Beige Book

TABLE OF CONTENTS SUMMARY .................................................. i First District - Boston ................................... I-1 ............................... II- Second District - New York Third District - Philadelphia .............................. IV-1 Fourth District - Cleveland ................................. V-1 Fifth District - Richmond Sixth District - Atlanta ........................... III-1 ................................. VI-1 Seventh District - Chicago .............................. VII-1 Eighth District - St. Louis ............................ VIII-1 IX-1 Ninth District - Minneapolis ............................ Tenth District - Kansas City .............................. X-l Eleventh District - Dallas ............................... XI-1 Twelfth District - San Francisco ....................... XII-1 SUMMARY* Overview Strength in retail to contributing Still, for and Minnesota growth economic a few sales isolated Michigan, continues in most regions--the the State to be a major of parts the mining areas of Oregon, factor country. of northern and the energy-dependent areas of the Dallas District--the economic recovery has not yet begun. But in many of the regions that bore the brunt of the 1982 recession--Cleveland, Pittsburgh, St. Louis and upstate New York, for example--the recovery is well established. The 1983 Christmas season looks to be the best for retailers since 1978. In manufacturing the reports are of across-the-board improvement, while real estate sales and construction activity appear to be suffering little more than seasonal slowdowns in some areas and are quite strong in others. On the financial side, business loan demand at banks has been sluggish, reflecting the strong cash posi- tion of many firms. Agriculture, however, remains a troubled sector. Retail Sales With striking uniformity the twelve Districts report very strong growth in retail sales. Federal Reserve Apparel, home *Prepared at the Federal Reserve Bank of New York. furnishings, the and home appliances fastest increase. moving items, are most and frequently mentioned as automobile sales continue to In Boston and Dallas retail sales are so strong that many stores report especially tight inventories. Only Chicago and Kansas City report a somewhat mixed picture, with the former noting a few areas of weakness and the latter mentioning a general slowdown in sales growth over the past three months. Despite retailers the continue continued to be marked cautious. improvement Chicago and indicate that retailers have been slow to expand only much Philadelphia reports optimism in San sales, Francisco inventories, and about rapid growth continuing into next spring. Manufacturing and Employment Manufacturing activity continues to expand: backlogs are increasing, acquisition plans. mostly at aimed productivity districts Several activity in the pulp and orders Cleveland many firms are implementing Capital spending, however, expansion. Defense and have indicates report paper started that improvements and rather than high aluminum products again manufacturing products are now operating at close to capacity. capital still appears to particularly increasing plants orders are up, in St. flat be capacity levels of industries. Louis, rolled and steel The capital goods industry is beginning to pick up in New York and Dallas, but continues to lag the recovery. informants indicated the level of activity in One of Chicago's the machine tool industry remains at only about 50 percent of a "good" year. San Francisco and Cleveland report that manufacturers, like retailers, remain quite cautious about accumulating inventory. The unemployment expansion rates in industry nationwide. continues However, to the lead labor to lower markets in Chicago and parts of New York are still weak, with both employment and unemployment lower than at this time last year. Real Estate and Construction Conditions in the real estate market differ somewhat across districts, but sales and construction activity appear to be strong in more places than they are weak. and Atlanta levels of activity In New York, St. Louis, Dallas remain high, commercial sector, although analysts in Dallas especially in the expect a slowdown before long. Finance Commercial and industrial loan demand has been sluggish in recent months, and most districts attribute positions in the business sector. this to strong cash Only Cleveland reports a general increase in loan demand, while San Francisco notes an increase in such lending but only by smaller banks. District expect business lending to Bankers in the Philadelphia pick up in the spring as corporations use up their cash and begin to finance plant expansion and inventory accumulation. Consumer lending is strong in most districts, picture is mixed with respect to mortgage lending. but the Richmond reports that the recent stabilization of mortgage interest rates has led to some increase in demand. Cleveland, however, is still experiencing a slowdown in lending attributable to the earlier rise in mortgage rates. Agriculture The PIK program has added to the 1983 incomes of farmers, but not all farmers are out of trouble. Atlanta, Minneapolis and Dallas report that increases in feed prices have narrowed margins on livestock operations. I.1 FIRST DISTRICT - BOSTON The recovery is gaining in strength and broadening in the First District. Retailers report healthy sales gains in recent months and an optimistic outlook for the critical holiday selling season. are at planned levels or perhaps a little higher. Inventories Manufacturers are also experiencing order increases and are looking forward to a good 1984. The demand for capital goods remains weak overall but signs of an upturn are increasing. In construction, the number of multi-unit housing permits authorized continues to fluctuate sharply from month to month. Permits for single unit housing are holding up despite increases in mortgage rates. Most state governments in New England experienced difficulty balancing their budget in FY83 and increased a variety of smaller taxes. As a group, the six states will move from a small revenue shortfall in FY83 to a small surplus in FY84. Retail Merchants in the First District report that recent sales growth has been strong. The results were generally better than expected, although one department store came in slightly below its "very ambitious" plan. Growth occurred across the board, but lines cited as especially strong included telephones, electronics, toys, domestics, and energy-saving do-it-yourself products. Two chains had more growth in Rhode Island than elsewhere in the region, probably because the recession more seriously dampened last year's performance in the state. Local newspapers recently reported concern among retailers that some products would not be available toward the end of the Christmas season. However, the department stores contacted said they were not worried about product availability (except for widely-expected shortages of Cabbage Patch dolls) In this light, inventories slightly above plan were seen as a positive development. A building goods specialty house, whose business is not at all Christmas-related, also reported satisfactory inventory levels. In spite of a slow start because of bad weather the day after Thanksgiving, the Christmas season is expected to be very good. One merchant said consumers are "getting back into the swing of buying" now that the uncertainty and instability of the recession appear to be behind. Manufacturers Manufacturers in the First District report increasing activity. Areas that were strong before continue to do well - defense, consumer goods, housing-related products, consumable supplies and components. The demand for capital goods is still weak overall, but signs that an upturn is near are increasing. Some capital goods manufacturers have seen substantial order increases in recent months; most report more requests for quotations. The emphasis in capital spending is on modernization and productivity enhancement rather than expansion. a few are still cutting back. people and engineers. Most firms are hiring, but Those being hired are direct labor, sales No one plans to increase indirect and support staff. All the firms contacted are optimistic about 1984 - even firms that have seen little pickup to date. However, one machine tool representative noted that 1985 would also have to be good for the firm to experience a real recovery, and several in this same industry said that foreign competitors have made permanent gains in market share. Much of the optimism about next year is based on the expectation that the auto industry will make some very serious capital commitments. Materials prices are expected to increase only modestly with the exception of some metals (aluminum, brass, zinc) and possibly pulp. Construction The number of housing permits authorized in New England declined in September. Most of the decrease was in multi-unit permits, which have fluctuated considerably during the past year. Single unit permits fell only slightly and remain at approximately the same high level as in the spring before mortgage rates increased. The effective rate on regular 25 year mortgages in New