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National Summary: June 1989

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Beige Book: National Summary

June 21, 1989

Economic activity for most of the nation continues to advance, but a number of Federal Reserve districts note ebbing rates of expansion. Although auto sales have dipped, reports of retail sales are generally positive. Manufacturing growth is leveling off. Real estate markets are sluggish. In the resources sector, firming oil prices have helped the energy-producing districts, while environmentally-related legal issues are said to have restricted lumber supplies. Recent rains have alleviated drought problems in several districts. Loan growth varies considerably across regions. A number of districts mention undesirably high inventories, particularly in autos. With some exceptions, wage and price pressures are not accelerating. Some districts said their respondents had not been able to pass their input cost increases through to their customers.

Consumer Spending
Retail sales reports are mixed, but the tone is generally positive. Cleveland mentions that sales in Ohio rebounded in May, and that gains continued into June. Demand has picked up in the Kansas City district. Dallas and New York note year-over-year gains, and Minneapolis cites strong consumer spending. Boston, Chicago, and Philadelphia offer less positive comments, however. Strength in sales of women's apparel was noted by several districts, but consumers appear to be increasingly cautious about purchases of big- ticket items.

Auto sales have weakened. Philadelphia, Cleveland, Richmond, Chicago, Kansas City, and San Francisco all note softening demand, while Atlanta mentions undesirably high inventories among dealers. Dallas cites moderate sales growth and Minneapolis also refers to recent expansion. San Francisco reports that demand is strong in some parts of its district, although not in most of them.

Manufacturing
Growth in manufacturing activity has slowed. Boston, Philadelphia, Richmond, and St. Louis all note evidence of reduced rates of expansion, although San Francisco reports robust activity. Boston, Dallas, and San Francisco mention negative impacts of reduced defense contracting. Several districts also refer to weak demand for construction-related products. Nevertheless, a number of sectors remain strong and have high rates of capacity utilization. San Francisco reports bottlenecks in the commercial aircraft industry and tight capacity at most paper mills. Chicago and Cleveland note strong capital goods orders and Atlanta cites upward revisions in capital spending plans by several manufacturers. Most plants in the St. Louis district are said to be operating near full capacity. Although Atlanta and Boston say export demand is strong, a number of other districts cite concerns over potential or actual softening of export markets for some industries. Some districts mention rising prices of basic inputs, particularly metals and certain plastics.

Construction
Construction is showing signs of sluggishness. Boston, New York, Minneapolis, Kansas City, and St. Louis mention evidence of slipping residential real estate markets. Nonresidential activity shows greater variance across regions, with high rates of industrial construction in the Chicago district and with strong commercial real estate markets in the coastal states of the San Francisco district. In Arizona, which is also in the San Francisco district, commercial and residential real estate markets are languishing. Although Manhattan is undergoing a spate of hotel-building activity, loan officers in the southern portion of the New York district say their commercial real estate markets are generally quite weak. Dallas mentions that nonresidential construction is unchanged at a low level, while Philadelphia reports that commercial real estate markets there are softening.

Resource Industries
Conditions in the resource sector vary among individual industries. The recent firming of oil prices is said to have helped the energy sectors in the Atlanta, Kansas City, and Dallas districts, while St. Louis reports some increases in coal output. Minneapolis, however, notes that the wood products industry's access to local raw materials has been severely limited as a result of environmental concerns. San Francisco mentions that legal issues have contributed to a reduction of lumber production there, but that exports of logs have also contributed to the slowdown.

Agriculture
In agriculture, the most significant news may be the recent rains, which have helped to alleviate drought problems in several districts. Subsoil moisture levels remain a cause of concern, but past difficulties have been reduced by precipitation in the St. Louis, Kansas City, and Dallas districts. The rains came too late to avert considerable damage to the winter wheat crops in the Dallas and Kansas City districts, where past dry weather has also motivated ranchers to reduce their herd sizes. Wheat yields in some other districts, including Richmond and Minneapolis are expected to be high.

Banking
Financial industry activity varies markedly among the districts that mention banking conditions. New York notes that loan demand at small and medium-size banks is the same or somewhat weaker than a year ago. Commercial loan demand in the Richmond district remains unchanged, compared with modest growth in the first half of April, while consumer credit demand there is up modestly. Loan volume in the Philadelphia district is growing, but at a slower rate than during the first quarter. In May, loan demand surged in the Cleveland land district. Loan demand in the Kansas City district is also increasing, while St. Louis notes improved bank profitability and asset quality. In the San Francisco district, commercial loan demand is increasing and most western banks are posting strong profits.