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Beige Book Report: Richmond

June 21, 1989

Overview
The District economy showed signs of slower growth in May, following its earlier deceleration in April. Retail sales were generally lackluster, although some department stores reported increases. Manufacturing activity grew at about the same pace as in April, which had been slower than earlier this year. Residential construction remained soft, and bankers reported little growth in loans. Exports rose at the three major District seaports, while imports declined or remained unchanged. On District farms, planting activity progressed rapidly in recent weeks.

Manufacturers and retailers expect a deterioration in the trade balance and little change in the rate of increase in prices and wages in the next few months. Bankers expect inflation to remain in check.

Consumer Spending
According to our regular mail survey, District retail activity slowed further in May. There was little change in the proportion of respondents who reported increases in sales, but the proportion of those who reported declines rose. More than half of the retailers expect sales to rise in the next six months.

Retail activity differed by type of store. Most car dealers indicated declines in sales. Sales at department stores apparently improved in May, however, as almost half of the respondents reported increases. Big ticket items did not sell well at department stores in May but are expected to do better in the next six months. None of the department store respondents expected sales to decline in the next six months.

Manufacturing
District manufacturing activity continued to grow in May at April's pace, which had been slower than in previous months. About half of the respondents to our regular mail survey reported no change in activity. Among the other half of respondents, those who reported increases in shipments, new orders, and employment slightly outnumbered those who reported declines; however, more respondents reported declines than increases in unfilled orders and the length of the workweek. Prices for both finished products and raw materials apparently continued to rise at about the same rate as in April.

District manufacturers are guardedly optimistic about prospects for growth in their businesses in the next six months. Respondents who expect increases in sales outnumbered those who expect declines, but more expect decreases than increases in employment, unfilled orders, and the length of the workweek. With regard to general business activity in the nation, more respondents expect decreases than increases in the next six months.

Inflation and Trade Expectations We asked manufacturers and retailers in the District to indicate their expectations about U.S. prices, wages, exports, and imports in the next six months. The results are summarized in the table below.

Respondents Expecting Rate of Increase to:
	Rise	Slow	Not change
Prices	15%	26%	60%
Wages	21%	16%	62%
Exports	24%	42%	34%
Imports	32%	25%	43%

Housing
A survey of District homebuilders indicated that residential construction remained soft in many areas when compared to a year ago. Several respondents, however, noted that activity has picked up somewhat recently. Most of those surveyed expect the demand for new homes to increase in the next several months.

Financial
A telephone survey of bankers indicated that the demand for commercial and industrial loans was flat in many parts of the District in May compared with modest growth in the first half of April. Bankers in Charlotte continue to see strong loan activity. Consumer credit demand was reported to be up modestly, but several bankers noted weakness in automobile loans. Most respondents anticipate a gradual leveling of the economy, while none expects a severe downturn. Further, none of the bankers surveyed expects a significant acceleration of inflation.

Port Activity
The three major District seaports—Hampton Roads (Norfolk), Charleston, and Baltimore—reported increased exports in May as compared with April, and two of the three reported decreased imports. Port representatives noted that compared to a year ago, export activity was greater while import activity was generally unchanged. Representatives from Charleston and Baltimore expect export activity to continue to outpace import activity during the next six months. A representative from the Port of Hampton Roads, however, expects little change in the ratio of exports to imports in the next six months.

Agriculture
Drier weather throughout much of the District has enabled spring planting activity to progress rapidly in recent weeks. As the harvest of winter wheat approaches, most areas look for high yields. Fruit and vegetable crops are generally rated fair to good, and early prospects for the hay crop are also good. In most areas of the District, farmland prices continue to rise.