Beige Book Report: Richmond
August 9, 1989
Overview
After moderating for several months, growth in the District economy
softened further in July. Activity was flat in some sectors and
actually declined in others. Retail sales were weak on balance, and
manufacturing activity decreased. Home sales were below their
earlier level, and tourism and port activity were mixed. On the
financial front, loan demand was generally weak. Despite the current
sluggishness in their sectors, manufacturers, retailers,
homebuilders and bankers are optimistic that their own business
activity will increase in the next six months. Agriculture and
forestry offer the brightest prospects for growth, as a good season
will likely boost farm receipts, and strong foreign demand is
supporting lumber sales and prices.
Consumer Spending
About half of the retailers responding to our regular mail survey
reported lower sales in July while only a few reported increases.
Most retailers, however, expect their sales to rise over the next
six months.
Retailer responses to our July survey were generally unchanged from May. Most car dealers again indicated slower sales, while department store volume increased slightly, as sales of big ticket items apparently improved.
Manufacturing
District manufacturing activity, which has been weakening in recent
months, fell in July according to our regular mail survey. Reports
of declines outnumbered reports of increases in shipments, new
orders, and unfilled orders. Export orders, employment, and the
length of the workweek were largely unchanged. Inventories of
materials evidently declined, while inventories of finished goods
were unchanged. Prices for both finished products and raw materials
apparently continued to rise, but at a slightly slower rate than was
reported in May.
District manufacturers continue to be more optimistic about prospects for their own businesses than for general business activity in the nation. Respondents who expect increases in sales and unfilled orders in the next six months slightly outnumbered those who expect declines. The majority look for employment and the workweek at their respective plants to remain at current levels. Only one District producer in five, however, expects the general economy to improve over the next six months, while two in five expect it to decline.
Expectations of Inflation and Foreign Trade
In their responses to our July mail surveys, District manufacturers
and retailers also indicated their expectations about U.S. prices,
wages, exports, and imports. As in our previous survey, most
respondents expect the rate of increase in prices and wages to
stabilize or slow in the next six months. Slightly more July than
May respondents look for the trade deficit to widen. The July survey
results are summarized below.
| Expecting Rate of Increase to: | ||||
Rise |
Slow |
Not Change |
Decline |
|
| Prices | 9% |
31% |
53% |
7% |
| Wages | 10% |
19% |
71% |
0% |
| Exports | 14% |
22% |
49% |
14% |
| Imports | 18% |
29% |
46% |
7% |
Ports
Reports received from the three major District ports—Hampton Roads
(Norfolk), Charleston, and Baltimore—show that import volume was
unchanged in July from June. The export picture was mixed, with
shipments higher at Charleston and Hampton Roads but about the same
at Baltimore. Compared to a year ago, increases in export activity
exceeded increases in import activity, and representatives expect
this trend to continue during the next six months. At Hampton Roads,
the largest coal port in the nation, coal exports have reportedly
been at normal levels in recent weeks.
Financial
According to our telephone survey of financial institutions,
commercial and industrial loan demand was generally flat to lower in
July. Mortgage demand was mixed with half of those surveyed
reporting higher demand and the other half lower demand. Of those
reporting higher mortgage demand, most attributed the strength to
refinancing activity. Auto loan demand was sluggish at banking
institutions, and respondents felt that more dealer financing was
the cause. Many bankers expect loan demand to firm once borrowers
perceive that interest rates have bottomed out.
Housing Housing activity in the District was reported as mixed overall, but still well behind last year's levels according to our telephone survey of builders and realtors. The suburban Washington, D.C., market has been especially slow recently, primarily because of large inventories of higher-priced homes. Most respondents noted that lower mortgage rates had begun to have a small positive effect. Several respondents said reduced mortgage rates had not resulted in heavier customer traffic but had allowed buyers to purchase more expensive homes.
Tourism
District hotel and motel representatives contacted by telephone
indicated that tourist activity was mixed compared to last summer.
About half reported that bookings were higher than last year at this
time, which they attributed to more repeat customers, better
convention business, and better weather. About one-third reported
lower bookings. Our contacts gave mixed views on prospects for
tourism for the rest of the summer; 40 percent expect increases, and
33 percent expect decreases from last year.
Agriculture
Abundant rainfall and moderate temperatures throughout much of the
District during July have raised optimism that fall yields will be
strong. The apple crop is in generally good condition. The harvest
of early peaches has begun, with that crop also rated as good.
The District's lumber industry has apparently benefited from strong foreign demand that has largely offset the weakness in domestic demand due to softness in construction. Foreign buyers of lumber were said to have bought all grades and to have paid top prices.