Beige Book Report: Richmond
September 19, 1990
Overview
District economic activity slowed somewhat in recent weeks. Retail
stores, tourist areas, and manufacturing plants reported that
business conditions softened. Higher oil prices raised
manufacturers' costs and pushed up prices for finished goods. At
financial institutions, the demand for consumer loans fell slightly.
In most District areas that are highly sensitive to defense
spending, business continued to slow. In some local economies
heavily dependent on military personnel, the Mideast deployment
crimped consumer demand. On a positive note, exports rose more than
imports at District ports, and prospects for District farmers are
generally good.
Consumer Spending
Retail activity apparently softened in August while profit margins
shrank. Responses to our regular mail survey of retailers indicated
that sales, especially of big ticket items, declined from July to
August. Retail employment was also down from our previous survey.
Two-thirds of our survey respondents reported increases in the
prices they paid, while only one-third noted increases in the prices
they charged.
District tourism was lackluster in the last month of the summer season. Our telephone survey of hotels, motels, and resorts indicated a slower August and Labor Day weekend than a year ago. Respondents who experienced declines blamed a generally weaker economy. Only one resort manager thought that higher gasoline prices kept tourists away. Most of those surveyed reported that fall bookings were about even with last year's. Respondents remained optimistic about tourist activity in coming months, but they were less so than in our previous survey.
Manufacturing
Our regular mail survey showed that manufacturing activity slowed
from a month earlier. All survey indicators except prices and new
export orders declined. Almost half of the producers identified poor
sales as the most important problem they faced.
Virtually all manufacturers were adversely affected by higher crude oil prices. Raw materials prices and transportation costs rose for all but a few respondents. To adjust to these increased expenses, half said they had raised or would raise their prices, a third said they would try to decrease other nonemployment costs, and one-tenth planned to cut employment.
Manufacturers' assessments of current conditions and their forecasts were more pessimistic in August than in July. A larger majority believed that their local economies and the national economy weakened in the latest month, and only one-fifth now expect business conditions to improve in the next six months.
Ports
District port activity continued to shift toward exports, which rose
in August from July and from a year ago. Imports were down from July
but were generally unchanged from a year ago. All three major
District ports—Baltimore, Charleston, and Hampton Roads (Norfolk)—expect exports to increase faster than imports in coming months.
The volume of coal exports has apparently not yet been affected by developments in the Middle East. Some of the largest coal shippers, however, expect to export more if crude oil prices remain high.
Financial
A telephone survey of District financial institutions suggested that
the demand for consumer loans fell slightly in August from July.
More lenders reported decreases than increases in new consumer
loans. Respondents indicated that declines in installment credit
more than offset increases in revolving credit. Additionally, nearly
all lenders reported no change in the rates charged on consumer
loans in August.
Agriculture
As of the second week of September, the fall harvest was on schedule
and most crop yields were expected to be about average around the
District. Corn yields, however, will probably be below average in
Virginia and in the Carolinas, due to June's hot, dry weather during
the corn crop's crucial pollination period. Rainfall in August was
above normal across most of the District, and soil moisture levels
were reported to be generally adequate.
Defense Impacts
Business leaders in the Washington and Norfolk areas indicated that
the adverse economic effects of defense budget cuts intensified this
summer. They said that cutbacks in current and projected defense
spending lowered the use of contract personnel and support services
such as advertising, printing, and travel; they blamed these
effects, in part, for continued declines in real estate values and
construction activity.
The Mideast military deployment slowed business in parts of Virginia and the Carolinas. In areas where large numbers of military and support personnel had been stationed and were sent overseas, local business leaders said that retail sales were off sharply; automobiles, appliances, and fast food were particularly hard hit. Contacts in the Washington area noted that the Mideast crisis diverted defense funds away from local contractors that primarily provide long-term, research-oriented services, and toward items of immediate use in the field. The call-up of reserves and the departure of troops, many of whom held second jobs, depleted the supply of workers in some areas where labor markets were already tight. The Mideast deployment, however, evidently gave a boost to some District manufacturers. A textile producer, for example, recently received a large government order for tent fabric.