England averaged just above 14 percent in September, compared to just below 14 percent in mid-summer. A building materials specialty house reported sales to contractors have been very strong all year, with 30 to 50 percent year-over-year growth month after month. State Government Finances Most of the New England states experienced budget difficulties in FY83; New Hampshire, Vermont and Connecticut ended the year with deficits. All states have based FY84 budgets on projections of a moderate economic recovery. Most have increased combinations of corporate, cigarette, gasoline and alcohol taxes. tax. Rhode Island increased its personal income Massachusetts is stepping up the enforcement of tax collections. For all six states together, total state revenues are projected to increase 8 1/2 percent, expenditures 7 percent, and the region will move from a small overall deficit to a small surplus. I.4 Banking The rush to interstate banking continues. Bank of Boston, the largest bank in Massachusetts and the New England region has agreed to acquire Rhode Island's third largest bank. This plus other recent acquisition agreements will give Bank of Boston a presence in five of the six New England states. II-1 SECOND DISTRICT-NEW YORK Introduction The pace of the recovery seems to be picking up a bit in the Second District. that early Consumer spending is strong, and retailers say indications point to a good holiday season. Manufacturing activity continues to expand at a moderate pace, and observers over. of the upstate economy feel that the worst is finally Homebuilders are working at capacity, and have become more optimistic about the outlook for next year. Office construction remains strong and leasing activity continues to grow in much of the District. months Spending on infrastructure should be substantial in the ahead since voters in New York and New Jersey recently approved the issuance of $1.4 billion of transportation bonds. On the in financial side, consumer borrowing strengthened somewhat, part due to stronger demand for auto loans. Consumer Spending Retail November Several and spending the chains, gains running improved at the further District gamut in stores from late were October broadly high-income to and based. discount stores, reported double-digit increases over the comparable period a year ago. The sharpest improvement occurred in an upstate chain which had been doing poorly most of the year. were reported at planned levels or even Sales at most stores higher, respondent noting a weaker than expected increase. with only one Furniture and II-2 various demand. kinds of apparel Inventories were were mentioned generally as products reported levels, increasing only in line with sales. at in strong satisfactory However, one chain mentioned problems in keeping up with demand for a few hot items. Most District retailers anticipate that this Christmas season will be stronger than last year's. Consumers have begun their buying earlier, and sales for the first few days of the season have been quite encouraging. Construction and Real Estate Residential construction strong remains District, aided by unseasonably mild weather. throughout the However, shortages of skilled labor and some materials continue to delay building activity in New York City suburban areas. Homebuilders remain booked through the spring and the outlook for next summer is generally improving. Customer traffic has been heavy and increasingly composed of serious buyers. Nevertheless, a few builders, fearing higher interest rates, are concerned about possible reduced demand in the months ahead. The nonresidential real estate market remains active and has shown further improvement. New leasing commitments are being made around the District at a rapid pace. Manhattan is particularly strong, and as a result, confidence is now growing in the ability of this market construction. to absorb the new office space currently under However, some concern has developed about possible overbuilding in parts of New Jersey and Connecticut. II-3 The State governments of New York and New Jersey have received voter approval for increased borrowing for infrastructure renewal. In November's $1.4 billion was elections a total for the two states authorized for extensive upgrading of of roads, bridges and public transportation. Business Activity A activity further occurred continues moderate during strong with expansion recent some in weeks. firms, which manufacturing The automotive had been sector using overtime, now allow new hiring. Capital goods manufacturers have also begun to after months sufficient their existing workforce show some improvement. reporting District demand to Several have now returned to full workweeks of operating on shortened schedules. In addition, spending for plant and equipment is underway or planned by various industries such as computers, medical equipment, and health and beauty products. Some upstate areas that were particularly hard hit by the recession now report a much more optimistic outlook and a feeling that the worst is over. of purchasing managers In Buffalo, for example, the latest survey showed the highest percentages reporting increased new orders and employment in several years. Unemployment rates in most District labor market areas are generally below their levels of a year ago. However, while employment has been increasing in recent months, it still remains well below year-ago levels in several areas. II-4 Financial Developments Consumer borrowing region. Discussions District indicate aggressive in with that the has bank most consumer increasing advertising. strengthened somewhat representatives institutions loan market by in are in the Second becoming reducing the rates more and The demand for auto loans, in particular, has been up sharply because of bank promotions, termination of auto finance company incentives, and introduction of new car models. Some banks also report increased issuance of bank credit cards and higher outstanding balances on these accounts. In line with the national trend, District stressing adjustable rate mortgages (ARMs). banks have been About half of new mortgages are ARMs, and several institutions report that all their new mortgages are adjustable rate. However, portfolios still remain heavily weighted with fixed rate instruments. The spread between interest rates rate on fixed rate and adjustable currently at about 2 percentage points. only slightly in recent months. contracts is This spread has narrowed III-1 THIRD DISTRICT - PHILADELPHIA Third District contacts report that the regional economy has posted mixed gains in November. Local manufacturing continues to expand despite some downward seasonal pressure, and retailers report yet another strong month in November. The financial picture has been mixed; com mercial loan demand remains disappointingly weak, while retail lending continues to make significant advances. In housing, contacts report that continued high mortgage rates are resulting in a dip in Nove mber sales. The outlook for the Third District economy is for continued expansion into the Spring. Manufacturers expect to make significant capital investments and retailers anticipate very strong sales over the next six months. Bankers are forecasting a long awaited pickup in C &I loan activity. Real Estate and Construction Third Philadelphia, District housing has decreased activity, slightly in except for that November from in downtown October levels. Although business remains ahead of the depressed levels of a year ago, most contacts report spotty or declining sales over the last six weeks. The most often cited explanation for recent poor sales performance is that higher mortgage interest rates, and uncertainty over future rates, are keeping all but the most pressured buyers out of the market. New starts are also very slow this month, owing to both declining sales and seasonal conditions. Manufacturing Although seasonal factors had a damping effect on area industry this month, responses to the most recent Business Outlook Survey still indicate that local factories continued to post gains. About 40 percent of the executives III-2 surveyed report improved conditions in November while only 6 percent indicate a decline. New orders and shipments have shown widespread growth, and unfilled orders and delivery times have advanced slightly as well Inventories, led by a significant buildup in durables, appear to have leveled off from a twoyear decline. Employment also has also improved in November, and both payrolls and the length of the average workweek have been increased. Despite the continued strength of the expansion, respondents have tempered their outlooks somewhat this month. While 62 percent of the executives polled predict that the recovery will continue into next Spring, November's survey records the smallest group of optimists so far this year. Nevertheless, solid increases are still anticipated in both new orders and shipments, and manufacturers expect to hire more workers and to expand working hours between now and April Additionally, the percentage of respondents planning to increase plant and equipment expenditures over the next six months is the highest it has been in two years. In short, the