Beige Book

SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS BY FEDERAL RESERVE DISTRICTS December 1984 TABLE OF CONTENTS SUMMARY ........................................ ..... . . . . First District - Boston......................... . . . . . . . . . . . . . Second District - New York...................... . . . . . . . . . . . . o Third District - Philadelphia................... . . . . . . . . . . . . . i 1I-1 11I-1 Fourth District - Cleveland.................... IVV -1 Fifth District - Richmond ....................... Sixth District - Atlanta........................ ............ . . , . . . . . . . . . . VI-I VII-1 Seventh District - Chicago...................... VIIl-l Eighth District - St. Louis..................... IX-l Ninth District - Minneapolis.................... X-l Tenth District - Kansas City.................... . . . . . . . o .o. . . Eleventh District - Dallas ..................... Twelfth District - San Francisco................ XI-l XII-l SUMMARY* The economy continues expansion across both regions growing overall, industries. compared to but and most show Districts earlier this year. a widespread pattern of slowing industries. Retail sales growth on is seasonally normal. interest to a Manufacturing year-over-year basis is sluggish Auto sales continue to increase more than Residential construction is still rates are leading to some signs of a pickup. Districts. is report substantial variation among weak, but lower Most Districts note steady loan demand overall, although consumer lending is some output strengthening in In agriculture, crop prices continue to fall while cattle prices are rising further. Agricultural debt remains a concern in several Districts. Manufacturing and Industry Manufacturing is growing slowly in every District, although some industrial sectors continue to among paper and perform vigorously. Growth Dallas and Increased orders contributing to San from indicate Francisco firms defense demand in some industries are those most exposed to textile, Louis, and the manufacturing import Chicago, and Minneapolis the former, a good showing by the latter. industry automobile sectors. competition, The all *Prepared at the Federal Reserve Bank of Dallas. report are weakest especially apparel, wood product, and metal working industries. Richmond, highest allied product firms and electrical equipment producers. Atlanta, Minneapolis, and Dallas report strong performance by while is the Boston, St. deteriorating Several Districts report in at least one of these industries. performance that inventories are rising, but among those reports only that inventories are above by levels. notation Chicago's of increasing, is as recession fears on the part of some improve, Oil and gas drilling activity is continuing to respondents. indicate few Input prices are stable or Uncertainty about future growth rising only slightly. evidenced desired a but the recent oil price decline threatens the industry's recovery. Consumer Spending Retail sales are slower than attribute expected slower increasing on a year-over-year basis, but they are several in Districts. uneven between consumer The Respondents pattern York Richmond, of sales is durables and nondurables across Districts. Many stores are increasing their advertising business. New sales growth to relatively warm fall weather. on the other hand, reports quite strong sales. also and Boston increased anticipate expectations regarding the strength and of Christmas markdowns holiday sales to stimulate but sales, lower are the than earlier. Automobile sales are above year-earlier levels in each of the nine in expansion some areas. strike production and recent for Inventory shortages are responsible Districts reporting them. Availability settlements slower problems persist, but increased lead many dealers to expect further gains in sales. Construction Lower mortgage interest rates are contributing to an upturn in some previously declining residential construction markets. Cleveland, and St. Philadelphia, Louis report growth in residential construction. New iii York is reporting despite a exceptionally strong shortage of skilled labor. residential regions within these levels San Francisco, Dallas, Chicago, and Minneapolis note general weakness in their some construction residential markets, Districts are doing well. although Atlanta and Kansas City expect strengthening residential construction on the basis of lower vigorous than interest rates. Nonresidential residential. construction is generally Several Districts comment proceeding at a strong pace. for nonresidential that more commercial construction is New York is the exception with ebbing markets construction in all parts of the District except mid-town Manhattan. Banking and Finance Mirroring moderating. reports a the slowdown Commercial lending recent in is the overall economy, asset growth is remaining appears Atlanta and Mortgage rates. although St. Louis pick-up in loan demand and Philadelphia expects such an increase soon because of continued economic still flat, strong with Cleveland widespread report slight expansion. reports of increases Consumer sizeable in lending increases. mortgage lending. loan demand is generally steady elsewhere despite the decrease in Several Districts expect a demand pickup indicates that declines in the future. Dallas in oil prices may limit the availability of bank funds to the oil and gas industry. Agriculture The agricultural situation varies among Districts, reflecting diversity of products, weather, and market conditions. will be considerably larger than last year, but the Harvests this year declining prices are iv blunting the possibility of substantial gains in farm income. reports that late rains have significantly damaged the cotton crops in portions of the District. that increased pressure on cattle prices. herd liquidations prices. improving repayments of agricultural loans. that many farmers are having difficulty current prices. are putting The brightest agricultural picture is offered by Richmond where a better growing season and are U.S. cattle prices are helping ranchers in many parts of the country, although St. Louis notes downward soybean Both San Francisco and Chicago comment on the importance of poor export markets as one cause of low Improving and Atlanta meeting stable input costs Several Districts note interest payments given FIRST DISTRICT - BOSTON Economic activity in the First District has slowed in the past several months, according to representatives from both the retail and manufacturing sectors. Retailers attribute the recent weakness, at least partly, to unseasonably warm weather; they continue to look forward to a strong Christmas season. Manufacturers have also seen a slowing since the summer, although a couple of respondents report that orders appear to be picking up again. Manufacturers are concerned that the recent slowdown means that there will be little or no growth in 1985. Even so, manufacturers' capital spending plans for 1985 are greater than or equal to spending in 1984. Some retailers and manufacturers report that inventories are higher than desired; but for the most part, inventory control is said to be good. Price increases continue to be very modest; competition is intense in both retailing and manufacturing. Retail Sales Retail sales growth slowed in the First District in October and the first half of November. reportedly fierce. More recent signs are mixed. Price competition is In spite of recent results, most contacts expressed optimism about the upcoming holiday season. Explanations for the recent slowdown were varied. Warmer-than- usual fall weather reportedly inhibited purchases of cold weather apparel, with sales of outerwear noticeably below plan. One merchant also blamed poor product availability caused by difficulty hiring employees for a distribution center. 