August 5, 1992
District economic activity is increasing slowly. Most beige book contacts remain cautiously optimistic that growth will continue, although many respondents express uncertainty surrounding the presidential election and its impact on economic conditions. Overall, respondents indicate very little upward pressure on prices. Manufacturing activity continues to increase slowly. Service sector activity is weak but growing. Retail sales have increased moderately, and auto sales are rebounding strongly. Construction and real estate markets are slow with the exception of residential home construction which has picked up again. The oil and gas industry continues to contract. Financial institutions report stable loan demand, but many respondents are disappointed with the level of loan demand from quality borrowers. Some service sector, retail and auto respondents note an increase in cash purchases. Agricultural producers report good crop development although most commodity prices have declined slightly.
Manufacturing activity continues to increase slowly. Apparel production has risen with particularly heavy demand for denim products. Demand for electrical and electronic machinery is up slightly, helping to reduce inventories which remain too large. Fabricated metal producers report increasing sales, with demand strongest from the petroleum and petrochemical market. Prices are rising because of increases in the price of raw steel. Demand and prices for primary metal are unchanged overall, although demand remains weak for products related to oil exploration. Chemical producers report a slight decline in the demand for industrial chemicals but demand remains strong for pharmaceutical chemicals and chemicals containing freon. Environmental restrictions have increased chemical production costs, and some producers have moved production outside the U.S. to avoid these regulations. Demand for paper products is unchanged. Stiff competition has held prices stable despite rising pulp prices.
Demand for lumber has risen slightly, mostly for producers who sell within the District. Demand is strongest for residential home construction and remodeling. Lumber prices have declined, however. Stone, clay and glass production has increased. Demand is strongest from single-family homebuilding and highway construction. Inventories of concrete rock are low and selling prices have increased. Domestic demand for oil field equipment has been weaker than expected because of the weak natural gas market. Producers are optimistic about future strength in the domestic market, however. International demand for oil field equipment has declined and producers are expecting continued weakness. Petroleum refining producers report weaker than expected demand. Prices have increased but costs are rising faster. Demand for food and kindred products is generally stable. Several food wholesalers report strong vegetable sales. Okra and peanuts, however, face strong global competition.
Service sector activity is increasing very slowly. Accounting, legal, advertising, consulting and temporary service respondents report slight increases in sales. Contacts are optimistic but not enthusiastic about future activity. Overall, prices are generally stable. Several respondents note that most transactions are occurring without the use of credit.
Retail sales are increasing moderately. Respondents say that they are becoming more confident that sales will continue to increase, although at a slower than desired pace. Retailers report little or no price increases, and are continuing to reduce costs. Auto sales are rebounding strongly. Dealers note an increase in cash purchases.
Construction and real estate markets are slow with the exception of residential home construction. Residential construction picked up in June and July after a brief slowdown in May. Inventories are tight, and selling prices have increased in high demand areas. One respondent noted that homebuilding is not doing as well as might be expected given such low interest rates. Existing homes sales have fallen. Multi-family rental demand remains steady but below expectations. Office rental demand is steady at low levels. Office sales have picked up, but prices are 50 percent of construction costs. The industrial market is unchanged with moderate demand at low prices. Nonbuilding construction has increased recently because of increased highway construction which is expected to continue rising.
Crude oil prices have been averaging between $21 and $22 per barrel, depending upon the latest news from Iraq. The rig count has improved somewhat from an all-time-low in June. The all and gas industry continues to contract, however. A survey of oil companies shows that they are cutting domestic exploration spending. A very cold spring and a heat wave in the South have kept natural gas prices moving upward. January futures prices have climbed to above $2.00 per million Btu, about a 69 percent increase from the January 1992 average spot wellhead price.
District financial institutions report stable loan demand. Many respondents, however, are disappointed with the level of loan demand from quality borrowers. The residential real estate market, however, has been supporting good loan demand from new loans and refinancings. Liquidity remains plentiful. Loan demand is expected to remain flat over the next three months.
District agricultural conditions have improved. Producers report good crop development, with particularly good peach, orange and vegetable production. Most commodity prices continue to decline. Livestock prices have remained stable for the past month but are well below last year's prices. Severe weather conditions earlier in the year have delayed production and raised costs in some areas.