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Beige Book: National Summary

October 27, 1987

Business conditions continue to improve in most districts, with particular strength in the manufacturing sector. Reports from Boston, New York, Cleveland, and San Francisco are particularly upbeat, whereas growth in the Kansas City and Dallas districts has been less robust. St. Louis continues to report generally less satisfactory economic performance. Even the three relatively weaker districts have enjoyed recent strength in manufacturing, however. Retail sales are showing modest gains in many regions, with particular strength in the Boston and Atlanta areas, but sluggishness in the Cleveland, Kansas City, and Dallas areas. Auto sales are flat, or even down a bit, according to most district reports. Construction activity is mixed, as it was last month, with commercial building a bit better than residential in many parts of the country. Mining is strong, and all districts commenting on oil drilling report some increases in rig counts. Crops and harvest conditions have been favorable almost everywhere. Only the Richmond district reports reduced corn yields, due primarily to adverse weather. Two districts report improvement in the financial condition of farmers and ranchers.

Reports indicate demand/supply imbalances in some markets. There is continued mention of tightness in certain labor markets, particularly in retail and service industries. And many districts report rising prices for some raw materials and imported inputs. Several note price hikes and even spot shortages for certain types of steel.

Manufacturing
Almost all districts report strength in manufacturing, continuing the trend noted last month. Even St. Louis, with weaker overall economic activity, reports a recent upturn in the manufacturing sector. Richmond's survey of manufacturers shows increases in shipments, new orders, unfilled orders, employment, and the workweek. Results of a Philadelphia survey are much the same. The San Francisco district emphasizes strength in manufactured exports, due to the dollar's decline and "buy American" campaigns in some Asian countries. As San Francisco says, "Manufacturers of commodities such as chemicals and paper were affected first, but gains now are spreading to a whole range of light manufactured products, including medical equipment and industrial valves." Of course, weakness in auto sales does not bode well for manufacturing activity in that important industry. Chicago reports an indefinite layoff of 2,000 workers at a truck assembly plant in September and planned closings of two more motor vehicle plants by year-end. Heavy truck sales have been quite good, reflecting in part the strength of manufacturing.

Consumer Spending
Retail sales are mixed. Boston, New York, and Atlanta report considerable strength, with sales generally above plan for the month of September. More modest results are noted in the Philadelphia, Chicago, and Minneapolis districts. But retail sales in the Cleveland, Kansas City, and Dallas districts are sluggish or flat. In general, retailers appear guardedly optimistic about the coming fall and Christmas seasons. Auto sales were weak in almost all districts in September and early October, and most industry representatives are pessimistic about a quick turnaround. Minneapolis seems to buck the trend, reporting fairly good auto sales in recent weeks.

Construction
Construction activity is mixed with some evidence that commercial building is stronger than residential. Richmond reports "firm demand for new nonresidential construction but weakening demand for residential construction." The situation is similar in the Atlanta district. St. Louis, Minneapolis, Kansas City, and Dallas note some weakness in construction generally. But there are numerous bright spots. The demand for New York City office space has been good in recent weeks, and upstate New York builders are busy. Homebuilders in the Philadelphia district have a backlog of sales commitments. And residential construction is still quite healthy in several western states, including California, Hawaii, Nevada, Oregon, and Washington. Also, southern California has an abundance of real estate buyers from foreign countries, especially Japan.

Mining
Strength is apparent in the mining sector. Mining operations in the Minneapolis district are generally active, particularly the four gold mines which are running at capacity. U. S. copper has become more competitive in world markets, stimulating output in Montana. Increases in rig counts are noted by all districts reporting on petroleum drilling, including Minneapolis, Kansas City, and Dallas. Analysts in Texas, however, believe that drilling activity has nearly completed its shift upward, as long as oil prices stay in their present range.

Agriculture
Reports from the agricultural sector are generally quite strong. Crops and harvest conditions have been good in most parts of the nation, with only the Richmond district reporting weakness. There "corn yields are running 20 to 40 percent below normal and even less in areas severely affected by drought." Nationally, livestock farms are generally profitable due to favorable price structures. Both Minneapolis and Kansas City note that farm financial problems have eased somewhat and that ranchers are using recent profits to pay down loans.

Tightening Markets
Demand is outstripping supply in some markets. There is continued and even increasing mention of tightness in specific labor markets, including reports from Boston, Richmond, Minneapolis, and San Francisco. Retail and service industries are generally the most affected, and several districts note recent wage increases in those sectors. Rising prices are noted for some raw materials and imported inputs, and several districts mention higher prices for imported apparel. Cleveland, Chicago, and Dallas note price hikes and even spot shortages for certain types of steel. Both the Boston and Philadelphia districts observe that most manufacturers are, so far, holding the line on their own prices. However, nearly half the manufacturers queried in a Philadelphia district survey indicate that they plan to raise prices during the next six months.