4 1/2 percent). (New England's unemployment rate is currently about However, a chain selling consumer durables, with well into double digit sales growth for the last few years, had no explanation for an unprecedented drop to "near zero" growth beginning in mid-September. Shoppers just stopped coming to their stores. There is extensive promotional price activity. is growing, reducing margins. Off-price retailing One contact commented that merchants are fighting so hard for market share that they are losing sight of the bottom line. Another, selling hardgoods, said ready-to-wear stores are facing particularly tough times. A mail order firm predicted a shakeout in the catalog sector and, citing'competitive pressures, reported recent price increases averaging only 2 percent; 1985 price increases are also expected to be modest. Two retailers with supply troubles have lower inventories than desired. They are concerned that customer service levels and, hence, sales could be adversely affected in the next critical month. Other stores, with unexpectedly weak sales, are currently overstocked but expect to work inventories down in December. A local department store reported "fantastic" sales volume the day after Thanksgiving; but results were spottier on the ensuing weekend days. The slower weekend sales were attributed, at least in part, to the return of warm weather. With more seasonal cold temperatures, retailers project good holiday sales and strong, but not spectacular, increases over last year. Manufacturing Manufacturers in the First District report that orders have slowed from the pace set in the first half of the year. The slowdown has been fairly general, encompassing high technology products, traditional metalworking, packaging and some consumer products. One respondent has continued to enjoy strong, steady growth and two others have seen a pickup in orders after a slowdown earlier in the fall; but these are exceptions. The slowdown caught manufacturers by surprise; several report that inventories are a little higher than desired. that their inventory control is very good. However, most contacts feel The slowdown does not seem to be viewed as a serious problem in itself, but respondents are concerned about what it implies for 1985. Most expect business to be flat or up slightly next year. Capital spending plans call for expenditures in 1985 to be about the same as or higher than in 1984. More additions and new plants seem to be planned, although the emphasis in capital spending is still on replacement expenditures and productivity enhancement. A couple of contacts mentioned that workers have become more receptive to productivity enhancing equipment and the more flexible work rules this requires. There are no signs of increasing inflation. Materials prices are rising only modestly and several manufacturers noted that even these modest increases cannot be passed on to customers. Wage increases remain moderate. One comment heard for the first time is that the decline in the value of the pound has made the United Kingdom a much more attractive I-4 location from which to supply world markets. Two manufacturers, in very different industries, said they are expanding or thinking of expanding their U.K. operations. Several respondents also mentioned that the strong dollar and the pressures of foreign competition have forced them to devote more attention to developing new products and also to searching out new markets overseas for existing specialty products that are not very price sensitive. II-1 SECOND DISTRICT--NEW YORK Introduction The pace of economic activity in the Second District has been uneven in recent weeks. November, while Retail sales purchasing slowed significantly managers reported in October and significant improvement business conditions in October after a sharp slowdown in September. reports on the Christmas season were mixed. department store sales were is increasingly scarce. in The first Over the Thanksgiving weekend, on or above plan, but advertised heavily and cut prices. early several retailers had Homebuilders remain busy and skilled labor The office market, in contrast, is weakening almost everywhere outside of midtown Manhattan. Thus far, the demand for mortgages and consumer loans has not responded to the recent decrease in interest rates. Consumer Spending Second District retailers report a weakening of consumer sales in October and November. slow sales of winter Unseasonably warm weather was cited as the cause of the clothing through most of the period, yet only one merchant reported sharp increases when the weather cooled in mid-November. a result, most stores report unplanned increases in their inventories. As Over the Thanksgiving weekend, sales at many stores showed some improvement, with increases over 1983 ranging from flat to 39 percent. However, the promotional environment has been escalating and some retailers reported needing aggressive advertising and price cuts. II-2 Business Activity During recent weeks the pace of improvement after the September slowdown. economic expansion showed some In Rochester, the percentage of purchasing managers reporting improved business conditions rose substantially in October; in Buffalo the percentage reporting declining orders fell. Inventories were steady to slightly higher and remain at satisfactory levels. Several New York firms plan to increase production and hiring as a result of newly-awarded contracts government Additionally, a Japanese electronics and development urban firm will build grants. a U.S. headquarters complex in Mahwah, New Jersey on the site of a large plant closed in 1980. A recent report indicates that New York City's employment growth during the recovery extended to all five boroughs, in contrast to past years when most job gains were concentrated in Manhattan. Employment increases in Brooklyn and the Bronx reversed a six-year pattern of decline. Construction and Real Estate Residential construction activity remains intense. New contracts for home construction are being written by some upstate builders at a rate that exceeds even the rapid pace of last summer. In downstate New York, however, shortages of skilled labor in parts of the metropolitan area are reportedly worsening, and parts the delays have been very costly to some homebuilders. of New Jersey, planning for multi-family housing is picking court-ordered down-zoning is gradually being implemented. up In as Additionally, for the first time in several years, New York City is sponsoring the production of rental housing without Federal subsidy. II-3 Observers absorption across the entire in almost of office space District, appear Observers to be also a "wait and taking believe that plans started are likely to be postponed. is in midtown Manhattan, where slower all areas, with parts of Westchester, Connecticut and New Jersey especially sluggish. space report however, for see" many Potential renters of office stance signing leases. before projects not construction yet The one exception to this softening trend demand is still strong and inventories of rental spaces are low. Financial Developments Despite the drop in interest rates since August, several regional banks said they experienced little or no increase in the demand for mortgages and consumer loans beyond the normal seasonal variation. for the weakness is that their mortgage One reason mentioned and consumer loan rates have not dropped as much as open market interest rates, and consumers are said to be delaying their borrowing rates. in anticipation of a further decrease in the bank The banks also reported that for new mortgages, fixed rate instruments have become more popular in the last few months. III-1 THIRD DISTRICT - PHILADELPHIA The Third District economy is turning in a somewhat mixed performance again in November. On the up side, retailers are starting the holiday season with strong sales, realtors are seeing an increase in traffic, listings, and sales, and consumer lending continues to grow steadily. Less positive are manufacturing, where the expansion continues to lose steam, and business borrowing, which has been flat over the past six weeks. The overall economic outlook is generally upbeat. Retailers expect to finish the year with a bang, and realtors hope to continue to ride the tide of lower mortgage interest rates. Area bankers predict