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Beige Book: National Summary

March 10, 1993

Reports from the twelve Federal Reserve districts indicated that economic growth continued in early 1993. Trends in economic activity seemed increasingly uniform by region, and although New England and California remained relatively weak, signs of growth were apparent in several sectors in each of these regions. Nationally, retail sales growth generally held up well in early 1993 after a strong holiday season, although inclement weather may have constrained sales in several districts during February. Reports from manufacturers generally indicated continued moderate expansion in activity, with production gains led by consumer durable goods and household items. Commercial and industrial loan demand remained flat or increased only modestly, however, with most districts reporting that loan growth was concentrated in consumer and home mortgage lending. Reports on employment gains were mixed, but still suggestive of some overall improvement in labor markets. Scattered price increases for basic materials were noted, and lumber price increases were widespread, but district reports continued to show little evidence of generalized upward pressure on prices.

Consumer Spending
Retail sales growth held up well in most districts in January and early February, with contacts in several regions reporting better- than-expected sales following a strong holiday season, although some contacts noted that adverse weather held back sales during February. Relative strength was reported in sales of durable goods, household items, or big-ticket items by retailers contacted in Cleveland, Richmond, Chicago, Minneapolis, and Dallas. Some department store contacts reported double-digit sales increases in St. Louis. In the Northeast, Boston noted some strengthening in sales after mixed results for the holiday season, and retailers in the New York district reported better-than-expected sales gains during January. Relative weakness was noted in parts of the Dallas and San Francisco districts, although one large retailer stated that conditions in California had improved somewhat. Atlanta reported some slowing in the pace of growth after a strong fourth quarter, and some retail contacts in Boston stated that sales gains slowed in late February. Bad weather reportedly impacted sales in February for retailers contacted by Philadelphia, Chicago, and Kansas City. At the same time, Richmond and Minneapolis both reported strong winter tourism seasons, and tourism was also a bright spot for contacts in Atlanta and Dallas. Several districts noted relatively low levels of discounting for this time of year, citing lean inventories in winter goods, and a good start for sales of spring merchandise was reported by retailers in the Philadelphia and Cleveland districts. Surveys conducted by several district banks found that retailers' expectations were generally optimistic, and planned inventory accumulation was underway in several cases, although ordering and inventory stances generally remained somewhat cautious.

Manufacturing
Reports generally indicated continued moderate expansion in industrial activity, with signs of slowing in some markets balanced by accelerating momentum in others. Production growth was led by output of consumer durable goods, principally goods related to housing activity as well as motor vehicles and parts. Above-average gains in production of appliances, furniture and residential construction materials were reported by contacts in Boston, Cleveland, Atlanta, Chicago, and St. Louis. Robust sales gains in construction-related manufacturing industries were noted in Dallas. Production gains among auto parts manufacturers were cited by Boston, Atlanta, and Chicago. Several large domestic automakers contacted by Cleveland expected to meet March production schedules calling for output to rise 20 percent from a year ago. Contacts in several districts expressed concern about sales in Europe, but St. Louis stated that strong exports continued to bolster production for a number of manufacturers in the region, and each of the ports contacted in the Richmond district expected exports to pick up over the next six months. Relatively weak results were noted for firms producing energy exploration and production equipment, firms in the paper industry in the Minneapolis district, and aerospace and defense companies reporting in Boston, Cleveland, Atlanta, and San Francisco. At the same time, however. San Francisco noted that conditions were generally improving for other manufacturers in the region, with relative strength noted for manufacturers of computer equipment and software, capital goods, and biotechnology products. A broad majority of manufacturers surveyed in New York and Philadelphia expected stable or increasing activity, and Philadelphia also noted a pickup in the demand for industrial space. Broadening strength in output was indicated by the expectations of a group of capital goods producers surveyed in Cleveland, although Cleveland also noted a modest slowdown in growth in the relatively robust heavy-duty truck market. Sales gains reportedly rose among a wide majority of manufacturing contacts in the St. Louis district, with orders exceeding expectations for many firms.