outlook is for continued growth. Industrial prices have climbed again this month. Input price increases have been significant in November, but slightly less so than in October, reflecting the mild seasonal easing of producer activity. Prices received for finished goods, on the other hand, have posted more widespread gains this month than last. Looking ahead, 70 percent of the manufacturers surveyed predict higher materials costs in the next six months, while 60 percent expect to receive higher prices for finished goods over the same period. Retail Retail sales in the Third District have shown steady improvement over the last six weeks. As contacts had anticipated, year-over-year gains are running about 10 percent in November, and they are expected to maintain that pace throughout the holiday shopping season. exceptionally good day, despite an early snow, increases of 20 percent from a year ago. "Black Friday" was an with some stores showing Higher consumer confidence levels and higher real incomes prompted an early opening of the Christmas shopping season this year, according to contacts, which could well turn out to be the best season since 1978. computers and furnishings. Retailers report their heaviest sales to be in personal related equipment, entertainment electronics, and home Due to a significantly reduced need for promotional activity, profit margins in area stores have risen from October levels. Merchants remain confident about sales over the next six months and currently are forecasting increases of 8 percent to 9 percent over strong Spring 1983 figures. Accordingly, retailers plan to allow their inventory levels to remain well above those of a year ago. Stores have built up stock over the last six weeks in preparation for the holiday surge, and contacts say inventories will remain 2 percent to 10 percent higher than a year earlier into the Spring. Financial Area banks continue to report mixed loan activity in November. Commercial loan volume has risen only slightly in the last six weeks, far below the anticipated level. Once again, many bankers feel that the improved internal cash flow of area companies is weakening loan demand. Reports on year-over-year loan volume vary from 12 percent below to 20 percent above November '82 levels. Although banks are struggling with C&I loans, they are enjoying consistently steady growth in retail lending. Led by the aggressive marketing of credit cards, consumer loan volume currently stands between 5 percent and 13 percent above levels of a year ago. III-4 Third District bankers are optimistic about loan demand'for the next six months. They believe that companies will soon exhaust their internal funds and turn to borrowing to support investment in inventories, plant, and equipment. Consumer lending is also expected to be very active through Spring, and bankers plan to continue heavy promotion of retail loans and credit card accounts. The prime lending rate remains at 11 percent at major banks in the Third District, reflecting what bankers feel is an "air of economic stability." Consequently, contacts foresee little change in interest rates between now and the second quarter of 1984. Some bankers expect short-term rates to ease slightly over the next two or three months, and then to rise again after the first quarter as overall borrowing continues to increase. Deposit flows in the Third District are reported to be rather sluggish in November. Demand deposits, although fairly volatile in recent weeks, show little net change from October. November's levels range from 2 percent below to 10 percent above those of a year ago. Time deposit growth is flat this month, according to area bankers, but levels remain about 30 percent ahead of November '82. IV-1 FOURTH DISTRICT - CLEVELAND Summary. District. Economic conditions continue to improve in the Fourth Employment is rising and unemployment is falling, but the unemployment rate remains well above the national average. continue and merchants are optimistic about Christmas sales. activity continues to increase. slowly. Retail sales gains Manufacturing Steel and capital goods output is increasing Sales of existing houses continue to be hurt by the level of interest rates and customer confusion about rates, but sales of new houses have improved recently. Commercial banks have become less liquid as deposit growth slowed and loan volume increased sharply. Labor Market Conditions. Labor market conditions in the District improved further in October, although unemployment remains high and substantially above the national average. The number of unemployed workers fell, cutting the unemployment rate to 10.6% (nsa), which is 2.2 percentage points above the national (nsa) rate. Nevertheless, Ohio's unemployment rate has improved substantially from the 13.2% rate of a year earlier. Unemployment rates in eleven major SMSAs in the Fourth District in September ranged from 8.5% (nsa) in Columbus to 14.5% in Youngstown. Local indexes of leading indicators for Pittsburgh and Cleveland continue to rise, although less rapidly than earlier in the year, suggesting that further improvement in labor market conditions lies ahead. Despite the substantial pool of unemployed workers, some smaller firms report evidence of a tightening in markets for some skilled employees--an event which some expect to lead to a quickening in the pace of wage increases over the next year. IV-2 Prices, Wages, and Earnings. Real earnings of workers in manufacturing have risen sharply in the last year. Average weekly earnings for production workers in manufacturing increased 11.4% from a year earlier in Cleveland, 11.4% in Pittsburgh, and 9.6% in Cincinnati. The Consumer Price Index for urban wage earners rose only 1.1% from a year earlier in Cleveland, 1.5% in Pittsburgh, and 2.8% in Cincinnati. A survey of Fourth District retailers indicates sales Retail Sales. gains continued into November, although the pace of domestic new and used car sales showed a normal, seasonal slowdown between October and November. Three major general merchandisers report November sales increases of roughly 9%-13% from year earlier sales, which compares favorably with the national average of 9.4% over the same period. The retailers report a rather broad-based sales improvement, although most hardgoods and apparel items are selling unusually well. New and used car dealers in the District report a moderate sales slowdown from October, which is typical for the season. Of the domestic new-auto retailers reporting, all indicate inventories are within an intended 40 to 50 day range. Import car dealers, however, continue to lose sales because of quota-induced availability problems. Most retailers contacted are optimistic about holiday-season sales prospects. Manufacturing. District. Manufacturing activity continues to expand in this A survey of purchasing managers in the Cleveland area indicates solid gains in production and new orders in October; no respondent reported declines. Raw materials inventories are being increased and a slight decline in finished goods inventories is attributed to strong shipments. Employment expanded as firms reported callbacks, new hiring, overtime, and shift expansions. half of 1984. Respondents are bullish for the remainder of 1983 and the first IV-3 A survey of Cincinnati area purchasing managers reveals production and new orders rose more rapidly in October than in September. employment also rose. Backlogs and Prices paid rose more rapidly in October than in September. This Bank's survey of Fourth District manufacturers reveals new orders and backlogs increased again in October and are expected to increase in November. Shipments expanded in October but no further gains are expected in November. Steel. Inventories are expected to decline in November. A major steel firm reports that demand for steel is rising but not rapidly enough to strengthen prices very much. Because of cash flow pressures, steel producers are reluctant to build inventory despite the prospect of rising sales in 1984. The industry is operating at about 60% of reported capacity, up from 25%-30% for many producers last December. Actual operating rates are somewhat higher; one firm estimates actual industry capacity at 143 million tons, instead of the reported 151 million tons. Despite slack in the industry, there are some bottlenecks in finishing capacity, as some mills that produce flat rolled products are operating virtually at capacity. Capital goods. Capital goods producers report increasing orders and output, but from a very low base. Machinery producers note that capital goods production is growing slower here than in the nation because the District has a very small share of the rapidly growing electronic, high-tech equipment industry. Traditional capital goods industries, including machine tools, heavy-duty trucks and industrial and electrical equipment, have been reviving in recent months but operating rates are generally well below those of the high-growth industries. Real Estate. Realtors report home sales in recent months have fallen about 30% from last spring. Most of the decline is attributed to the IV-4 midyear increase in mortgage interest rates. Realtors attribute part of the decline to recent