continued economic expansion and expect commercial loans to pick up again. Growth is expected in manufacturing also, but at a slower rate. MANUFACTURING The rate of expansion in local industry continues to decline, according to respondents to this month's Business Outlook Survey. Almost two thirds of the manufacturers polled in November say there has been no change in the level of business activity compared to last month. November is typically a slower month, but, even after adjusting for seasonal effects, this deceleration in growth is still evident. durable goods sector where not one The slowdown is most pervasive in the respondent indicated improvement. Producers of leveling off in nondurables, on the other hand, are still posting solid gains. Reports on specific manufacturing activity. indicators also reflect the apparent The only indicator to increase in November is shipments; unfilled orders, delivery times, inventories, employee payrolls, and the length of the average workweek all register minuses. The outlook for manufacturing over the next six months is still positive, but optimism is waning. The proportion of respondents looking for future expansion has been III-2 shrinking steadily since mid-1983 and now stands at 47 percent. Nevertheless, projections of new orders and shipments are still strong, and payrolls and working hours continue on their way up. Industrial price reports have been marked by stability over the past few months. This month, three out of four executives polled say there has been no change in either prices paid for raw materials or prices received for finished goods. As for the future, however, the same proportion of respondents predict higher costs by April, while about half expect to receive more for their output. RETAIL Retail sales over Thanksgiving weekend were strong, giving an extra push to what has been an already brisk six-week period. Most retail contacts feel that consumer confidence is up, citing increases in credit purchases and a "freewheeling" attitude about spending. Still, heavy promotional activity is being used to attract shoppers, and area merchants say they will continue to use the discounting tactic to boost sales throughout December. Currently, sales volume is running about 10 percent above last year at this time. Inventories at Third District department stores are slightly heavier than usual relative to sales, but are in line with sales expectations for the next month. One contact said that the heavy stock levels are a reaction to last year's empty-shelf syndrome, pointing out that retailers want to have enough merchandise to avoid shortages. Area merchants expect to finish 1984 on a strong note, topping last year's exceptional sales by 10 to 15 percent. In part this is the result of the date of Thanksgiving this year, which provides two extra shopping days compared to last year. Local retailers say that each additional day adds about 1 percent to holiday sales figures on a year-over-year basis. Automobile sales are very strong in the Third District, up about 25 percent over a year ago. Car dealers also are seeing improved consumer confidence. One contact reports, III-3 "people are not buying new ears because they need them but because they want them." The average wait for a new car is three to five weeks. FINANCE Reports on lending remain mixed in the Third District. Commercial lending has flattened somewhat over the past six weeks but is still up over last year. Area lenders look for a slight pickup in C&I loans by year-end 1984 in spite of the usual downward seasonal pressure. They also anticipate a surge in C&I loan growth in early 1985 in conjunction with continued overall economic expansion. Consumer loans are growing steadily. On a year-over-year basis, local bankers report increases of 30 percent or more. In the past, credit card operations have been cited as the main source of growth, but auto loans account for a large portion of the pickup in late November. Bankers expect consumers to maintain their spending mood through December of this year. Spending in the first half of 1985, however, may slow down if the ratio of installment credit to personal income, currently about 14.5 percent, reaches or surpasses its 1979 peak of 15 percent. The prime rate at most local banks has dropped to 11.5 percent as of November 27, and Third District bank economists expect another cut of 25 basis points by the end of the year. Forecasts of declining rates are based on sluggish fourth quarter economic growth and on expectations that the Fed will try to stimulate economic activity. Bankers apparently expect such efforts to be successful and see the prime climbing back up to 11.75 or 12 percent by mid1985 as a result of renewed growth. REAL ESTATE Third District realtors enthusiastically report that traffic, listings, home prices, and sales are up. Seasonal factors which usually depress sales in late fall and early winter are being offset by lower mortgage interest rates and some pent-up demand. Thirty-year fixed-rate conventional mortgages are available for as low as 12-7/8 percent; 15-year mortgages for 12-1/2 III-4 percent. Adjustable rate mortgages start at 10-3/4 percent and go up to about 13 percent depending on the terms of the agreement. Although lenders are pushing ARMs, consumers are flocking to the relatively low fixed-rate loans. IV-1 Fourth District - Cleveland Summary this Overall, District's economy conditions weakened in October. is soft and uneven. market Labor Department store sales improved recently after being slow in the first two weeks of November. Automobile sales were Manufacturing production has begun to expand strong throughout November. again but orders are growing so slowly that backlogs are falling. Machine tool and steel producers continue to suffer from strong import competition. Inventories are high in several moderate improvement. sectors. The housing market is showing Commercial bank lending has been flat. District Labor Market Conditions Labor market conditions in the District softened in October. Employment fell and unemployment rose in Ohio, increasing the unemployment rate to 9.5% (s.a.), 0.8 percentage points above its July level but 1.6 percentage points below its year-earlier level. slower pace. An index of Manufacturing employment is growing leading indicators of employment at a the for Pittsburgh area fell again in September to its level of February, suggesting that employment there has peaked. Retail Sales Retail sales were relatively slow over the first two weeks of November but have since representatives. improved, according to Fourth District department store One economist now estimates that November sales will show a 7%-8% year-over-year increase. However, he and others November retail sales report period ended on the 24th, late-month strength. noted that the missing some of the As a result, reported November sales figures may be somewhat understated while those for December will be somewhat overstated. IV-2 Nevertheless, no one anticipates two-month period. a return to double-digit gains for the Further, part of the anticipated November-December gain will likely be achieved through price reductions as retailers attempt to cut inventories. Auto dealers report strong sales throughout November for both domestic and imported cars. One dealer, in particular, noted that his November sales were about even with the October level. about 20% below the October volume. Typically, his November sales run Car buyers apparently have not been deterred by reports of weakened economic activity or by anticipation of tax increases. A major auto producer believes that auto sales are still constrained by shortages of GMC cars. Manufacturing Manufacturing activity in the District is survey of manufacturers A survey of manufacturers production and new orders indicate Manufacturers New orders continue to grow at in the Cincinnnati are rising very slowly, falling for the first time since very early data A in northeast Ohio indicates production is expanding once again after a recent brief contraction. a slow pace. growing slowly on balance. manufacturers