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Beige Book: National Summary

August 3, 1994

Business activity in most areas is continuing to expand at a solid pace, although a number of Districts report scattered indications of some slowing or slight declines. Retail activity, which had moderated during the spring, appears to have picked up recently. Most Districts report sales of autos, building materials, and apparel are improved since their June report.

Several Districts are reporting a tightening in labor markets that, in some cases at least, has resulted in faster wage growth. However, labor shortages appear to be concentrated only in a few skilled occupations. The range of commodities for which prices are rising appears to have broadened somewhat. However, a majority of Districts report that retailers are holding the line on price increases, and profit margins are narrowing in a retail environment that continues to be characterized as intensely competitive.

Loan demand appears to be fairly strong in most Districts. Commercial and industrial borrowing has improved in many regions and consumer lending is particularly active. Even in California, where the business trend remains flat, a moderate expansion in lending activity is reported to be underway.

Business Activity
Virtually all Districts are seeing an expansion of industrial activity, with only scattered observations of weakness. Industries such as motor vehicles, capital goods including industrial machinery, heavy trucks, microelectronics, computers, mining and construction equipment, and nondurable goods producers like chemicals and textiles, are all reported to be expanding their production.

Construction activity appears to be holding steady, although a drop- off in residential construction was prominently noted in many District reports. Higher mortgage interest rates are commonly blamed for a slowdown in home sales and new construction, although the Dallas District also notes a very low inventory of new homes. At least a share of the slower residential construction activity appears to have been offset by moderately stronger commercial building.

Retail markets are, in most regions, stronger than in the spring, particularly in the areas of autos, building materials, and appliances. Even apparel sales are noted as having improved since the June report, although not in all Districts. Several regions also report a reasonably busy tourist season.

Although activity has improved in retailing, competitive pressures have kept profit margins lean-discounts and promotions are frequently noted. Retailers are guardedly optimistic about prospects over the remainder of year, with continued strength anticipated in the new car market. There also appears to be a growing enthusiasm over the coming back-to-school season.

Prices
Price increases are noted among a broad range of business materials including finished steel and steel scrap, copper, wood, paper and paperboard, building materials including brick and glass, and wool and other textile products. Energy costs have also moved up a bit in the past month or so. In construction and some manufacturing industries, higher materials costs are thought to be exerting upward pressure on finished goods prices. The Philadelphia District survey of manufacturers taken in July indicates that nearly 25 percent of firms were implementing price increases, up from 15 percent in their June survey. In the Boston District, about half of the manufacturing contacts have raised or plan to raise prices, by up to 5 percent. However, virtually all Districts report that competitive pressures are holding prices down at the retail level and, presumably, retail margins are being squeezed.

Employment and Wages
Several Districts indicate a general tightening in labor markets and an increase in help-wanted advertising is cited. However, few Districts see any broad-based wage pressures as a result. Actual labor shortages are mostly limited to occupations such as machinists, technicians, clerical workers, construction workers, and truck drivers, although shortages of some entry-level positions are also noted.

Jobs expansion in the industrial sector is uneven by District and industry. The use of temporary workers and high levels of overtime are continuing, and some Districts report a continuing resistance by firms to permanently expand their payrolls. Manufacturing jobs are reported to be holding steady in the Boston and Richmond Districts. In Philadelphia, where manufacturing employment is also steady, an increasing proportion of firms report plans to add to their payrolls during the next six months. In other Districts, such as St. Louis, recalls and new hires are on the rise, and in Atlanta, jobs growth is seen in the chemicals, steel, and auto industries. Reports of jobs cutbacks are more rare, although several Districts report continued layoffs of aerospace workers, and the New York District notes some jobs losses as a result of restructuring in the financial and retail industries.

Agriculture and Natural Resources
The agricultural regions of the country are generally reporting favorable growing conditions, and some crop prices are falling in anticipation of high yields. Earlier concerns about a potential drought in the Richmond and Chicago Districts seem to have lessened with late spring rains. And, although rainfall has been excessive in some areas, such as in parts of the St. Louis and Minneapolis Districts, crop yields there are still expected to be normal, or better. Agricultural exports are also strong, helped in part by the falling dollar.

The energy producing Districts note only a small increase in drilling and exploration activity as a result of the rise in oil prices. The Dallas District indicates that drilling activity has been focused on natural gas, although oil drilling is expected to improve through the end of the year. Other mining operations are reported to be running strong; iron-ore production for the year is exceeding industry expectations.

Lending Activity
Commercial bank lending remains active with high levels of' consumer borrowing noted in virtually all Districts. Commercial and industrial borrowing is noted as having strengthened in the Philadelphia, Cleveland, Atlanta, Kansas City, and San Francisco Districts. The only major lending category that may have diminished is residential mortgages. Higher mortgage interest rates are widely cited, although interest rates are marginally higher on most types of credit. Credit standards are apparently changed very little and a farther decline in credit delinquency rates is reported.