changes in FHA and VA rates, which have caused customer confusion about the direction and level of rates. is rising because of the slowdown in sales. The inventory of listings Nominal transactions prices have not yet fallen but are expected to decline next spring if demand doesn't recover by then. Realtors report a recent increase in use of alternative financing arrangements. Builders report that sales of new homes picked up in October and November following a third quarter slump, but sales are 13% below this time last year. Overall, 1983 will prove to be a profitable year for most builders, and builders expect the same level of activity in 1984 if mortgage interest rates do not increase. Commercial Banking. In recent weeks, commercial banks in the Fourth District have become somewhat less liquid as deposit growth has slowed and loan demand has strengthened. Demand deposits declined slightly, while savings and small time deposits increased by small amounts. increased sharply. Loan volume The bulk of the increase in loans went to banks in foreign countries, commercial and industrial borrowers, and brokers and dealers. Banks apparently financed the increase in loans by reducing their holdings of other earning assets and by issuing large denomination CD's. particular, declines were evident in bank holdings of cash, U.S. Treasury and agency securities, municipal securities and federal funds sales. In COMMENTARY ON ECONOMIC CONDITIONS FIFTH DISTRICT - RICHMOND Overview There is little indication that the pace of recovery in the Fifth District has slowed. Expansion continues in virtually every sector, with month to month and year to year gains being reported nearly across the board. Absence of such gains in particular activities is generally attributed to special factors. Food processors, for instance, are encountering the rela- tively small agricultural output of the past season. Such special factors have resulted in some seasonally depressed employment and unemployment numbers, but, generally, employment is recovering sharply in most parts of the District. Retail sales remain among the sectors leading the recovery. areas are reporting sharp gains in sales. Most Credit demands remain modest as both consumers and businesses seem to be funding purchases from current or past income. Expectations of continued improvement in activity are wide- spread, with only retailers sensing that little further progress is likely. Manufacturing Total manufacturing activity continues to show improvement by nearly every measure. month. Shipments, orders, and order backlogs were up over the past Inventories were nearly unchanged as a slight drop in finished goods offset a small rise in materials on hand. Total stocks are still considered at or somewhat above desired levels, as is current plant and equipment capacity. Employment, average weekly hours, and weekly earnings also continued to advance in recent weeks. Employment gains were recorded in most sectors, particularly textiles, furniture, and seasonal agriculture related industries. In the last mentioned category, gains were less than normal, however, and seasonally adjusted levels were accordingly down. Durable goods manufacturing, apart from the consumer areas such as furniture, continued to show mixed results. Manufacturers responding to our survey report little change in prices they are receiving, but some scattered increases in prices paid. Respondents remain broadly optimistic. Nearly every one expects further gains in activity, nationally, locally, and in his respective market, over the next two quarters. Consumer Spending By all accounts, retail sales are still very strong and rising. ticket items are at least holding their own. Big With sales building into the holiday season the way they have, prospects for the final quarter are excellent. Retailers' expectations of a good season have apparently been substan- tiated during the first few days. The first weekend of the selling season was generally characterized as the best in years. Thus, while retailers do not seem to foresee much in way of further gains, apart from seasonal factors, they do not expect any near term losses. Automobiles sales also seem to be holding the substantial gains of recent months. Housing and Construction Sales of residential real estate are generally reported to have picked up again in recent weeks as mortgage interest rates stabilized or even edged downward. Construction of new units continues at a good pace in most V-3 areas. No significant decline, other than seasonal, is expected before spring, and will be unlikely, even then, if current sales rates hold up. There has been little apparent change in the commercial and industrial sector where activity continues to improve, but only at rather modest rates. Expectations remain generally positive, but somewhat less robust than in many other sectors. Banking and Finance Loan demand still does not seem to be keeping pace with economic activity. Lenders have observed only modest increases in consumer lending, particularly non-auto related lending. soft. Business loan demand also remains This relatively weak loan demand and the recent strong growth of liabilities of financial institutions are still thought to be causing some deterioration of overall credit quality. Also, District financial insti- tutions generally seem to expect the slow growth of loan demand to continue for some time. VI-1 SIXTH DISTRICT - ATLANTA The southeastern economy continues to strengthen. are up in regionally important industries. Employment and orders Vigorous retail sales during the Thanksgiving weekend have made merchants optimistic regarding the Christmas season. Housing sales have increased since the FHA/VA rate dropped, and commercial real estate investment is lively. Business lending by major banks has improved markedly, and the growth in consumer lending remains healthy. major convention cities. Tourist trade is picking up in several The Payment-In-Kind (PIK) program has aided many farmers, but heavy debt burdens presage difficulties for marginal operations. Employment and Industry. A poll of southeastern manufacturers indicates that employment and orders continue to improve even though the latest available labor market statistics for October show mixed signs. Employment losses in the petrochemical industry have ceased, and economizing measures have enabled firms to earn profits despite low utilization rates. Oil and gas drilling is increasing in Louisiana and Alabama. Corporate executives, anticipating rising energy prices over the next two to three years, are optimistic about prospects for 1984. for tires. Brisk sales of new cars have spurred demand In response, Alabama tire manufacturers, who produce 15 percent of the nation's supply, are expanding capacity by as much as 10 percent. Government contracts for military clothing are boosting production in the apparel industry. Pulp and paper mills are now operating at over 90 percent of capacity, almost 10 percentage points higher than last year. Demand for computer paper has been especially strong. mills produce 52 percent of the nation's paper. Southern Timber industry representatives report continuing upward momentum and expect production levels by year-end to approach peak 1979 levels. However, the effect of the upturn in housing has yet to reach some areas of Mississippi that depend heavily on lumber manufacturing. VI-2 Consumer Spending. Major southeastern retailers polled about Thanksgiving weekend sales report double-digit increases over last year's levels. Sales of apparel, toys, electronic goods, and home appliances have been especially strong despite limited price discounting. Most merchants, encouraged by the high levels of activity over the holiday weekend, are optimistic that consumer spending will reach a new peak by yearend. New motor vehicle sales continue to grow at a crisp pace. Truck and van sales are outperforming car sales, in part because dealers have had an abnormally low inventory of new cars. Construction. The drop in the FHA/VA rate to 12.5 percent in early November stimulated housing sales by decreasing buyers' monthly mortgage payments, in the view of most realtors polled. Nonetheless, many potential buyers may be delaying purchases in anticipation of further decreases, and Atlanta lenders believe the increase in discount points that generally accompanies a decrease in FHA/VA rates may have motivated some sellers to leave the market rather than pay the additional fees. Orlando and Nashville realtors report increases in new-home sales, and Atlanta real estate agents indicate improvement in the used-home market. However, the cancellation of the Clinch River Breeder Reactor has dampened sales of single-family houses in Oak Ridge, Tennessee. Commercial real estate development in Tampa and Miami is proceeding swiftly. Tampa city officials are evaluating designs for a large multi-purpose convention center, and the city's first billion dollar project is under construction. Contacts indicate that Miami is undergoing an office-building "boom" fueled by developers' expectations of the legalization of interstate banking and attendant increases in demand for office space. Rapidly growing areas such as Atlanta