Beige Book Report: Chicago
June 23, 1993
Summary
Economic expansion in the District continued in May and early June.
Reports from retailers and consumer goods manufacturers suggest that
retail sales growth picked up modestly, aided in part by pent-up
demand after unseasonably bad weather in the first quarter.
Manufacturing activity continued its expansion, with slowing growth
in some sectors offset by improving results in several industries
that had previously been weak. Motor vehicle production continued to
gain momentum, with output plans for the third quarter calling for a
significant increase over year-earlier levels. Survey-based measures
and reports from individual businesses gave no evidence of
significant upward pressure on prices.
Retail Sales
Reports from large retailers and manufacturers of consumer goods
suggest that consumer demand increased in the District in recent
months. A large department store chain reported that sales growth in
the Midwest increased moderately (on a seasonally adjusted basis) in
May and early June, after a snapback in April from weather-depressed
levels in the first quarter. Sales strength remained concentrated in
durable goods, notably appliances and home improvement items. Credit
utilization continued to rise and delinquency rates continued to
improve. A large discount chain reported improvement in traffic and
increased sales momentum during May and early June. This firm
expected same-store sales growth to improve modestly in the latter
half of 1993. A manufacturer of home entertainment products reported
that shipments gains continued in the early part of the second
quarter, and stated that feedback from dealers suggested that sales
growth should continue into the summer. This contact stated that
"inventories are not a problem, either for us or our dealers." An
electronic industries association reported that year-over-year
growth in retail sales of consumer electronics slowed modestly
during the second quarter, but stated that "sales are still going
well, after 1993 got off to a great start."
Manufacturing
Purchasing managers' surveys and reports from individual
manufacturers indicate that production growth also continued in
recent months. The production component of purchasing managers'
surveys in Chicago and Milwaukee followed the national pattern by
slipping back marginally in recent months, but both of these
indicators remained at levels consistent with continued expansion in
activity. The production component of the Detroit survey climbed
again during May to a level above those for Chicago, Milwaukee and
the nation as a whole, reflecting relative strength being
experienced in the motor vehicle industry. Purchasing managers
surveys conducted in Western Michigan were also indicative of
somewhat stronger production trends than those in Chicago and
Milwaukee.
Reports from individual manufacturers west mostly positive. After lagging the recovery in much of the District's industrial sector, several manufacturers of construction machinery increased their production plans in recent months. One of these firms cited increased economic activity, growth in corporate cash flow, and favorable financial conditions as leading to "an upbeat domestic environment for the first time in a long time." The turnaround in demand for this firm's products has been led by housing activity, but demand for equipment used in nonresidential construction recently began to improve as well. A manufacturer of heavy-duty trucks reported that orders continued to run at high levels, but stated that "there may be some chinks in the armor," noting modestly increased cancellation rates. This contact noted that recent strengthening in medium-duty truck orders has been concentrated in leasing and rental firms. A heavy-duty truck industry analyst reported that production continued to rise on a seasonally adjusted basis during May. A large supplier to heavy-duty truck manufacturers reported that the pace of expansion in its own production has leveled off somewhat, but this contact also noted a recent pickup in orders from medium-duty truck manufacturers, a market that had been dormant for some time. A steel industry analyst reported that order books for integrated manufacturers are generally full into the fourth quarter, primarily due to strength in demand from auto and appliance producers, but also due to recent strengthening in construction and, to a lesser extent, agricultural machinery markets. A diversified manufacturer of heavy machinery stated that orders for its oilfield machinery and material handling equipment remained relatively weak. A manufacturer of plumbing products expressed some concern about recent trends in housing activity, but another producer reported that shipments of equipment linked to housing construction continued to run at good levels.
Autos
Production of light vehicles continued to gain momentum in May and
early June, and several large automakers released third quarter
assembly schedules calling for significant further improvement in
production. Contacts with several automakers recently revised upward
their forecasts for vehicle sales in 1993. One stressed that vehicle
sales should not be seen as being detached from the rest of the
economy; "modest gains in employment and income, reduced consumer
debt, low interest rates and pent-up demand are all factors driving
the recovery forward." Another large automaker remained confident
regarding future sales growth, especially on the retail side of the
market. This contact stated that increased production schedules
appear very reasonable, in part because dealer orders have been
outpacing sales. A large bank reported that commercial and
industrial loan growth in Michigan has been running above the
national average, citing strength in demand from auto suppliers.
Auto suppliers generally reported stronger orders and improved
assessments of the potential for further gains in the latter half of
1993. One supplier expected sales gains in the second and third
quarters to run in line with those in the past six months, with all
of the expected gains arising due to increased volume; "customers
are not paying our price increases."
Prices
Purchasing managers' surveys suggest that price pressures in the
District's industrial sector moderated in recent months, while
reports from a wide variety of individual firms gave no evidence of
significant upward pressure on prices. The price component of the
Chicago purchasing managers' survey rose at one of the highest rates
in the past decade over the five months ending in March, then fell
back somewhat in April and May. The price component of the Detroit
survey also gave back some ground in recent months. Two large
retailers continued to emphasize that intense competitive pressures
in retailing are still holding down prices to consumers. One of
these firms stated that price increases are generally running in
line with, or slightly lower than, those experienced at this time
last year. A manufacturer of consumer products also noted that
intensified competition at the retail level has left little room for
price increases by producers of consumer electronics. A chemical
producer stated that overcapacity in production has dampened price
increases in this segment of the company's business, while input
price changes (except for steel) also have been relatively modest. A
producer or heavy machinery expressed skepticism about the
sustainability of recent or continued increases in steel prices. An
auto supplier noted some new price increases in purchased materials,
but stated that they were modest and selective by type of input.
Earlier in 1993, some manufacturing contacts reported seeing larger
price increases than normal for that time of year, but these posted
increases were also accompanied by deeper discounts. A manufacturer
of heavy equipment experiencing renewed strength in most of its
business lines cited the lack of a generalized upturn in demand for
commodities as the most important factor leading sales of mining
equipment to lag the companywide average. One manufacturer in an
international market stated "many of the price increases we do see
are coming from the import side."
Agriculture
The pace in crop plantings improved considerably in recent weeks,
overcoming most of the earlier delays from cool, wet weather. The
delays may result in some modest shifting in the mix of crop acres.
However, analysts believe that virtually all of the intended corn
acreage in District states was seeded prior to the passing of
critical planting dates. (June 15 is generally regarded as the
latest acceptable date for planting corn.) Early crop development --
both for field crops and for much of the District's vegetable
acreage -- is below normal due to the late plantings. However,
moisture supplies in most areas are adequate to abundant and the
return of warmer weather brings hopes for faster crop development.