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Beige Book Report: Richmond

January 24, 1990

Overview District economic activity was mixed in December and early January after a sluggish November. Retail sales before and after Christmas were generally good. The slowdown in manufacturing, however, became more pronounced. Activity at District ports was again mixed. Housing activity rose in December despite the inclement weather, and business was strong at ski resorts. In agriculture, winter wheat suffered some weather-related stress.

Consumer Spending
Our telephone survey of retail associations indicated that merchandise sales during the Christmas season were above those of a year ago. Two of the District states and Washington, D.C., reported sales were up by five percent or more, while the remaining three states reported increases of less than five percent. The associations noted that markdowns on merchandise between Thanksgiving and Christmas were greater than last year. In the two weeks after Christmas, merchandise sales were generally strong, but sales of big ticket items apparently slowed in the Washington area.

Manufacturing
District manufacturers responding to our regular mail survey in early January reported that activity declined in recent weeks. Reports of declines in shipments, new orders, unfilled orders, employment, and the length of the workweek outnumbered reports of increases. Shipments apparently declined the most: 50 percent of the January respondents reported declines while only 9 percent reported increases. These percentages indicated broader weakness than was apparent in our November survey, when 30 percent reported declines in shipments and 20 percent reported increases. New orders for exports were down slightly. Prices for raw materials rose somewhat faster than the moderate pace reported in November. Inventories of materials and finished goods were largely unchanged.

District manufacturers were more optimistic in January than in November about prospects for growth in their businesses, and they remained optimistic about growth in the nation during the next six months. Respondents who expect increases in shipments, new orders, employment, and the length of the workweek outnumbered those who expect decreases. Most producers continued to project slow-to- moderate economic growth over the next 18 months.

Ports
Mixed reports were received from the three major District ports-- Hampton Roads (Norfolk), Charleston, and Baltimore. Imports and exports were higher in December at Hampton Roads, but lower at Charleston and Baltimore. Respondents from Charleston and Baltimore attributed the recent decline in shipments to the temporary closing of the Panama canal. In the next six months, export volume is expected to be higher at Charleston, lower at Baltimore, and about the same at Hampton Roads.

Tourism
A telephone survey of hotels, motels, and resorts throughout the District indicated tourist activity was, on balance, little changed from a year ago. The ski business was especially strong in West Virginia where some resorts reported that activity was up by as much as 25 percent over last year. Most respondents expect increases in tourist activity in their areas in the coming months, and none expect declines.

Residential Real Estate
According to our telephone survey, District housing activity improved in December and early January. Despite unusually severe December weather, nearly half of the builders who were surveyed said that they had started as many or more houses in that month as in November. Of those who started fewer, two-thirds attributed the decline to normal seasonal factors and not to bad weather or a change in underlying economic conditions. Similarly, almost 50 percent of the surveyed realtors sold as many or more homes in December as in November, and most of those whose sales were off claimed the decline was seasonal. Also, most mortgage lenders who were surveyed reported only the usual seasonal decline in activity, while one-third indicated that the demand for mortgage loans remained constant or increased in December.

Agriculture
Inclement weather apparently impacted some crops while leaving others unharmed. Despite severe cold and heavy snows, the harvest of soybeans progressed at a normal pace in December and was almost complete by the first week of January. Weather-related damage to winter wheat was reported in some areas.