expect area indicates but order backlogs in the recovery. to backlogs report prices paid for commodities Other survey to continue and are services decline. are rising very slowly while prices paid for equipment are flat. A manufacturer of machine tools expects orders to be slightly higher this quarter than last, with slow growth continuing into 1985. orders persists from the auto in equipment. orders and defense from producers Machine tool industries remain strong while weakness of farm, construction, and oil Imports remain a major drag on the domestic machine tool field IV-3 industry, and are absorbing about 40% of the market. reported to be competing fiercely for sales Japanese producers are of machining centers and numerically controlled lathes. A diversified producer of components for capital automotive related orders remain solid. goods reports that Orders for some electronic components have declined but the firm views this as a correction of earlier overbuilding of inventories rather than Space-related and defense-related a decline in underlying demand. orders continue to grow but less rapidly than their previous exceptional pace. Major because steel producers customers are strong. report orders reducing excessive and production inventories remain and imports sluggish remain Order backlogs are expected to continue falling throughout this quarter. Capacity utilization in steel production is 50%-55% for integrated producers and 55%-60% import competition. for the industry. Prices remain weak because of Producers expect market demand to be stable in 1985 and their shipments to increase slightly if quotas restrain imports. Inventories Department stores report excessive inventories are tight. among northeast Ohio manufacturers. Petroleum Steel firms producers are some auto dealer Inventories of raw materials and finished goods are reported to be flat among Cincinnati stable. inventory, while report resisting expectations of price declines. area manufacturers and rising slowly Lead times for deliveries appear to be customers seasonal are inventory reducing growth inventories. because of IV-4 Housing Housing market participants summer's general prospects for participants downward trend. even that The mid-1985. in this District report a reversal lower housing Because of softening mortgage rates and rates, there is a activity will improve possibility of of the a strong consensus mildly housing among until rebound market at is least generally considered to be remote. As a result of a substantial realtors are reversing their recovery in listings and contract closings, previous plans to scale down operations. Realtors, who are the most optimistic among market participants, that housing activity will improve throughout 1985. rebound may continue to mid-1985 but are reduce the size of their operations. persists. weak and brief. In contrast, Although lenders Builders expect not reversing previous Builders minimize down-side risk and forego potential rebound now expect apparently profits if plans to would rather the housing market expect the housing rebound inquiries are up slightly, the mortgage to be volume has been only marginally increased by lower mortgage rates. Commercial Banking Loan growth was relatively flat at Fourth District banks during the past five weeks. in A few bankers who reported fairly strong business loan demand recent weeks expect the demand for business credit to weaken. Some contacts said that consumer loan demand has been good and should remain that way for the balance of the year. A few large banks report that consumer leading rates have not yet been adjusted downward. Retail weeks. deposit growth has been moderate at district banks in recent Banks have relied less on large certificates of deposit, but more on the use of borrowed funds. FIFTH DISTRICT - RICHMOND Overview Although there are presently cross currents at work, the primary thrust of the District economy seems to be forward. Employment appears to be making substantial gains despite seasonal weakness in some sectors. Retail sales have been holding their own and most observers are encouraged by the early indicators of holiday buying strength. Construction activity is essentially unchanged, remaining strong in the metropolitan areas, somewhat less robust elsewhere. Countering all of these positive factors, is what appears to be a sharp contraction in the textiles and apparel industries. Several major layoffs and plant closings the District around have announced recently, and industry employment has fallen substantially. contraction is generally attributed to rapidly increasing been This imports of competing products. Business loan demand seems stable and relatively strong, although variations there are from area to area. In agriculture, an excellent growing season in much of the District, good prices, and a strong livestock sector should make for significantly improved cash receipts in 1984 and some relief on the agricultural credit front. Manufacturing The manufacturing sector must almost be treated as two, since the behavior of textiles and apparel differs sharply from most other sectors. balance, the District's manufacturing industries are continuing to On expand output and employment, and the gains appear significant in some industries, such as machinery and electrical equipment, where year over year gains in employment remain the rule. Building materials and furniture production and employment have apparently stabilized after several months of ups and downs. Textiles and apparel, on the other hand, after a year of little change, began cutting back employment and output, severely in some cases. import situation is a major factor. As noted, the Nationally, 1983's record for textile and apparel imports had been broken by the end of September. Inventories at the manufacturing level are essentially stable and there is little noticeable dissatisfaction with present levels. Current plant and equipment capacity also remains basically at desired levels, and there is little existing inclination expansion plans. on the Prices part in of the most manufacturers manufacturing sector to alter continue stable, with no significant upward pressure apparent in any sector. Coal production in the District, as in the nation, substantially after the BCOA-UMW negotiations were completed. fell rather Nonetheless, production, year to date, remains well ahead of last year, and record output is still within reach. Another segment of the District bringing in an outstanding year is the ports. Although much of the traffic is in imports, activity, particular- ly at the District's larger ports, has been very strong. Consumer Activity District has been quite strong Consumer spending in the time, and indications are that it remains so. Earlier, for some there was some trepidation among retailers, but recent developments have apparently relieved it. Early indications are that the holiday buying season got off to a good start. Most observers think that sales will be up from a year ago, and thus, quite healthy. Even before the seasonal kick-off, durable goods sales which sagged in late summer, had rebounded and were making gains relative to other product lines. Although retailers had expressed some concern over inventory levels, their fears on that front seem to have been quieted as well. improvement in retailers attitudes Part of the arose from their perception that sales were doing well despite unfavorable weather conditions. Construction In general, the construction industry in the District is staying busy. Variation persists, particularly between the larger cities and smaller towns and rural areas. There are presently indications, however, that industrial projects are lending support to a number of localities outside the urban areas. Within the areas metropolitan commercial and construction are still doing well, apart from seasonal factors. indications, however, that in some of these areas multifamily residential There are residential markets have or are about to weaken while excess supplies are worked off. Agriculture The agricultural sector of the Fifth