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Beige Book Report: Richmond

December 5, 1990

Overview
Reports of business and financial conditions in the District suggested that economic activity declined in early November. Retail sales were weak through the first half of the month but showed strength after Thanksgiving. Manufacturing activity fell. Loan demand softened, and a more conservative approach characterized all bank lending. Funds for new commercial construction and speculative residential building were particularly tight. Exports continued to rise faster than imports, and agricultural conditions remained generally favorable.

Consumer Spending
Responses to a pre-Thanksgiving mail survey of retailers indicated that retail activity softened in early November from October. Some retailers blamed unseasonably warm weather for the slow sales, while others pointed to reduced consumer confidence and purchasing power. Overall declines were recorded in sales of big ticket items as well as in total sales, shopper traffic, and employment. Business at department stores was especially poor and not expected to improve.

Despite the weakness in sales, inventories also apparently declined over the survey period. There was some indication that suppliers were requiring earlier payment for delivered goods. Retail and wholesale prices were reported steady to higher.

Retailers reported unexpectedly strong sales in most major District metropolitan areas during the three days following Thanksgiving. Surveys by the local newspapers in these areas indicated that shopper traffic was very heavy and that business was brisk. Lines of shoppers were reported at some stores that had advertised discounted merchandise.

Manufacturing
Our regular mail survey suggested that District manufacturing activity declined slightly in early November. Respondents indicated that shipments, orders, and employment declined, but that inventories of raw materials and finished goods changed little. Most manufacturers felt that poor sales were their biggest problem, and manufacturers of furniture, textiles and apparel said their industries were definitely in recessions. Some manufacturers said that customers were increasingly reluctant to order very far ahead.

Raw materials prices rose, but most manufacturers apparently held finished product prices steady. Even firms that use petroleum-based inputs like chemicals and plastics said that they had absorbed sharp increases in their raw material costs and had not increased prices of their finished goods.

Manufacturers saw weakness in current economic conditions, but they were somewhat less pessimistic than a month ago about prospects for business next year. Most respondents believed that economic activity weakened in their local areas and in the nation in early November, and about half expected further weakening in the months ahead. A significantly larger number of respondents in November than in October, however, expected activity to pick up in coming months.

Port Activity
Officials at District ports—Baltimore, Charleston, and Hampton Roads (Norfolk)—indicated that, seasonally adjusted, exports rose in October from September and imports were generally unchanged. Compared with a year ago, export activity was higher and import activity was mixed. All port representatives expected exports would continue to increase faster than imports during the next six months.

The declining dollar evidently gave a modest boost to some exports. West Virginia's timber industry, for example, enjoyed strong export sales, and exports of coal to overseas markets apparently rose.

Finance
A telephone survey of financial institutions and conversations with other business people suggested that total credit volume shrank in the first three weeks of November. Decreases in loan demand and in credit availability were cited as reasons for the decline.

The volume of outstanding commercial and industrial loans evidently declined in early November. Lenders reported that the demand for new commercial loans decreased and that borrowers were reluctant to use existing lines of credit. Bankers attributed the weaker demand to the sluggish economy and to the uncertainty resulting from Mideast tensions. Some lenders also indicated that they were taking extra care to ensure that potential borrowers were creditworthy. Nearly all lenders reported no change in their loan rates.

Bankers said they were analyzing loans for new ventures and business expansions more carefully. They indicated, however, that quality customers with sound management and sufficient documentation should find adequate credit available. Even so, some small businesses and real estate developers with strong past repayment records reported that they had not been able to find adequate funds. In some metropolitan areas, loans for real estate development were reported to have dried up and construction activity was described as deeply depressed.

Agriculture
After falling behind earlier this autumn, harvest and planting activity progressed at a rapid pace in recent weeks due to a lack of rainfall. As of mid-November, the harvests of corn, soybeans, peanuts, and apples were at normal to above-normal levels. The planting of small grains was on schedule, and above-normal temperatures accelerated the germination and emergence of these grains.

Most livestock producers received relatively high prices and benefited from relatively low feed prices. High production, however, held down lamb prices.