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Beige Book: National Summary

September 18, 1991

The economic recovery continues to be uneven across the country. Although some Districts apparently are not sharing in recovery, others, such as Chicago and Cleveland, continue to revive largely because of the upswing in manufacturing. Industrial production has provided considerable impetus to recovery, reflecting in part export demand and a reduced pace of inventory liquidation.

As yet, there is little sign of a sizable rebound in consumer spending that will contribute to a strengthening business recovery. Retail sales in recent months show only scattered improvement, and most retailers are cautious about sales prospects. Retail inventories are indicated to be close to desired levels.

Residential investment seems to have lost some upward momentum in recent months, with fewer than half of the Districts reporting further increases in housing sales and housing starts.

Hot, dry weather in much of the country has hampered farm output, especially corn. Bumper crops of rice in some parts of the St. Louis District and record crops of cotton are anticipated in St. Louis and Dallas. Farm commodity prices and livestock prices have declined recently (San Francisco, Minneapolis, Kansas City, and Dallas).

Loan activity remains soft in most Districts. Chicago, Cleveland, Philadelphia, and St. Louis report a continued reduction in business loans, while mortgage loans in general remained flat.

Manufacturing
The strongest sector of the economy is manufacturing. Most Districts note a continuing upturn in activity in recent months, but manufacturing apparently is still languishing in a few Districts (especially Boston and San Francisco).

Export growth has been a source of strength in manufacturing, and more recently, a reduced pace of inventory liquidation in some industries reportedly is adding to the recovery. Developments are not uniform through all Districts, however. Some inventory liquidation apparently continues in Chicago, Philadelphia, and Richmond, while Boston reports satisfactory inventory levels and Cleveland comments that the correction phase in inventories is nearing an end.

Both Chicago and Cleveland note strengthening among consumer durable producers, led by rising automotive and appliance output, which has supported a gradual rise in steel production. Further increases in auto output are expected for next quarter (Cleveland). Capital goods industries are beginning to show signs of recovery. Chicago points out that electronics, heavy machinery, and food processing machinery have all shown some recent turnaround in orders, and Cleveland cites an uneven revival in heavy-duty trucks and industrial equipment. Dallas also reports that sales have increased in the electronics and electrical machinery industries because of some rebuilding of depleted inventories.

Retarding a comeback in production in some Districts is the cutback in defense contracts, resulting in declining orders in Philadelphia and Atlanta and in San Francisco's aerospace industry.

Manufacturers in most Districts appear to be more optimistic about near-term prospects, and those in Philadelphia and Richmond plan to increase their capital spending over the next six months.

Consumption
There is still little indication of a stepped-up pace in consumer spending for durable and nondurable goods. Retail sales between July and early September were relatively flat or slightly higher than their levels earlier in the summer. Sales of back-to-school merchandise were described as "weak," "slower-than-expected," or "disappointing" (Boston, New York, Philadelphia, Atlanta, and Dallas). New car sales in August were off in some Districts (Chicago, Cleveland, Atlanta), although a limited inventory of 1991 model cars is partly blamed for the reduced sales pace. Cleveland, however, expects a somewhat higher level of new car sales this quarter than last. In general, retail inventories appear to be close to desired levels.

Retailers generally are cautious about near-term sales prospects, and only a few of the Districts report optimism about the outlook.

Real Estate and Construction
District reports suggest that recovery in housing sales and starts has slowed recently, although a few Districts comment that sales or starts were still rising in July and August. Both San Francisco and Chicago report that home sales softened in recent months after a spring rebound. Still, housing apparently has become more affordable because of recent easing in mortgage rates and because of lower home prices in some areas.

Commercial construction appears to be at a virtual standstill in many Districts. High vacancy rates for commercial buildings and declines in rental prices have been blamed (New York, Chicago, Minneapolis, Dallas, and San Francisco), but tight credit standards for acquisition and development loans have also apparently restricted commercial construction (New York, Chicago, Atlanta).

Agriculture
Dry weather is expected to reduce the corn yield in Kansas City, and early reports on this crop in the St Louis District are mixed. Richmond expects that corn and soybean yields will be normal to above normal in some areas, because of recent timely rain. A bumper rice crop is expected in Arkansas, but yields in Mississippi may not be as good (St. Louis). A record harvest for cotton is expected (St. Louis and Dallas). Crop yields in Minneapolis are predicted to be "generally good."

Adverse weather has also affected pasture conditions in Kansas City, but the livestock industry is nevertheless "mostly good" in St. Louis. Fruit growers in California report large harvests, but dry August weather reduced the harvest of apples and grapes in Washington (San Francisco).

Several Districts report declines in farm commodity prices. Potato, hay, and beef prices are off substantially from a year ago in San Francisco, and the Minnesota index of farm products fell sharply again for a variety of crops and livestock.

Banking
Nearly all of the Districts state that loan activity is relatively flat, or has eased further in recent months. The New York District's comment that banks are willing to expand loans but are facing reduced demand, seems to capture a theme common to several Districts. Demand for business loans continues to be weak, and has softened further in some Districts (Philadelphia, Cleveland, Chicago, St. Louis). In some Districts, consumer installment loans either fell or held steady, except in Atlanta, where some pickup occurred. Most Districts report either little demand for new mortgage loans or slight declines from previous months, and even some easing in mortgage refinancing (Cleveland). Some Districts find that credit standards have not changed in recent months (New York and Chicago), but Richmond notes a tightening for commercial loans and Atlanta cites a tightening for both auto dealer and commercial development loans. In several Districts, mortgage rates have eased recently.