District should experience an economic rebound in the current year. most of the District, good prices, An excellent growing season throughout and a strong livestock sector should provide $8.15 - $8.20 billion in cash receipts for 1984 about 10 - 12 percent above the drought reduced The cost 1983 level, but only about equal the 1982 mark. of production should exhibit only modest increases over the same period, leaving the net income of farmers substantially improved over the 1983 position. The improved income position of District farmers is expected to show up in the District agricultural credit agricultural conditions credit picture. indicates rates are improving at District banks. that The quarterly agricultural loan survey of repayment In addition, short and intermediate loan demand is strengthening although the demand for long term loans remains weak. District farmland prices are stabilizing. Outlook The outlook around the District has improved somewhat in recent weeks, although most respondents see activity as essentially flat in coming months. outlook Apart seems considered from the to have textile arisen unsustainable. as The and apparel sectors, activity continued trade deficit at remains the improvement levels a major in previously concern, particularly among the textile, apparel, and furniture manufacturers. Their attitudes are clearly less buoyant than those in other sectors. Consumers and retailers sales activity has improved. for inflation. are confident, particularly since recent There remains little concern with the prospect VI-1 SIXTH DISTRICT - ATLANTA Strengths continue to outweigh weaknesses in the southeastern economy. With the exception of certain import-sensitive industries, the manufacturing sector continues to expand, and optimism remains strong. sales without excessive pressures on profits. Retailers expect healthy holiday The large volume of commercial construction is helping to offset the slower pace of residential building, and contacts believe that underlying conditions portend a revival in housing next year. demand remains seasonal norm. on the upswing, Bank loan and thrift mortgage commitments are above the Business and convention travel is sustaining growth in lodgings and air transportation, although vacation travel has slowed somewhat. The agriculture sector, particularly cotton and soybean growers, also experienced some late-season setbacks as the result of heavy rainfall and flooding. Employment and Industry. Unemployment rates changed marginally in However, more recent labor market data for three of the six District September. states suggest that the region's overall rate rose slightly in October. also is mixed. Industrial activity Fewer housing starts and rising imports of Canadian lumber are swelling forest product supplies and depressing prices. Alabama reportedly is Canadian. One-third of the lumber now sold in Clothing and textile producers continue to face stiff foreign competition that has resulted in layoffs and plant closings. Although previously idled workers in Louisiana's petrochemical industry are being recalled, the industry remains weak. However, respondents anticipate chemical production to grow from current depressed levels if interest rates stabilize or fall further over the next quarter since demand for the state's chemical products stems largely from the credit-sensitive auto and construction industries. south Louisiana continues its gradual upward trend. Drilling activity in Over 89 percent of rigs are now VI-2 working compared to 68 percent a year ago. The region's many paper mills are operating near capacity. Industry spokesmen fear that packaging-related orders may slow as the economy cools, but they foresee ongoing strong demand for computer paper and other forms. Defense and space programs are providing additional stimulus. A satellite assembly facility and a cruise missile plant recently began operating in Florida. A major Mississippi defense contractor expects to add 1,500 workers to its payrolls by spring as naval shipbuilding and refurbishing contracts reach the assembly stage. Consumer Spending. Southeastern retailers report varied sales gains ranging from 2 to 10 percent for October and November. Mild fall temperatures slowed consumer spending and contributed to the accumulation of unwanted inventories in a few areas. However, generally steady retail sales and increased advertising and sales promotions helped keep inventories at desired levels elsewhere. toys were best sellers in the October-November period. especially Electronic items and Sales of winter apparel items, outerwear, also spurted in November with the onset of cooler weather. Retailers report that prices for Thanksgiving weekend were at "regular discount levels." Although some retailers have lowered their expectations for consumer spending, most expect good Christmas season sales without the need for extreme price discounts to move inventory. Shortages of certain popular models and strike-related sales declines slowed car sales activity in October and the first two weeks of November, but regional auto sales remain sharply ahead of 1983 on a year-to-date basis. Southeastern dealers expect new car sales to continue strong through the first half of 1985. Construction. Many builders and real estate agents polled believe that declining interest rates, stable home prices, and increasing personal income augur a rebound in housing in 1985 from the current moderated level of residential construction. Commercial real estate construction continues at a record pace in most major VI-3 southeastern cities, but vacancy rates are generally high. Miami's vacancy rate edged Shopping center construction has increased in Birmingham down to 13 percent, though. and Miami with the entry of major retailing chains into those markets. Financial Services. Loan activity remained strong in October. and business lending accelerated from the growth rate of previous months. Consumer The pace of real estate lending at banks slackened in October, but mortgage commitments at savings and loan institutions currently are above the level expected for this time of year, according to thrift officers surveyed. They report that the higher qualifying standards for customer income recently enacted by mortgage insurance companies has not noticeably dampened consumer demand for mortgages. Tourism. convention Vacation tourism slowed somewhat in October, but business and travel remains strong. Attendance decreased relative to year-earlier levels. at many southeastern attractions For the first time since the beginning of the year, Florida welcome centers registered fewer visitors. However, hotels and motels increased revenues in October due to increased occupancy and steady room rates in most markets. Miami's convention bookings were 20 percent ahead of year-ago levels. Most regional airports, which, like hotels, serve primarily business and convention travelers, had higher passenger volume than in October 1983. Agriculture. Late season weather has changed crop prospects. As a result of extensive rainfall and flooding, Mississippi's estimated cotton yield declined 115 pounds per acre, occasioning a 17 percent revenue loss from earlier projections. Rains and floods also proved damaging to the soybean crop in Louisiana and Mississippi. Production declines in those states, added to earlier drought-induced losses in Georgia, may reduce revenue to southeastern soybean farmers by 9 percent, or $139 million, from 1983's relatively low level. VII-1 SEVENTH DISTRICT--CHICAGO Summary. Total business activity in the Seventh District has been about stable since early this year, having flattened earlier than in the nation. Most District reports suggest relative stability in the months ahead, but concern has been growing that a general deterioration is underway. Auto pro- duction has returned to a high level, but only slightly above last year. Steel output has improved since late September, but remains well below the first half rate, and below break-even levels. from the auto industry. Machine tool orders are up, mainly Heavy construction and