and Jacksonville are also experiencing heavy investment in commercial real estate. VI-3 Financial Services. Deposits at large commercial banks advanced from September to October by 1.5 percent, slightly below the previous month's rate of increase. The slowing resulted from a decline in the growth rate of time deposits, which represent over half of southeastern bank deposits. banks increased 3.4 percent from September to October. Loans at large commercial Business and real estate lending grew markedly faster, while consumer lending sustained the strong pace of previous months. Some large southeastern banks have begun investing in one another's stock, building relationships which they could quickly expand if interstate banking wins legislative approval. Tourism. Lodging tax revenues increased in October relative to year-earlier levels in all states except Tennessee, but hotel occupancy is still down in most cities except Orlando. Contacts in Atlanta and New Orleans report that the addition of new facilities has ameliorated convention trade. The first phase of the Georgia World Congress Center expansion, adding 65,000 square feet of exhibition space, opened in early October. Attendance at southeastern attractions continues to outpace year-earlier levels, and most of those surveyed plan to invest in expanded facilities in hopes of drawing visitors to the 1984 World's Fair in New Orleans. More than 15,000 people applied for 8,000 jobs at the Fair during the two weeks after applications were first accepted in November. The number of passengers at most of the District's major airports continues to increase over year-ago levels. Both large and small carriers are adding service to smaller cities. Agriculture. Crop farmers' net income for the year has increased 10-15 percent above 1982, primarily because of PIK commodity payments. Profit margins of livestock operations have diminished steadily in 1983 as rising production coincided with sharp increases in feed costs, leading to a classic price-cost squeeze. In the broiler VI-4 and egg industry 1983 was better than 1982, but the improvement would have been greater if the climb in feed costs had not offset much of the gain offered by rising prices. Nevertheless, the increase in net revenue signals a reprieve, not a turnaround in the farm economy. According to reports from the Farm Credit System and commercial banks, conditions are improving for the more conservative, financially sound farmers who constitute most of their borrowers and who are poised for recovery. In contrast, borrowers from the Farmers Home Administration (FmHA), who tend to operate marginal and/or highly leveraged farms, found only a temporary respite, if that, in 1983. In every District state except Tennessee, FmHA delinquency rates have edged higher compared to a year ago. The delinquency rate of Georgia's borrowers from FmHA is 56 percent, the highest rate in the nation. one-third. Only in Tennessee is the rate less than Many farmers in this group can do little better than hope to continue in business. Agribusinesses, particularly those which supply farm inputs such as fertilizer, have experienced trade declines of a third or more, although equipment repair work reportedly has increased. VII-1 SEVENTH DISTRICT--CHICAGO Summary. The tone of business and consumer sentiment in the Seventh District is much improved compared to the situation six to 12 months ago, but the firm confidence of several years ago has not returned. Gains in activity are widely expected to continue into 1984, with additional lagging sectors participating. Estimates of demand for most consumer durables have been raised periodically in the past several months, in contrast to downward revisions in 1982. Retailers anticipate the best Christmas in five years, but are stocking and hiring cautiously. The strength of demand for workers in the District continues to fall far short of the national experience, despite substantial recovery in the auto industry. goods remains spotty. trol. The pickup in demand for heavy capital Inventories, generally, continue under close con- Shipments of household appliances and paperboard were at record levels in the third quarter, but volume of most durable goods industries remains far below earlier peaks, and is not expected to regain those peaks in the year ahead. Heavy inroads of foreign competition have intensified. Residential builders are entering the slow winter season with dampened spirits relative to last spring. Farmers are beginning to increase pur- chases of supplies and equipment slightly, reflecting improved income and expectations of larger plantings in 1984. Confidence Surveys. Formal and informal surveys of executive and consumer attitudes in the District show substantial improvement compared with dismal reports early this year. Professional pollsters at the Uni- versity of Michigan emphasize that indexes of sentiment reflect the direction rather than level of activity. Substantial gains in such measures in this region indicate more a feeling of relief that the long decline in VII-2 activity has come to an end--and has been reversed in some sectors-rather than the old time ebullience. Retail Trade. Most general merchandise retailers (not all) have reported improved sales and are counting on substantial increases in Christmas volume. Gains are projected in the 6-12 percent range over last year's results, which were disappointing. Most of the rise will be real because prices average only 1-3 percent higher. Merchants speak of "pent-up demand." Actual total sales volume may never be known accurately because of the growth of discounters, off-price specialty stores, and catalog houses that are not adequately tabulated. Credit use is up. Among the strongest lines are furni- ture, appliances (especially microwaves), some types of home computers, video recorders, some clothing, and various luxuries such as expensive dolls and cordless telephones. Merchants have been stocking cautiously for Christmas, preferring the chance of some stockouts to general excess. Hirings of tem- porary or part-time clerks are said to be much less frequent than in past years of rising sales. Employment. In September, payroll employment in Illinois, Indiana, Iowa, and Wisconsin was still below a year earlier. improvement occurred in October. It appears that little Michigan showed a gain in employment from September 1982, reflecting motor industry recalls of workers. Despite lack of employment gains, all states reported substantial declines in estimated unemployment. In the 5-state area, employment was 25,000 below year-ago in September, while unemployment was estimated to be down 370,000. (Nationally, the gain in employment in this period was much larger than the decline in unemployment.) In Illinois, seasonally adjusted employment in October was the same as in December 1982. In this period the state's reported unemployment rate dropped from 12.8 to 9.7 percent. VII-3 The dichotomy between stable employment and declining unemployment is explained as "outmigration", and "withdrawals from the labor force." In any case, job markets are still weak. Help-wanted ads and hiring in- tentions are up significantly, and lay-offs have been reduced, but these gains are offset by additional establishment closings and employment cutbacks, often through attrition. Some employers are offering generous incen- tives for early retirement to reduce "redundancies." Others are using over- time to handle increased output to such an extent that worker unrest has increased. Autos and Appliances. Both auto and appliance producers substantially underestimated demand for certain models in 1983, reversing the tendency to overestimate noted in earlier years. As a result, inventories are too low. Auto output will be 60 percent above last year in the fourth quarter, with strong pressure to build more large cars. sire to avoid quality problems. Output has been restrained by a de- First quarter auto output is scheduled to be up 50 percent above the year earlier total. Appliance shipments, in units, were up 34 percent in the third quarter to a new alltime high. Industry analysts had projected appliance shipments to rise 7 percent in 1983, but the actual gain is likely to exceed 15 percent. Capital Goods. Demand for capital equipment produced in the District has increased somewhat, but in a highly uneven manner. parts has increased on a fairly broad front. Output of replacement Machine tool orders are far above last year, but only 40 percent of the rate of early 1980. A diversified pro- ducer of capital goods reports bookings at only 50 percent of a "good level." Demand for steel for capital goods and construction remains near the recession low. Orders for steel castings for equipment are at only 40 percent of capacity. Production of heavy trucks will rise in early 1984, but only to 50 percent of VII-4 the 1979 level. Truck trailers, almost unique among capital goods, are being produced at capacity because of increased size limits. orders are few and small. slightly. Railroad equipment Demand for construction equipment has picked up Farm equipment sales are expected to improve soon, but large in- ventories can accommodate most needs. Some District electric