Beige Book: National Summary
January 21, 1993
Reports from the twelve Federal Reserve districts indicate continued improvement in economic conditions across much of the nation. Conditions are mixed, however, in the San Francisco district where weakness in California continues to offset moderate growth in other district states. Retail sales during the holiday season were significantly better than a year earlier in most districts, generally fulfilling or exceeding retailers' expectations. Manufacturing activity is steady to increasing moderately in nearly all districts, but this improvement may not be reflected proportionately in labor markets. District reports contain little evidence of significant upward pressure on prices. While the residential sector continues to improve in most districts, commercial real estate markets generally remain weak. Overall loan demand at financial institutions is rising slightly in most districts. In agriculture, record yields of fall crops have pushed prices down, but gains in the livestock sector are expected to help boost overall farm income slightly.
Retail
Sales in the holiday season posted significant year-over-year gains
in most districts, with mixed results in the San Francisco district
and in the Northeast. Sales gains were smaller in California than in
other states in the San Francisco district, and a minority of
retailers in the Boston district reported flat sales. Retailers in
several districts reported sales better than expected. In a number
of districts, merchants noted that sales gains were achieved without
the heavy promotions and aggressive price cutting of recent years.
A wide range of merchandise apparently sold well, with some regional variations. In the St. Louis district, sales mainstays included jewelry and smaller appliances and electronics items. Atlanta reports significant increases in sales of goods ranging from apparel to big-ticket durables. In the New York district furniture and rugs sold well. Merchants in the Chicago district noted that sales held up well in the post-holiday period, especially sales of big ticket durables, including major electronics, appliances, and furniture. Retailers in the Richmond, Atlanta, St. Louis, and Kansas City districts expressed optimism for further sales growth in early 1993.
Manufacturing
Manufacturing activity is reported to be steady to increasing
moderately in nearly all districts. Activity appears to be flat to
expanding modestly in the Boston, Philadelphia, and Richmond
districts. Stronger but less than robust activity is reported by
Cleveland, Atlanta, Chicago, St. Louis, and Dallas. San Francisco
reports that Twelfth District manufacturing activity continues to
contract, due to further weakening in aerospace and defense-related
industries in southern California and Washington; manufacturing
shows an improvement, however, elsewhere in the district.
Manufacturing activity in the Cleveland and Chicago districts has been boosted by increased motor vehicle production and related increases in the output of steel and tires. As a result, Cleveland reports rising capacity use ratios for some steel producers, while strong demand has pushed production close to capacity for some tire producers. Boston, Atlanta, and Dallas report some increases in the production of housing-related products, such as furniture and construction materials. Capital goods producers reported an uneven but rising trend in their business, with uncertainty about a possible investment tax credit leading to some postponements of orders.>
The moderate improvement in manufacturing activity may not be reflected proportionately in labor markets. Boston reports that half of its respondents expect their work forces to remain at the current level, while the remaining respondents expect to implement reductions. Most of the manufacturers contacted in the Philadelphia district were holding employment steady. In the Cleveland district, most manufacturers believe they can increase production with their existing work forces. Some firms in the St. Louis district expect to add jobs, however, and a major home appliance manufacturer has recalled a large number of laid-off workers and expects to add substantial new hires. In the Minneapolis district, layoffs by two computer equipment firms and an airline have been partly offset by new hiring elsewhere in the district.
Construction and Real Estate
The residential sector continues to improve in most districts. Home
sales, as well as housing starts and permits, were generally better
in 1992 than in 1991. Lower mortgage rates, increased consumer
confidence, and pent-up demand were cited as responsible for the
improvement. Boston reports slow but steady improvement in its
residential real estate market. While Kansas City notes a recent
slowing in housing activity, Minneapolis reports its busiest winter
construction season in six years. Some glimmers of hope for
multifamily construction also appear, as both Atlanta and Dallas
report rising occupancy rates and firming rents. San Francisco
reports mixed conditions in its residential sector. House prices
have weakened further in southern California and softened in parts
of Washington, but have risen in Oregon and Utah.
Commercial real estate markets remain generally weak, but there are some positive signs here and there. The office vacancy rate in downtown Buffalo, while still high, fell in 1992 for the first time in four years. Activity in the Richmond district's nonresidential sector has increased in recent months, with vacancy rates falling in some areas and more inquiries from businesses in strong financial condition. Nonresidential construction has been expanding in the St. Louis area, primarily in public works and new factories. Minneapolis also reports a sharp rise in public works contracts, as well as in construction of some new shopping malls across the district. One of the new malls was built in a border town to cater to strong demand by Canadian shoppers. Nonresidential real estate markets remain weak in much of the Dallas and San Francisco districts. Vacancy rates are still high in Dallas, but prices there have fallen enough to bring a pick-up in property sales. Several markets are weak in the San Francisco district, where commercial rents and property values are depressed by high vacancy rates and continued employment losses.
Financial Services
Financial institutions report a further slight increase in overall
loan demand in most districts. Philadelphia, Cleveland, Richmond,
Atlanta, St. Louis, and Kansas City report slow growth in business
loans. New York reports slow growth in business loans by small and
midsized banks. Most districts note a drop-off in mortgage lending,
reflecting reduced demand for refinancing. Dallas reports little
change in loan demand, and San Francisco notes mixed conditions in
the Twelfth District. In California, loan demand is weak and the
volume of outstanding loans continues to fall. Son growth in loan
demand is evident, however, in Arizona, Utah, and Washington.
Agriculture and Resource-Related Industries
Despite some unseasonably wet weather in parts of the Richmond, St.
Louis, and Kansas City districts, fall crop yields have been near
record levels. Large supplies of corn and soybeans have pushed
prices down, thus restricting income gains for crop producers. But
lower crop prices also mean lower feed prices and likely income
gains for livestock producers. Overall, farm income is expected to
be up slightly in 1993 and farm operators are seen as likely to
maintain their solid financial condition.
>Metal mining continues to be weak in the Minneapolis district, where slack orders have led to two iron mine shutdowns and substantial layoffs. Dallas reports a slowing in energy industry activity, although Kansas City cites a recent rise in the number of operating drilling rigs in its district. Both districts agree that drilling is likely to drop sharply in the near term, however, because certain tax incentives for drilling expired at the end of 1992. Dallas also notes that low margins have led many refiners to reduce their capacity.
Conditions in the lumber and wood products industry vary somewhat across the nation. St. Louis notes that orders at southern pine lumber mills are down slightly, although production remains well above last year's level. San Francisco reports that orders for wood products are firm and inventories are low, while Minneapolis reports strong demand for lumber and for plywood substitutes.