farm equipment makers, faced with weak markets, are selling off units and closing marginal plants. Cutbacks are occurring in the important health care industry, reversing a long-term expansion. Container loadings on flat cars, which had slowed earlier in the year, slipped significantly in November. ment remains weak. from high levels. Demand for most mechanical capital equip- Sales of heavy trucks and trailers have softened recently However, surveys show sizable additions to capital outlays next year by the auto and steel industries. Many lines of seasonal retail merchandise are reported moving well, but the 2-year boom in consumer hardgoods apparently has run its course. encouraging price markdowns. Retail inventories are viewed as excessive, Recent declines in paperboard demand partly re- flect reduced orders for general merchandise. Residential construction con- tinues to weaken, while nonresidential construction is expanding. District farmers, many in distress because of heavy debts and weak prices, continue to restrict purchases. Recession Fears. The plateau in District activity since last spring, coupled with recent declines in factory orders and freight movements, raises the question of an imminent recession. are intense. Pressures to reduce or hold down inventories Our contacts with industries important in the District generally VII-2 expect relative stability during the rest of 1984 and early 1985--but no precipitous decline. However, some company analysts are warning their manage- ments that the situation is fragile and that a general decline, rather than renewed expansion, is the more likely development. Motor Vehicles. Auto makers are planning production at a high level through next year's first quarter, but with only small gains from year-earlier levels. Weaker auto sales in recent months reflect shortages of popular models. Strikes, unrelated parts shortages, and import quotas have limited supplies. Large "availability" premiums are reported on some models, recalling the situation after World War II. Steel. Steel production in the Chicago and Detroit areas has improved some- what from September lows associated with heavy imports, the auto strike, and inventory cutting. However, output remains well below the first half pace. In- creasingly, imports have penetrated Midwest markets. usually through steel service centers, often owned by foreign steel producers. Fourth quarter shipments are expected to be about even with the third quarter, in contrast with a normal seasonal rise. Local analysts have lowered estimates for total U.S. mill ship- ments to around 74 million tons. Next year's shipments are expected to be helped by the Administration's import restraint plan, retroactive to October 1. Capital Equipment. Many capital goods manufacturers with production facilities in the region are restructuring and downsizing operations. heavy construction equipment producer plans to close five plants. are consolidating divisions and laying off workers. A major Other firms Producers of most mechanical capital goods face intense competition from abroad in U.S. and foreign markets. Some farm equipment suppliers, long-time leaders in their fields, are selling or writing off money-losing divisions. softened further. Farm equipment sales, weak last year, have Some other types of capital goods, for oil and gas de- velopment, materials handling, food processing, and railroad transportation, VII-3 have improved but from low levels. Easing of orders for heavy trucks and trailers, in strong demand earlier in the year, is expected to reverse when regulations on size limits and routes are clarified. Surveys show further growth in capital spending next year, with sizable increases in outlays by the auto industry and steel. Retail Trade. General merchandise sales in the District have been mixed in recent months, with good gains for some discounters and declines, seasonally adjusted, at other chains. Large appliance sales are at record levels, but the vigorous two-year expansion has lost momentum. Furniture demand also has slowed. However, small "traffic" appliances, toys, and other gift items are moving well, raising hopes for a good Christmas selling season. in the region, remain optimistic. Markdowns are frequent. Consumer attitudes, measured Inventories are widely viewed as excessive. Some general merchandise chains have cut back orders. This helps account for an easing in paperboard demand, after an 18-month expansion. Prices on average are about stable and little changed from last year. Residential Construction. ened since about midyear. New housing construction in the region has weak- Despite sizable declines in mortgage interest rates since then, area lenders report softer loan volume. the outlook is somewhat improved. However, with lower rates, Fixed-rate loans are accounting for a larger share of the total, due to higher standards on adjustable rate mortgages and a narrower "spread" between rates on fixed- and adjustable-rate loans. Permits for residential construction in District states are 68 percent above the low 2 years ago for nine months, but 58 percent below the peak in 1977. Nationwide, permits are up 80 percent from 2 years ago and only 8 percent below the 1978 high. Nonresidential Construction. strong in the Chicago area. Office and retail construction continues Total nonresidential building contracts this year in the five District states (F.W. Dodge data, in square feet) are up nearly 60 VII-4 percent from 2 years ago, but still more than 40 percent below good levels of the 1970s. The backlog of public works projects is growing--mainly highways, bridges, water and sewer. The amount of road and bridge work next year will depend on resolution of a political impasse in Congress which is delaying release of accumulated funds. Agriculture. Following rain-caused delays, the District farm harvest is finally drawing to a close. Corn and soybean prices remain well below year- earlier levels, keeping farm income low. Despite average domestic harvests, record crop production world-wide is forecast for 1984-85. the expected recovery in U.S. grain exports. This may dampen Meat output is down from last year, but above earlier forecasts, largely reflecting increased broiler output. Milk production is running about 4 percent under last year, partly be- cause of federal payments to farmers to cut output. has been trimmed by higher consumption. The milk surplus also Dairy farmers apparently are poised to expand output when the paid diversion program ends in March. VIII-1 EIGHTH DISTRICT - ST. LOUIS Summary The Eighth District economy has experienced slight reductions in employment levels recently and at least one District state has seen a small rise in unemployment. Though retailers continue to expect a good Christmas season, forecasts for sales through the end of the year have been revised downward. Lower interest rates have spurred small gains in residential construction levels. Total loan growth has increased recently, especially among commercial and industrial loans and consumer loans. Prices of District agricultural commodities remain weak as marketings continue to be sufficient to meet current demand. Outlook Most respondents in the Eighth District expect little change in business conditions through mid-1985. They expect the real volume of sales to go up slightly in the next three months, but plan to keep price and employment levels unchanged. Consumer Spending Retailers continue to expect a good Christmas season though not as robust as forecasted last summer. Sales of durable goods in Memphis were up significantly in early November, while retail sales in eastern Arkansas were considerably above last year's level. Auto sales for early November in the District were just slightly above November 1983 levels. VIII-2 Employment Employment levels in the District have declined slightly in recent weeks as several District firms have laid off workers. A major appliance producer in Kentucky laid off 1,400 production workers and will phase out nearly 300 white collar positions. Kentucky also recently experienced the loss of