utilities have further slowed work on nuclear generating plants, partly because of soaring costs which may exceed original estimates ten-fold. A large number of Dis- trict capital goods plants are closed or scheduled for closing, including plants producing rail cars, trucks, materials handling equipment, construction equipment, and farm equipment. In some cases companies headquartered here have alternative sources, either in other regions, especially the South, or abroad. Foreign Competition. The current plight of producers of capital goods partly reflects slow demand world-wide. However, they complain bitterly of the ever-growing threat of foreign competition, which they attribute to the high value of the dollar, subsidies by foreign governments (including financing), and trade barriers abroad that hamper exports. Increasingly, capital goods producers are following the lead of the auto companies by arranging foreign sources for components including fasteners, castings, and engines, and complete products such as machine tools and construction equipment. In some cases this has resulted in the closing and dismantling of domestic plants. VIII - 1 EIGHTH DISTRICT - ST. LOUIS Economic expansion continued on a broad front during October and November in the Eighth District, and most respondents anticipate further gains during the winter. season. Retail sales were strong in the early Christmas Factory orders and production continued to rise, and inventories expanded moderately. Some capital spending for the purpose of increasing efficiency has been reported. Employment continued to rise. Construc- tion activity, adjusted for seasonal influences, remained vigorous. Outlook Seven business economists surveyed expect the economic expansion to continue in the first half of 1984, but at a reduced pace. The average expansion for real GNP is expected to be at an annual rate of about 4 percent, with the first quarter being slightly greater and the second quarter weaker. They anticipate that their own firms will expand at a pace consistent with this national projection. Most feel that a slowing to a more sustainable pace is desirable; one, however, believes the slowdown will be excessive because of the relatively slow rate of monetary expansion since summer. All respondents project prices to rise slightly faster in the first half of 1984 than during 1983; the median forecast is at a 5 1/4 percent rate. Yet, for their own company's prices, the median forecast is just below a 4 percent rate. Consumer Spending Department stores, discount houses and small shops throughout the District report continued favorable year-over-year sales in October and November. For many stores the gains were in double digits. Most items VIII - 2 have been moving well, especially apparel, footwear, fashion accessories and home furnishings. Merchants, optimistic about the Christmas season, have enlarged sales forces to handle the business. Consumers, with rising incomes and a large amount of liquid savings, seem to be in a mood to spend. Automobile sales were mixed. Four dealers reported that October-November sales averaged 14 percent above the same months in 1982, while three other dealers had small declines-- averaging 5 percent. used cars and trucks sold moderately well. Both Dealers report that adequate financing is available, and buyers do not seem to be as concerned about the level of interest rates as they had been earlier. Home sales have slowed seasonally; however, they continue to be considerably above year-ago rates. In the St. Louis area, sales of homes through November 1983 were 2 1/2 times those in the same period of 1982, and industry spokesmen expect that sales will rise another 15 percent from 1983 to 1984. Greatest strength is among first-time buyers purchasing lower priced homes. Demand for apartments has been strong; in one major county, nearly twice as many apartments have been constructed recently as in the corresponding period a year ago, and plans have been made to start building 600 more to satisfy the demand. Demand for new office buildings remains strong despite a rise in vacancy rates due to the substantial amount of new space coming into the market. Manufacturing Manufacturing activity continued to expand at a rapid pace in October and November. Expenditures for capital equipment accelerated, but most of the outlays were for replacement and modernization rather than for increased capacity. Orders and production of consumer goods continued to rise, but at a somewhat slower pace than during the spring VIII - and summer. fall. 3 Defense business rose again after slowing in the early Some manufacturers and distributers have been accumulating inventories to handle the increased volume. Most prices in the manufacturing sector have been steady, but a few have begun to rise. Employment Reflecting the improved pace of economic activity, employment in the District rose in October and November, and the average workweek in manufacturing lengthened slightly. declined moderately. Unemployment rates in the District Major hirings have been in the manufacturing sector, particularly for nonelectrical machinery and appliance production. Also, many retail and service firms expanded their workforces. On the other hand, the number of construction workers declined seasonally, and a service firm made a sizable reduction in its staff. The outlook is bright for further gains in employment during the winter. Finance At ten of the larger commercial banks in the District, loans rose moderately during October and the first three weeks of November. Consumer installment loans increased $62 million, while real estate loans declined $35 million. Commercial and industrial loans rose but much of the gain was seasonal. 200 million, Several bankers reported that the relatively weak loan demand stemmed from large business cash flows, thereby reducing the need for short-term credit. Liquidity of the banks improved as funds continued to flow in. Demand deposits jumped 14 percent in October and early November, and savings deposits increased 4 percent. Part of the expansion in demand deposits was seasonal; in the comparable period of the two previous years they rose an average of 6 percent. IX-1 NINTH DISTRICT - MINNEAPOLIS for the winter with more of The Ninth District economy has settled in the moderate growth reported last month. Unemployment generally continues to fall, while consumer spending continues to strengthen. ing activity heavily may be snow-covered gaining ski momentum, some resorts. as Mining and manufactur- may be Agricultural tourist business haven't conditions at changed much from last month's report. Employment. The most recent data indicate that employment prospects have continued to improve in much of the district. sota rose by over 12,000 workers between Total employment in August and September. As a result, the state's unemployment rate dropped from 7.2 percent to 6.5 percent. Paul Minneapolis-St. more, area, metropolitan from 6.4 percent to 5.6 percent, October, dropped to 6.6 it August. Regional analysts from its its rate South Dakota it percent in in Duluth, unemployment September, down slightly also dropped a Minnesota--which September. from 7.8 percent In in was hit hard by the rate to fall below 12 percent in seasonally adjusted rate of 12.1 percent in August. remains very high in dropped up only slightly from 9.0 percent in Montana, recession--expect and in jobless In the In Wisconsin, the unemployment rate was bit, from 4.4 percent to 4.2 percent. 9.2 percent in the Minne- September But unemployment other parts of northern Minnesota and Michigan, reflect- ing the depressed mining industry. Consumer Spending. Buoyed by brisk holiday spending is ending the year on an uptick. sales, overall consumer IX-2 Early of One Twin Cities retail chain reports that this November is double-digit sales increases in its suburban locations. and Minnesota, are surprisingly good, economy. One chain in Electronic components Sales in its record recently broke Minnesota, have opened early Duluth, this local in given the continuing weakness Rochester, and stores sales, best ever, with its well there. moving particularly intimate apparel are single-day the in merchandise general season will be at least 20 percent higher than a year ago. shopping holiday sales that indicate reports for the Christmas to accommodate Our Bank directors report that sales are good throughout most of North rush. chandise in sales Montana in spotty--stronger are General mer- increased snowblower sales. where snows have and South Dakota, the western part of the evident last month. state than in the eastern part. Auto District are sales Bank directors maintaining also report strength the that both new and used car Order backlogs for 1984 models have appeared in sales are good. western Wisconsin. In South Dakota, large cars are selling better than small ones. Home sales have not deterioriated much from last month's pace. sales but the Twin Cities in in total 1982. North sales unit District Dakota, in that directors but a November were 4 percent below those in and softening market tor. Manufacturing. few more plants in demand hard-pressed higher in October, than 1983 in both Fargo and Bismarck, Eau Claire, Several Wisconsin. The more Montana. encouraging signs appeared indicating that these industries Paper production is According to another, in Billings, mining and manufacturing this month, gaining momentum. 