December 6, 1989
Most Federal Reserve districts describe economic activity as stable to modestly expanding, though two note some recent softening. Consumer spending has varied among districts. Strength has been mostly confined to nondurable items, while sales of autos and other durables have generally been weak. The majority of districts report some softening in manufacturing activity but there are pockets of strength. Construction is strong or improving in the West and Midwest but somewhat sluggish in other areas. Agriculture has improved in much of the country and several resource industries have been expanding. Those districts that reported on price developments generally noted flat to modestly increased input prices, with several mentioning the continuing escalation of medical insurance costs. Loan demand at commercial banks varied by type and region.
Consumer Spending
Retail sales have been mixed among the districts. Sales were
described as on target or healthy in the New York, St. Louis.
Minneapolis and San Francisco districts. Boston, Cleveland and
Philadelphia reported that sales were about even with year-earlier
levels while Richmond and Dallas noted some slowing. Most districts
that commented on Thanksgiving weekend sales reported virtually no
change in the pace of sales relative to a year ago, but Atlanta
experienced double-digit gains at that time. Among items mentioned
as selling well in several districts were apparel, jewelry,
cosmetics and toys. Unseasonably warm weather hampered sales of
winter apparel in several areas, however, and most districts noted a
weakness in sales of autos and other big-ticket items.
Retail inventories were reported at satisfactory levels in Atlanta, Minneapolis, New York and Philadelphia, but are higher than desired in Boston and Chicago. Retailers in Boston, Minneapolis, Philadelphia and Richmond expect this holiday season to equal last year's while those in Kansas City and St. Louis appear to be somewhat more optimistic.
Manufacturing
Some slowing in manufacturing activity has occurred in most areas.
While conditions in Chicago, Minneapolis and San Francisco were
mixed, shipments and orders in Boston were flat or down compared
with a year earlier. Philadelphia notes a continuation of the
downtrend that began during the summer and Richmond and St. Louis
also report a decline in manufacturing activity. In Cleveland, where
the pace of industrial activity had been strong during the first
nine months of the year, some easing has recently occurred and
Kansas City notes a slowing of sales, though most plants are
operating near full capacity.
Weakness in the auto industry and among its suppliers was most commonly cited as a major factor in the manufacturing slowdown. Softness was also reported in the computer, electronics and defense industries in Minneapolis and in the furniture, textiles and apparel industries in Richmond.
In the nonauto sectors of the transportation equipment industry some gains occurred. Cleveland noted an upturn in orders for heavy-duty trucks and several districts reported strength at aerospace-related firms. Cleveland and Chicago report expansion in the industrial machinery industry, while firms producing oilfield equipment and chemicals in Dallas increased their sales. Several food processing plants in the San Francisco district plan to expand and Atlanta reports that capital spending continues in the chemicals, metals, wood and pulp, and industrial equipment industries.
Construction and Real Estate
Construction is reported to be strong or improving in the West and
Midwest but somewhat sluggish in most other areas. Housing starts in
Kansas City have increased over last year and sales in Minneapolis
were slightly higher. San Francisco reports that construction and
real estate activity are strong or improving in most of the
district, while in Chicago residential building is still good though
the pace has slowed somewhat. Atlanta and Richmond note some
weakness in residential construction activity, however, and Dallas
reports that activity remains far below the levels of the mid-80's,
though there are now tentative signs of expansion. Home sales in
Boston were the same or slightly lower than in 1988 with homes
remaining on the market longer and prices declining.
Nonresidential construction and real estate activity also is mixed, Boston, Atlanta and Minneapolis report some weakness in the commercial market and New York and St. Louis note some recent increases in vacancy rates. However, office leasing has been relatively strong in New York, and Atlanta and Chicago both mention continuing strength in industrial construction.
Agriculture and Natural Resources
Agricultural conditions have improved in much of the nation.
Minneapolis reports that both wheat and barley production were
double last year's level and Kansas City report that corn and
soybean yields were generally normal. Most of the winter wheat crop
in Kansas City is in good condition though dry weather could present
some problems. San Francisco, Chicago and St. Louis report an
increase in agricultural exports, and farmland values continue to
rise in Chicago and Minneapolis. Dallas reports that drought
persists in south Texas and along the Gulf coast and that cattlemen
have reduced herds. However, in the northern part of the Dallas
district, winter wheat planting and the corn harvest are both on
schedule.
Among natural resources industries, exploration for natural gas is boosting drilling activity in Kansas City, and Dallas reports that the oil and gas industry is optimistic about expanding next year. Richmond notes that coal prices are strong and coal production in West Virginia has been at a record level. Minneapolis and Richmond report robust activity in the lumber industry, and the mining and metals industries are strong in San Francisco and Minneapolis.
Financial Markets
Demand for commercial bank loans remains varied by type and among
regions. San Francisco reports strong loan demand in most areas
though the rate of growth seems to have slowed from its earlier
robust pace. Bankers in both Kansas City and Philadelphia note a
recent increase in total loan demand, with business, consumer and
mortgage loans up in Kansas City but only business loans up in
Philadelphia. Some types of consumer lending are still strong in
Atlanta but commercial lending is down. Richmond reports an overall
softness in demand affecting both business and consumer loans.