approximately 900 jobs in the cigarette manufacturing industry. Arkansas lost approximately 2,600 employees in the textile, metal and communications industries. Its unemployment rate rose 0.2 percent to 8 percent in October, but remained below the 8.3 percent rate of October 1983. Business Activity General business activity, as defined by an index of seven indicators, has slowed in Arkansas from a 4 percent annual rate of growth in September to a 2 percent rate in October. Business activity in Missouri declined at a 6 percent rate in October, following a 1 percent rate of increase for the month of September. Construction Housing sales in the District, which have been stable in recent months, seem to be picking up again on a seasonally adjusted basis. Housing market observers expect further improvement through the end of the year due to the recent fall in interest rates. Multi-family housing construction has been particularly strong in the St. Louis and Memphis areas. VIII-3 Banking The growth of total loans outstanding at large weekly reporting banks has picked up after a lull in recent months. The annual growth rate for the four-week period ending November 14 was 12 percent over the previous four-week period. Strong seasonal growth in commercial and industrial loans and consumer loans accounted for the overall increase. The growth of loans to financial institutions and real estate loans was flat. Total deposit growth slowed to a 5 percent annual rate, down from 17 percent a month earlier. All deposit categories experienced slower growth, while large denomination CD levels declined sharply. Agriculture Red meat producers, who had expected sharp price increases during the second half of 1984, continue to be disappointed by price weakness. Cattle prices have been pressured by a 7 percent increase in cattle on feed and a 2 percent increase in marketings over October 1983. Competition from a 5 percent increase in broiler production has prevented sharp increases in hog prices even though hog slaughter in October was 12 percent lower than a year ago. Corn and soybean prices have declined in response to better estimates of this year's harvests. Large foreign and U.S. cotton crops and weak demand suggest further price declines in this market. Little evidence is available to suggest substantial price increases for any of these commodities in 1985. IX-1 NINTH DISTRICT - Except conditions favorable in for the some large layoffs Ninth District employment conditions have have MINNEAPOLIS in not northeastern changed changed little Minnesota, economic much lately. Generally from earlier this fall. Consumer spending appears to be stronger in the Minneapolis-St. Paul area than in other less diversified parts of the district. The pulp and paper and the oil and gas sectors are performing well, while the lumber and plywood and the iron mining sectors are not. Crop farmers' profitability has not improved much, but dairy and fat cattle prices have. Employment District ota's conditions seasonally adjusted unemployment crease is state, employment are generally rate rose a bit in widely thought to be due to statistical seasonally adjusted nonfarm stable. payroll September, quirks. employment While Minnes- In fact, in that a September increase only slightly less than the 1984 average monthly increase, and aver- age weekly earnings in ust. posted the in- manufacturing industries increased slightly from Aug- Similar reports come from other parts of the district. In the Dakotas, for example, the September unemployment rate was only 4 percent. In the Sioux Falls, South Dakota, area, it was as low as 3 percent. Employment recently: massive were announced in in one of the district's layoffs November. workers were laid off in 14,500 workers, in industries the northeastern Due to a slump in has not been stable Minnesota iron mining steel demand, sector about 4,500 more an industry which had at one time directly employed but which more recently had employed only about 8,000. The IX-2 latest layoffs are a severe blow to the northeastern Minnesota economy, which had been recovering from lingering effects of the national recession. Consumer Spending A mixed pattern generally noted in the of consumer spending is Twin Cities, it is reported. not in some While growth other parts is of the district. Sales of general At two large November. ahead of Bank's Twin City Both retailers, of these year-earlier directors merchandise have not been uniformly strong lately. also sales retailers levels, report report although good appear to have November sales inventories sales picked up late in parts are about still 12 percent high. of western in This Wisconsin and around Bozeman, Montana. Retail sales have not been so good in other parts of the In district, however. Rochester, Minnesota, early November sales were generally slow, with smaller retailers doing worse than larger retailers. Bank director reports while other small increases directors report a at best for retailers general merchandise slump in in One South Dakota, many parts of Montana and North Dakota. Motor pace in vehicle in contrast, many areas of the district strike). Regional offices rose between this October Bank directors light in Dakota. of domestic 9 percent than report last. that seem to be continuing at a good (despite the effects of the General Motors September and October. facturer experienced sales sales, auto manufacturers Indicative of this higher car in strength, sales one manu- sales and 43 percent higher truck Its inventories car sales report that are low but still adequate. October and November were a little South Dakota and about the same as a year earlier in Bismarck, North IX-3 While housing purchases have picked up lately in in some scattered areas, August, Twin City home they have been slow in other areas. sales rose in percent higher than a year earlier. the September pace. the Twin Cities and Sales in September, After falling in maintaining a level over 17 October sales in Minneapolis maintained Sioux Falls, South Dakota, were good, in part due to the availability of subsidized mortgages financed with mortgage revenue But Bank directors report bonds. consin and Montana, that housing starts slowed in and many units remain unsold in Bismarck, western WisNorth Dakota, and in Rochester, Minnesota. Resource-Related Industries The picture in resource-related tors are continuing to do well. have been delayed, particularly pulp and industries is mixed, While expansion plans in paper prices for coated printing paper. too. Two sec- the paper industry and production are Oil production is still strong, also strong, with 50 rigs operating in the Williston Basin of North Dakota and a new $51 million project to enhance oil recovery from these wells. ther, oil and gas Two other there. drilling has sectors gone well in are not Montana, doing too well, continuing low steel demand helped cause massive eastern Minnesota's iron mining industry. Due to the warm, dry wea- increasing employment though. As noted above, layoffs recently And domestic in north- lumber and plywood prices continue to be hurt by Canadian imports and substitute building products. Agriculture Despite still a generally favorable suffering from low product prices, prices. harvest, many district excessive debt burdens, Dairy farming and livestock operations farmers are and low land have seen some price improve- IX-4 ment, though. consecutive spondents to The Minnesota farm price index fell in month. It this has Bank's percent said that farmers fallen nearly 12 percent late September October for the fourth since June. survey of district Of the re- ag bankers, 44 in their areas earned less in the third quarter than a year earlier, and a full 50 percent said that debt repayment was slower than normal for that strong recently, tightened. time of year. and milk prices However, fat went up in cattle October, prices have been quite as fluid milk supplies TENTH DISTRICT-KANSAS CITY Overview. There appears to be a lull in economic activity in the Tenth District at this time. But retailers, including automobile dealers, are mildly optimistic