35 percent report a housing boom in expensive homes are selling best in Mining are area Unit in may be doing "super," according to one direc- for waferboard is sufficient to justify a regions of northern Minnesota and Michigan. IX-3 Also, an iron mining operation in each of these regions is reopening. A cheese plant in Wisconsin is celebrating its best business in a long time, and a brewery is also toasting a good year. ter earnings increases at several All this follows healthy third quar- of the largest manufacturers in the dis- trict. There is, manufacturing. Twin Cities. however, still room for improvement in The industrial space And, vacancy rate district mining and recently increased although oil and gas activity is in the up substantially in North Dakota, coal production is down a bit in Montana. Tourism. try looks District tourism was good this fall, and most of the indus- forward to a good winter. Resorts in the Indianhead northern Wisconsin and the Upper Peninsula of Michigan were hunters this fall. With the inevitable arrival miniums. But a Montana, 5 percent of filled with deer of the ubiquitous snow, ski resorts are preparing for an onslaught of business. resort near Bozeman, region district The Big Sky ski has added two new gondolas and forty new condouser fee for snowmobile trail grooming has some Michigan officials worried. Agriculture. In-Kind (PIK) sota's High corn and soybean prices and the federal Payment- program are smallest corn crop still since helping boost 1976, high million worth of PIK corn paid to Minnesota total corn receipts up to $1.8 billion. crop years of 1981 and 1982. largest, and soybean prices farm income. prices and the Despite Minneestimated $600 farmers will bring that state's This exceeds receipts in Minnesota's soybean crop this year is are currently at about $8 a bushel. the bumper its fourth This makes the Minnesota soybean crop worth about the same as the state's corn crop this year. A similar soybean story is reported in both North and South Dakota. IX-4 The stories this. for wheat and other Wheat yields are generally good in sunflower crop in North Dakota is down district crops don't detract from North Dakota and Montana. While the about 40 percent, sunflower higher prices will probably keep receipts from falling much. However, the district's livestock operations are still being hurt by high feed costs and low cattle prices. Those prices are down as much as 17 percent from a year ago. The continued cost-price squeeze has caused a cull- ing further of herds which will depress prices, exacerbated by the new dairy diversion program. an effect which could be Prices are expected to pick up later next year when the reduced herds are brought to market, though. TENTH DISTRICT--KANSAS CITY Overview. Reports from the Tenth District indicate a continuation of favorable economic conditions. Retail sales have moderated somewhat, but remain strong, with little upward movement in prices. inputs also are little changed. Inventories of retail goods and of industrial inputs are regarded as satisfactory. home sales have slowed. Prices of industrial Housing starts have leveled off while Savings inflows at savings and loan associations have increased, but mortgage demand has declined. Tenth District banks report a slight rise in deposits and generally stable loan demand. Marketing of fall harvested crops is slow, with many farmers apparently holding their crops in anticipation of higher prices. Retail Trade. Retailers surveyed report that year-to-date total sales are up 5 to 20 percent over 1982 levels. slightly in the past three months. Growth in sales, however, has slowed Virtually all of the retailers contacted are satisfied with present inventory levels and none intend to start clearance sales earlier than in the past. A large number of respondents indicated that they raised prices slightly on some items during the past three months, but most of these increases were seasonal in nature. Almost all are optimistic about the sales outlook for the upcoming Christmas season. Purchasing Agents. Most purchasing agents contacted report input price increases of between 2 and 6 percent over last November, although some report no change or even moderate declines. over the past three months. Few report significant price changes None of the agents contacted expects significant price increases before yearend; however, a few anticipate price increases very early in 1984. With one exception, purchasing agents report no availability problems, but several report some lengthening in lead times. Most firms are satisfied with current inventory levels and do not plan any changes in the next few months. X-2 Housing Activity and Finance. continue to outpace 1982 levels. Home builders report that housing starts Starts appear to be leveling off, however. Recent inventory increases in the multifamily and $100,000+ single family categories, along with the onset of inclement weather, are in part responsible. Sales also are slowing. Reduced foot traffic by potential buyers and recent price increases are cited as contributing factors. The leveling off of starts and slowdown in sales have improved the outlook for materials. Builders foresee no shortages or price increases for materials through the first quarter of 1984. Most savings and loan associations report continued improvement in savings inflows. petitive bidding for funds. Some attribute this to more aggressive, com- Demand for mortgage funds and commitments has fallen from its peak in mid-summer, largely for seasonal reasons. Most savings and loans expect a slowdown until next spring, when anticipated lower mortgage rates and pent up demand should bring new homeowners into the market. Mortgage rates have been fairly steady and are expected to remain so for the rest of 1983. Agriculture. The harvesting of row crops is virtually complete through- out the Tenth District. Winter wheat conditions across the District range from good to excellent. Planting from fencerow to fencerow is reported in some areas, indicating low participation by farmers in the 1984 Payment-InKind (PIK) program for wheat. Winter wheat pasture is in excellent condi- tion, but some District bankers report a shortage of cattle to place on the pasture. Marketing of fall harvested row crops is reported to be slow, with many farmers holding their crops in storage in anticipation of higher prices. The selling of feeder cattle throughout the District is reported to be at normal levels. An average number of cattle have been sold while a larger proportion of calves than usual are expected to be held through the winter by X-3 ranchers. Some liquidation of gilts and sows is reported to be occurring in isolated areas of the Tenth District, but hog producers generally appear to be retaining breeding herds in anticipation of improved prices. Some paydowns by farmers are being made on their agricultural production loans, but the major part of the activity is expected to occur in December and in early 1984. Thus, it is too early to assess the impact of PIK payments on loan paydowns. Banking. Tenth District banks report little growth in loan demand since the last Beigebook survey. Real estate, agricultural, commercial, and industrial lending are generally unchanged from last month. lending increased Districtwide. Only consumer Most bankers do not expect loan demand to rebound in the near future on grounds that the Tenth District, which entered the recession late, has entered the recovery late. The prime lending rate at Tenth District banks is 11 to 11 1/2 percent, unchanged from last month. Deposits at Tenth District banks grew slightly last month. Money market deposit accounts are responsible for nearly all of the growth. Demand deposits, NOW accounts, Super NOW's, passbook savings accounts, and large CD's remained constant. Responding banks report that the deregulation of time deposits on October 1 is having little impact on small-denomination time deposits, which grew only slightly last month. In regard to the imminent switch to contemporaneous reserve accounting, most Tenth District bankers anticipate little difficulty in complying with the new procedures. XI-1 ECONOMIC COMMENTARY ELEVENTH DISTRICT-DALLAS Economic recovery in the Eleventh District is continuing and some sectors are showing strong year-end gains. Total manufacturing production is rising with particularly strong increases in manufacturing equipment. seasonal slowdown in commercial construction has occurred construction was unseasonally strong. but residential Loan growth picked up at all member banks in the District, but business loan demand remains sluggish banks. Auto A and retail sales continue at a brisk pace. at large Farm income will be higher this year than last. Growth in manufacturing production in the District continued at moderate pace. increases in Production Gains total of in demand employment capital for and equipment nonelectrical in is the which usually decline of at Orders for year-end, have Capacity utilization