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Beige Book Report: Richmond

October 23, 1987

Overview
Growth remains the predominant trend in the Fifth District. Manufacturing is leading the way, but retail sales continue to edge upward and loan demand is strong. Labor markets have tightened further in some areas, and an increased number of reports of rising wages attests to labor shortages. Agriculture faces lower fall yields due to the summer drought, but late rains have helped some crops. Although commercial construction remains strong, residential construction has weakened.

Consumer Spending
According to our regular survey of retailers, total retail sales in the District during the last ten business days in September were lifted slightly by higher sales at department stores, where business had been poor earlier in the month. Sales of big-ticket items were mostly unchanged. Retail inventories showed little change except at department stores where they were reported to be higher and were expected to rise further in the next six months.

As compared with respondents to our previous survey, more retailers this month reported they had job openings that they were unable to fill, and well over half indicated that they had raised wages in the last month. While they remain optimistic that their sales will increase in the next six months, most retailers do not plan to increase employment.

Manufacturing and Mining
Our October survey of manufacturers indicates that activity in this sector continued to grow through September. Respondents reported increases in shipments, new orders, unfilled orders, employment, and the workweek. Inventories of materials rose slightly while inventories of finished goods fell. Over half of the respondents indicated that raw materials prices had risen from the month before, while almost one-fourth reported higher prices received for finished products.

Manufacturers look for increases over the remainder of the year in all measures of their activity except employment and the workweek. It appears that the slower expected growth in employment is due primarily to tight labor markets. In our survey this month, more respondents than in our previous survey indicated they had unfilled job openings for skilled and unskilled labor, and 39 percent reported they had raised wages recently.

The nondurable goods sector showed a slightly stronger performance than the durable goods sector. Within the nondurable sector, textile and apparel respondents reported capacity utilization rates averaging 94 percent. Further increases in shipments and new orders are expected in these industries in the next six months.

In the mining sector, last month's data on coal production and comments by our directors indicated that electric utilities in the District were stockpiling coal, possibly in anticipation of a labor dispute involving coal miners early next year. Coal production rose in late September, and coal stocks at utilities also rose in recent weeks.

Agriculture
Crop harvesting in the District is generally progressing at the same pace as last fall, although some areas report lower than normal activity. Corn yields are running 20 to 40 percent below normal and even less in areas severely affected by drought. Late crops show improvement due to September rains. Some recent strength in grain prices was noted by directors, but crop prices remained at weakly historical standards. Livestock prices are generally strong, but recent dips in poultry prices have decreased producer margins.

A good crab catch and strong prices helped Chesapeake Bay watermen this summer, but a parasite in oyster beds threatens to cut this year's oyster harvest in half. This reduction is likely to place severe financial stress on watermen and on small shucking houses.

Tourism
A telephone survey of hotels and motels in District resort areas indicated more empty rooms this summer than last. Fall bookings are running ahead of last year and the majority of respondents expect stronger activity this fall.

Finance
A special survey of our banking directors and advisors showed rising demand for commercial and industrial loans, home equity lines and home mortgages. Respondents expect demand to strengthen further in the next six months. They also noted that the use of consumer credit cards remains strong.

Construction
Several District building contractors were contacted by telephone. They indicated firm demand for new nonresidential construction but weakening demand for residential construction. Stable regional growth was the reason most often cited for the strength in commercial construction, and rising interest rates was the reason most often cited for the weakness in the residential market. Contractors were cautious about the outlook for the next several months. In general they expect little change from current activity.