Banking
District reports indicated sluggish to modest growth in bank lending activity, with growth concentrated primarily in consumer and home mortgage lending. Surveys of bankers generally indicated flat to modestly stronger commercial and industrial loan demand. Banks surveyed by Kansas City and San Francisco reported that commercial and industrial loan demand was largely unchanged, while reports in Richmond, Atlanta, and Chicago indicated somewhat stronger increases in demand. However, Atlanta noted some disappointment among bankers in the pace of improvement. The Philadelphia, Cleveland, and Dallas districts reported some of the strongest gains in manufacturing activity in the nation, but reports from bankers surveyed by each of these districts indicated that commercial and industrial loan demand was only flat to slightly increasing. Cleveland noted that potential borrowers were relying on strong internal cash flow or alternative sources of financing. Still, where surveyed, bankers' expectations for future growth in business lending were generally favorable. New York reported a sharp increase in the willingness of small and medium-sized banks to make some forms of business loans, although San Francisco observed that financing for small businesses remained tight. Consumer and mortgage lending was stronger than business lending across most regions, and most districts also noted renewed strengthening in home mortgage refinancing activity as well as new residential mortgage lending.

Real Estate/Construction
District bank reports on new and existing home sales and residential construction were almost universally positive Underlying trends in housing activity remained relatively robust during a seasonally slow period for many areas, although inclement weather adversely impacted results in several regions. Declines in mortgage interest rates, increased buyer confidence, increased new home sales activity and/or lean inventories reportedly led to improved appraisals of market conditions by homebuilders in New York, Philadelphia, Atlanta, Kansas City and Dallas. San Francisco noted that sales activity increased in California, although prices remained soft. Residential construction activity was one of the strongest aspects of the report from the Minneapolis district. Weather difficulties were reported to have constrained activity in parts of the districts covered by Atlanta, Richmond, Kansas City, and San Francisco, although San Francisco also reported that housing starts an Arizona rose to their highest level in ten years. Most reports indicated little sign of improvement in commercial real estate markets, but reports of new deterioration were also thin, and Richmond noted an increase in activity and declining vacancy rates in both industrial and office markets.

Agriculture
Reports on agricultural conditions were mixed but generally favorable. Increased rains and snowpack accumulation were aiding crop production in several regions, although St. Louis noted some concerns that substantial rainfall may have damaged the winter wheat crop, and flooding threatened the winter lettuce crop in Arizona. Crop prices were reported weak or below year-earlier levels in Richmond, St. Louis, and Minneapolis, with Richmond noting some concern about the potential impact on 1993 cash receipts. San Francisco reported favorable conditions for livestock producers, with good spring grazing expected. Higher beef prices were reported to have improved returns for ranchers and feeders in the Minneapolis district, although Kansas City noted that harsh winter weather slowed weight gains, increased death losses, and raised production costs for cattle feeders in that region. Still, bankers in the Kansas City region reported that farm borrowers generally remained in strong financial condition, with timely payments reported on agricultural loans.

Employment
District batik reports on employment gains were mixed, but suggestive of some strengthening overall. Stable or increasing employment was more consistently noted in trade and service sectors than in manufacturing. A survey of retailers in the Boston district indicated little change in employment at existing locations, but about one-quarter of these firms reported plans to open new stores and hire new workers. Similarly, Cleveland reported that retail employment was following the normal layoff pattern after the holiday season, but expansion by several chains was expected to prompt hiring gains. Reports in the Richmond district indicated that retail employment was expected to improve over the next six mouths. Increased hiring by industrial firms was reported in some regions, helping to offset other reports of continued pressure on manufacturing employment. Significant layoffs in aerospace and defense-related industries were noted by San Francisco and Atlanta. Employment reportedly showed little sign of strengthening in Minneapolis, and layoffs proceeded at paper mills in that region. Producers were largely comfortable with current employment levels in the St. Louis area, but many of these contacts reported improved prospects for hiring Most of the manufacturing firms contacted by Philadelphia expected employment to remain flat, although roughly one-quarter of these firms expected hiring gains. Some manufacturing firms in the Cleveland, Chicago and St. Louis districts have been rehiring previously laid-off workers. Temporary help firms in Chicago and Dallas reported increased demand from manufacturing firms, and Dallas also stated that many manufacturers reported permanent employment gains. Several personnel supply companies contacted in the Chicago district reported increased permanent hiring of individuals previously working on a temporary basis.