at lumber mills is high, except in has been significantly below other areas. aluminum products are have Strong auto also buoyed steel orders. to build inventories and add employees. District producers remains worked. lumber and remained Houston wood steady. where it plants. Inventories still below desired levels, and the high order rate is impeding accumulation. spending to Strong demand has kept capacity utilization and employment high at District aluminum of hours led particularly strong with orders for material-handling equipment leading the way. products, number machinery a sluggish sales and increased capital Steel fabricating firms now want Demand for fabricated copper because from of strong competition from XI-2 market Orders at the October Third World producers. spring for apparel products were the largest on record. The number This was the mid-November. percent active of the above drilling rigs highest level trough mid-July in since early January Analysts expect more plaguing the oil-field supply industry. to 932 in rose and 39 Huge inventories are still 669. of Texas bankruptcies in that sector. Department store sales last all cities were well District major Even El Paso is reporting higher sales compared above year-earlier levels. to in Home year although sales are still below pre-devaluation levels. furnishings are the strongest component, but clothing sales are picking rapidly. Intense competition is expected to keep up future price gains moderate. District auto sales year-earlier remain strong. October sales were above levels throughout the District, but in Houston sales are down on a year-to-date basis. Dealers' profit margins have increased because a larger share of financing revenues is being retained and inventory carrying costs are lower. Tight inventories are still hampering sales somewhat. Residential construction is likely to continue to slow next An unseasonally large increase permits was reported for October. for apartments Dallas. and in both year. single-family and multi-family Nearly 70 percent of these permits were and condominiums with the bulk of activity concentrated in Concerns about overbuilding in the multifamily sector continue, serious questions are now being raised about the means used to attract investors to some of these projects. Land prices appear to have been XI-3 inflated by "land flips," a several times in a short period single-family inventories. permits may by process to be boost the which a tract of land is sold its result value. of The builders increase accumulating Builders expect lower mortgage rates to stimulate sales. Commercial construction remains strong despite a seasonal in October from September. decline On a year-to-date basis the value of commercial construction is up in virtually all construction in non-energy is continuing at high levels. dependent areas. Retail For 1983, the value of permits for office space in Dallas will probably end up on par with the near record 1982 level. Loans at member banks were up in year-over-year increase to more than 16 percent. October bringing Business loans at the large weekly reporters, however, declined in October after showing earlier gains. Real estate lending continues to be the deposits strongest loan category. Total at the large banks are below year-earlier levels with the largest declines in small and large time deposits. Farm income in Texas will be higher this year than last because of increased program. livestock sales, higher crop Cattle and hog producers, however, prices, and the Payment-in-Kind continue production, and bad weather has reduced cotton income. to lose money on XII-1 TWELFTH DISTRICT -- SAN FRANCISCO In the Twelfth District the economic expansion is continuing, although growth in some areas such as the Northwest, especially Oregon, is lagging. Retail sales remain strong and orders are picking up in a number of capital goods industries. Many firms are rebuilding inventories that have been depleted by continued strong sales. about adding to inventories. However, businesses remain cautious Nonresidential construction is showing strength in some regions of the district. Commercial and industrial loans at large commercial banks expanded in early November after being noticeably weak since mid-year. Consumer Spending Consumer spending still is strong throughout most of the district. The strength is apparent in retail sales and in new and used automobile sales. Attempting to keep inventories lean, many retailers and suppliers had run short of items as consumer spending remained stronger than expected. The combination of depleted inventories and anticipated strong Christmas sales has encouraged many businesses to expand their inventories. Nevertheless, the prevailing attitude toward building up inventories still has to be described as cautious. Respondents indicated that the performance of sales over the remainder of this year will be an important factor in molding plans for inventory accumlation in 1984. Manufacturing and Mining A number of capital goods industries are experiencing a pickup in orders. The most obvious strength is among firms involved in manufacturing high-technology equipment and electronics. Orders for airplanes are up, primarily due to purchases by foreign airlines. Aluminum production is XII-2 increasing. The lumber industry also is showing some improvement, but this is mostly related to stronger demand for paper and packaging materials. Mining in Utah, however, is experiencing little if any improvement. Some manufacturers reportedly are somewhat more hesitant than retailers to add to inventories. The reasons for this apparently are uncertainty about consumer spending in the future and high interest rates. Once again, firms are looking to continued strong sales through the rest of this year to confirm the durability of the economic expansion. Respondents throughout the district suggest that at this point businesses are not planning sharp increases in real capital outlays. Businesses still are uncertain as to the sustainability of the recovery and are reluctant to make major commitments for plant expansion. The bulk of the capital spending that is planned appears to be targeted for new equipment and modernization rather than expansion. Construction and Real Estate Following the national pattern, residential construction generally has slowed somewhat in the West. Nonresidential building activity varies considerably from area to area. Reports indicate that such construction is relatively strong in southern California as well as the Central Valley of California. In Southern California, much of the nonresidential construction is for companies in the electronics, aerospace, telecommunication, and computer industries. The state of Washington is seeing some rise in nonresidential construction, while Oregon and Idaho are experiencing either flat or declining activity in nonresidential construction. Agriculture There still is concern that the strength of the dollar is hampering the agricultural sector. For example, the strong dollar is thought to be XII-3 preventing Asian parties from buying high-quality California cotton. With regard to another development, the closing of the Willamette Production Credit Association in Oregon reportedly has adversely affected farmers in their efforts to obtain financing for 1984. One respondent thought that this could lead to "forced" sales of some farmland in the area. Financial Institutions Business loans (NSA) at large commercial banks in the Twelfth District expanded in early November. Prior to the recent growth, business loans at large banks generally had contracted since about mid-year, while at small banks these types of loans had expanded relatively rapidly. Many of the respondents thought that the difference in the behavior of business loans at large and small banks observed until recently reflected the fact that the large corporate customers, which tend to deal with the bigger banks, have access to primary markets for funding. Some respondents indicated that larger corporations had been using funds acquired earlier in the year when bond and equity financing was more attractive. The combination of direct access to primary markets,improved profits, and lower inventories reduced the need for large corporations to rely on bank loans. The recent growth in business loans at large banks could be related to a buildup of inventories. Depository institutions in California continue to actively advertise the deregulated deposit accounts. In general, interest rates offered on deregulated accounts do not appear to be inconsistent with other market rates, although rates on longer-term time deposit account tend to be higher in California than in the rest of the nation. In the Twelfth District, small-time deposits still are expanding, but have not shown signs of accelerating in early November.

Federal Reserve (1983, December 19). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19831220

@misc{wtfs_beige_book_19831220,
  author = {Federal Reserve},
  title = {Beige Book},
  year = {1983},
  month = {Dec},
  howpublished = {Beige Book, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/beige_book_19831220},
  note = {Retrieved via When the Fed Speaks corpus}
}