Beige Book Report: Chicago
November 1, 1989
Summary
Indicators of economic activity in the District remain more subdued
than last year. Growth of employment in District states since late
1988 has trailed the nation. Manufacturing employment declined from
early 1989 levels, but rose in August. Reports from contacts with
manufacturers generally show slower gains in business volume or
declines, in some cases from high levels. Farm equipment sales, in
contrast, are registering large gains. Many large industrial
investment projects reportedly remain on the agenda. But slower
growth in various industries raises concern that increases may
continue to taper off, leading to downturns in these industries and
at suppliers. Construction activity continues relatively strong in
the region. General merchandise sales are rising, albeit slowly, and
credit delinquencies do not signal deterioration, overall, in
ability to pay. The District's fall harvest, aided by ideal weather
conditions, is generating "better than expected" crop yields.
Manufacturing
The trend for most manufacturers contacted was toward slower growth
in orders and sales, with some noting declines. A producer of
electrical controls and power supplies sold to machinery markets has
seen a small further rise in orders this year following strong
increases last year. Orders for electrical equipment from metals
producers have been slightly lower following very large orders last
year. Electrical equipment prices were little changed. A
manufacturer of capital goods noted slower orders for some types,
including defense equipment, petroleum equipment, food packaging
machinery, and material handling equipment. A diversified producer
of consumer products and of supplies widely used in industry
reported a further tapering off of growth in its sales. A slowdown
in communications equipment demand appears to have bottomed.
Shipments of corrugated containers are estimated to have continued
to expand slowly through September; investments, mostly incremental
enhancements of existing facilities, are bringing capacity on-line
more rapidly than growth of sales, exerting downward pressures on
prices. Sales of large farm tractors and combines continue well
above year-ago levels.
Shipments of steel were expected to be below a year earlier in the second half, after being higher in the first half of 1989. Industrial procurement of steel has peaked, as a large number of large projects moved off of drawing boards to the procurement stage in 1988 and early 1989. There are now fewer big projects being started, but numerous smaller ones. This has resulted in a peaking and subsequent easing of pressures on available capacity, but many projects remain underway, and this backlog will tend to support activity in the months ahead.
The outlook for steel also reflects an expectation that automakers will produce close to announced schedules for the rest of this year. Contacts in the auto industry were optimistic about maintaining reduced assembly schedules. These production cuts are being reflected at parts plants in the District.
Construction and Real Estate
Construction activity is holding up well in much of the District.
Shipments of Portland cement to the Midwest have been relatively
strong, with metropolitan areas where building picked up earlier,
such as Chicago, remaining at high levels but not growing as before,
while less heavily populated areas have been catching up. Michigan,
however, is slowing. Shipments of gypsum board to District states
have registered larger gains from a year ago than nationwide.
Strength in gypsum board shipments reflects not only finishing work
on new construction projects but also the continued high level of
renovation activity. Construction activity on downtown Chicago
commercial buildings is still at a high level and is expected to
remain vigorous, based on building plans and demolition activity.
Building of light industrial structures continues at a good pace in
Chicago suburbs. Highway work has been strong in the metro area this
year.
Reports on residential sales are mixed. Some realtors indicate relatively good volumes of business following declines in mortgage interest rates from peaks last spring, but others view sales as sluggish. There are indications of weakening in housing prices. Some realtors regard property sales as soft partly because sellers have exaggerated views of what their properties are worth. Affordability is a problem for many would-be buyers. On the other hand, houses that are selling include numerous larger and more expensive properties.
Consumer Spending
General merchandise retail sales in early October, on a comparable-
selling-days basis, were having modest gains from a year earlier,
according to a contact with a large chain. Some durable goods were
selling well, including washers and dryers, refrigerators, home
electronics, and computers. Sales of other product lines, including
home improvements and some fashions were weak. Children's apparel
was selling well. Credit sales continued strong, with no
deterioration in delinquencies.
Agriculture
Ideal weather conditions the past three weeks have helped to dry
crops and speed up both the fall harvest and the planting of winter
wheat. The corn and soybean harvest, as of October 15, ranged from
two-thirds complete in Illinois and Iowa to one-third complete in
Indiana, Michigan, and Wisconsin. Despite frost damage in some
areas, numerous reports note "better-than-expected" yields,
especially in Iowa.