes mixed activity. Cleveland, Minneapolis, and Dallas, however, report increases in housing activity.

Nonresidential activity is mixed, St. Louis reports strong growth, but the San Francisco district is experiencing a severe downturn. Relatively stable activity is reported by New York, Atlanta, Chicago, and Dallas. Within these and other districts, however, are pockets of strength and weakness. New York indicates that commercial and industrial leasing activity is generally good but is threatened by overbuilding.

Agriculture
Farm income prospects have improved. Higher prices for hogs and cattle are helping, and crops are in generally good condition in most districts. On the negative side, Atlanta notes that poultry prices have fallen, San Francisco says that labor shortages are cutting harvests, and Atlanta Richmond, and Minneapolis report some weather-related crop damage.

The financial position of agriculture is looking better in other ways. Richmond and Chicago observe upward pressure on farmland prices. The volume of farm operating loans is reported to be falling by St. Louis. Richmond reports lower interest rates for agricultural loans, and both Richmond and St. Louis are witnessing stronger loan repayment rates.

Finance
Loans and deposit activity at banks remains at the generally weak pace reported in mid-June. Cleveland reports a decline in total loans, Richmond and Kansas City report little change, and Philadelphia and Atlanta report slowing growth. St. Louis, however, indicates faster growth in total loans. Deposits are reported to be down by Dallas, unchanged by Kansas City, and growing slowly by Philadelphia. Continuing strength in the demand for home equity loans is mentioned by New York, Philadelphia, and Richmond.