Beige Book: National Summary
March 14, 1990
Summary
Most Federal Reserve Districts describe economic activity as
expanding slowly. Consumer spending varies from moderate to strong,
except for auto sales which have slowed after a January rebound. The
manufacturing sector is soft, but is improving in some Districts.
The weakness in autos and auto-related industries, however, is
widespread. Construction activity continues to slow in most
Districts, but Chicago and San Francisco still are reporting
relatively strong activity. Agricultural conditions are generally
good, although several Districts cite serious concern over the lack
of soil moisture. Banks have become less aggressive in making new
loans, and demand for most types of loans has softened.
Consumer Spending
Retail sales have continued to improve in recent months. Most
Districts indicate that retail sales gains in February were above a
year ago, led by women's apparel and electronics. Cleveland and San
Francisco note that retailers are reporting better-than-expected
sales gains. However, retail sales in New England are weak, partly
due to consumers turning cautious. Sales of "big ticket" items in
Richmond are flat and demand for durable goods in Atlanta is weak.
Most Districts report that retailers have inventories under control,
although Chicago and Cleveland report downward pressure on prices as
retailers attempt to cut excess inventories.
A slowdown in auto sales since January's rebound is widespread. However, dealers' inventories are in better shape with several Districts reporting stocks to be at or below year-ago levels. Philadelphia and Chicago note that dealers are cautious about new orders because of slow sales. Minneapolis notes that some dealers are having financial problems and some consolidation may take place in 1990. Kansas City, Cleveland, and Dallas report that weak sales are associated with tightening credit availability. Reasons cited for the credit tightening range from tighter credit standards to personal credit history problems left over from earlier depressed times.
Manufacturing
Manufacturing activity is mixed, with Boston, Philadelphia, and St.
Louis reporting manufacturing declines and most other Districts
reporting moderate improvement. New York indicates that purchasing
agent surveys indicate rising new orders and production. Capital
goods producers in Cleveland and Chicago report a slow upward trend
in orders. San Francisco's commercial aircraft industry is showing
no sign of slowing and aircraft-related equipment producers in
Boston are facing rising demand. Both Chicago and San Francisco
report strong sales of farm machinery. However, Boston cites
weakness in computers, auto parts, and paper. St. Louis and
Philadelphia report weakness in employment and orders, particularly
among durable goods industries.
Only the weakness in the auto industry appears to be widespread. Atlanta notes that plant closings and layoffs in the auto industry are hurting suppliers, but no further weakening is expected. Auto output has already begun to revive in the Cleveland District, however, and most plants are expected to be running in the Chicago District by March.
Construction and Real Estate
Construction activity is slowing in most Districts. New York reports
that their "boom" in residential construction has subsided
throughout the District, due to higher prices, lack of good land,
and an easing of pent-up demand. Most observers are not anticipating
a pickup in 1990. Commercial building has slowed in Atlanta because
of overbuilding and slow employment growth. Construction activity is
flat in Minneapolis and not expected to improve in the near future.
Although San Francisco reports nonresidential construction around
its District is mixed, overall construction activity is strongest in
Chicago and San Francisco. Homebuilding in St. Louis has been
rising, due partly to favorable weather conditions. Kansas City
notes that mortgage loan demand is weak and is not expected to
improve.
Agriculture and Natural Resources
Improved economic conditions in the agricultural sector continue to
buoy farm incomes. Richmond, St. Louis, and Kansas City report that
the yields on the winter wheat crop are expected to range from near
normal to above normal. Freeze damage to fruits and vegetables
caused some problems in the Atlanta and Dallas Districts, with
prices of some produce rising to their highest levels since 1984.
While most produce prices are expected to decline over the year,
Atlanta notes that citrus prices are likely to remain high all year.
Chicago and Minneapolis cite high livestock and dairy prices as
bolstering farm income. Kansas City notes that farm income for
livestock producers is doing better than for cash grain farmers.
However, concerns were expressed throughout the farm belt that
moisture levels in the soil are low, despite recent precipitation.
Minneapolis notes some concern that below-normal precipitation could
bring another drought to the Upper Midwest.
Other resource-related industries are generally very strong. Minneapolis states that mining is one of the strongest sectors of the Upper Midwest economy, with iron and precious metal mines expanding capacity. Forest product industries are strong, with most plants running at capacity and many expanding capacity. However, forest product firms in San Francisco have been scaling back output as logging restrictions take effect. Oil and gas drilling in the Southwest is up sharply, although drilling activity is expected to moderate. Kansas City cites a seasonal decline in exploration and development of oil and gas in January, but that decline is coming off six consecutive months of increase.
Financial Markets
Most Districts report that financial institutions are either less
willing to extend credit or actually tightening credit terms Atlanta
particularly notes tightening of credit standards for real estate
loans. Richmond cites a decline in the supply of real estate loans.
Retailers in Boston and Philadelphia state that not only are sales
being constrained, but retailers themselves are having difficulty
ordering because of tighter credit availability.
Loan demand also appears to be softening. Richmond and Kansas City report that demand for commercial and industrial loans has softened recently. Except for home equity loans, growth in consumer loan demand has weakened in Atlanta. New York notes that a widespread decline in interest rates has had no effect on loan demand, which is currently lower than a year ago. Loan volume in Philadelphia was up in early February from a year ago, but was slipping in mid-February.