January 22, 1992
Overview
District economic activity was mixed in late December and early
January, while confidence about the economic outlook rose. Retail
sales were generally flat. Manufacturing activity declined, compared
with stable activity in the previous survey. Both retailers and
manufacturers, though, were more optimistic about their prospects
over the next six months than they had been in the last survey.
Lower mortgage rates lifted home sales in some areas and spurred
refinancing activity and inquiries by prospective homebuyers
throughout most of the District. Exports rose faster than imports at
District seaports, and farmers began the new year with generally
favorable weather and price conditions and improved balance sheets.
State revenues were mostly on target, although some further
expenditure cuts were expected in coning months.
Consumer Spending
Our regular mail survey indicated that District retail activity
stabilized in December after several months of decline. Survey
respondents said that sales, adjusted for seasonal factors, remained
steady after November and that shopper traffic improved.
Inventories, employment, and capital expenditures fell. Retail
prices were stable, while wholesale prices and wages rose.
Retailers were optimistic about sales and shopper traffic over the next six months. They expected wages, wholesale prices, and retail prices to rise and employment to fall further.
Manufacturing
Our survey of manufacturers indicated that District factory activity
declined in recent weeks. By comparison, activity had been stable in
the previous survey. Respondents reported decreases in most
indicators. Exports increased, however, and little change was
reported in prices or capital expenditures.
Manufacturers' forecasts for the coming months were more optimistic than in the previous survey. They expected increases in all measures of economic activity except inventories, which they thought would be stable. Two-fifths of the respondents expected increases in manufacturing employment and total employment in their respective states.
Ports
Representatives at District ports--Baltimore, Charleston, and
Hampton Roads (Norfolk)--indicated that exports were generally
higher in December than in November, while imports were unchanged.
Compared with a year ago, export activity was higher and import
activity was lower. Exports were expected to increase faster than
imports during the next six months.
Finance
District financial institutions contacted by telephone indicated
that credit standards were unchanged over the last six weeks.
Although some banks noticed a slight increase in consumer and
commercial loans, most reported that demand was flat over the
period. All of the banks contacted had lowered their prime rates
during the last six weeks, and almost all had reduced loan rates
across the board. Lower interest rates, respondents said, have
accelerated refinancings, which constituted a substantial majority
of home mortgage requests.
Housing
Real estate analysts, homebuilders and mortgage bankers surveyed by
telephone reported that the residential market remained mostly flat
over the past six weeks. Some respondents, though, suggested that
sales in their areas were beginning to increase. Many noted that
lower mortgage rates had increased traffic and that hone prices were
steady. In areas where sales remained sluggish, potential homebuyers
were insecure about their jobs and income levels.
State Budgets
A telephone survey of state government forecasters indicated that
revenues were mostly on target, except for a moderate shortfall in
South Carolina. In contrast, the states experienced large shortfalls
last year. This year's forecasts assumed more modest economic growth
than did last year's. In several jurisdictions, December revenues
from specific taxes were unusually strong, but forecasters were
unsure of the reasons. Generally, tax revenues were still depressed
by sluggish economic growth.
North Carolina reportedly had no need for further expenditure cuts, and it was unclear whether South Carolina would have to trim its budget. Other Fifth District jurisdictions were considering major spending cuts, and several were considering tax increases. Several respondents said that rapid growth of federally mandated Medicaid spending continued to be a primary source of budgetary pressure. State government worker layoffs were considered likely in Virginia, Maryland, and the District of Columbia. In West Virginia, cuts were expected to trim state agencies' material and travel budgets.
Agriculture
Farm analysts indicated that conditions in agriculture improved in
recent weeks. Rain relieved dry conditions in most of the District
and left the small grain crop in generally good condition. Hog
prices, already below levels of a year ago, fell further in recent
weeks; otherwise, most livestock prices were at or above year-ago
levels. District farmers entered 1992 with a stronger financial
position, thanks to relatively good 1991 crop yields and strong
livestock prices.