about sales for the rest of 1984. Inventories are viewed as generally satisfactory by retailers and manufacturers. Few price increases are expected for the rest of the year at either the retail or the producer level. Housing starts and sales continue above year-ago rates, while demand for mortgage funds is weak. Most responding banks report no change in total loan demand, and some growth in total deposits. Agricultural bankers expect unsatisfactory progress in debt servicing by many farmers in 1985. Retail Trade. Although most retailers report year-to-date sales have improved over year-ago levels, results have been mixed in the past three months. Stores with declines in sales in the past three months note some recovery more recently. Clothing has been selling particularly well. Inventory levels are slightly higher than some retailers desire, but this comes at a time when retailers are trying to position inventories for the holiday season. Retailers are mildly optimistic about sales through the remainder of the year with "better than last year" the predominantly expressed sentiment about this year's Christmas sales. Prices have remained flat in recent months, and no significant increases are expected for the remainder of the year. Automobile Sales. year-ago levels. Automobile dealers report sales are slightly ahead of Credit market conditions remain satisfactory, and financing is available both for floor planning and new car sales. A number of dealers describe inventories as tight, and the mix of inventories is unsatisfactory with some of the 1985 models in short supply. Despite this, dealers remain optimistic about sales for the remainder of the 1984 and early 1985. X-2 Purchase Agents. Respondents report input price increases ranging from 2 to 7 percent over the past year. Most have experienced smaller increases over the recent three months, and few expect price hikes during the remainder of 1984. Except for some difficulties with undependable suppliers, most agents have had no problem getting deliveries and expect none for the remainder of the year. Most respondents describe inventory levels as satisfactory while they continue to look for ways to trim further during the remainder of 1984. Housing Activity and Finance. The majority of homebuilders report that housing starts are still running ahead of last year. Most report substantial improvement in multi-family starts, but only moderate increase in singlefamily starts. Sales of new homes are at or above last year's rate. Prices for new homes have remained constant or risen only slightly, and inventories are generally low. risen slightly. Prices for building materials have remained stable or No availability problems were reported, nor are any expected. Demand for mortgage funds at savings and loan associations is weak, especially for residential mortgages. pace. Mortgage commitments are thus being made at a slow Mortgage rates are expected to fall slightly, but no significant improvement in mortgage demand is anticipated before early next year. Savings inflows are reported to be somewhat higher than last year, with some further improvement expected. Banking. A majority of respondents at Tenth District banks report no change in total loan demand during the last month. However, a sizable minority indicate that loan demand was somewhat higher. The situation is similar for commercial and industrial loans, and for commercial real estate lending. Some respondents express continuing concern about loan quality in industries such as energy and agriculture. Most banks report an increase in consumer loans, but lending for residential real estate is unchanged. A majority of respondents experienced growth in total deposits. Demand deposits and conventional NOW accounts showed little change, but most banks registered increases in Super-NOW accounts and MMDA's. Large certificates of deposit, passbook savings accounts, and small time deposits were generally unchanged. Agriculture. Banks in the Tenth District report a slight decline in interest rates on operating loans for farmers, with current rates ranging from 13.5 to 14.5 percent. The largest decrease was in New Mexico, and some bankers in Missouri and Nebraska expect interest rates to move lower yet. Despite slightly lower interest rates, paydowns on operating loans at agricultural banks have been much slower than expected throughout the Tenth District, with the exception of Colorado. Agricultural bankers now expect many farmers to make unsatisfactory progress in servicing their debts in 1985. Land prices continue to decline, but very little land is currently changing hands. Corn yields are reported above average, except in Missouri where yields are sharply lower than normal due to a summer drought. are generally reported below average. Soybean yields Extensive total and partial liquidations of cow-calf herds by major ranch operators are reported in Nebraska, Oklahoma, and Colorado. Stocker cattle operators are reflecting guarded optimism about 1985 price prospects, however. XI-1 ELEVENTH DISTRICT--DALLAS The Eleventh District's economic expansion remains sluggish across a broad spectrum. Demand for manufactured goods continues to grow slowly. Oil and gas drilling is increasing as is normal for this time of year, but lower crude oil prices could dampen this activity. fallen far short of expectations. showing. Retail sales have Auto sales continue their strong The level of residential construction is continuing to decline as fears of overbuilding now affect single family construction. Nonresidential building is steady, but rising vacancy rates are beginning to deter construction. District manufacturing growth remains low. Areas of strength are the paper and allied products and electrical machinery sectors which continue to show consistent growth. Transportation equipment manufacturers are reporting increasing demand from utilities and oilfield service companies. Apparel manufacturers, on the other hand, continue to experience low demand as a result of import competition and sluggish retail sales. Sales in the chemical and allied product sector are increasing only modestly. Lumber and wood products and stone, clay and glass producers are experiencing slow sales growth, except in Houston where weak construction activity has curtailed demand for these materials. Rising inventories and stiff competition are keeping prices low relative to costs. Primary metals, fabricated metals, and nonelectrical machinery manufacturers report slight increases in demand from energy firms, which are still restocking inventories, but little demand growth elsewhere. for the seventh straight month. Refinery employment fell XI-2 October drilling activity increased in District states, with the rig count rising slightly and remaining above last year's level. Some respondents report that despite the decline in oil prices, drilling should increase, following the normal seasonal trend at year-end. However, the drop in oil prices has lowered lenders' valuations of reserves used as collateral. This may reduce the availability of funds for drilling, and thus the extent of any upturn. Retail sales are showing surprising weakness. Some respondents report that sales are down significantly on a year-over-year basis; for many this represents the first decline in this recovery. The weakness is widespread, affecting all product lines. The normal seasonal downturn in auto sales continues, but sales are still above last year's level. The strike of Canadian auto workers led to increased availability problems, worsening the inventory shortage that has plagued dealers. Delivery of 1985 models and the strike settlement are beginning to ease inventory problems. Residential construction continues to slow throughout the District. Both single-family and multifamily permits reached lows for the year and they are below last year's third quarter level. Overbuilding, long a concern in the multifamily market, now is also dampening single family construction. Some lenders have reported that the recent decline in interest rates has led to a slight increase in loan activity. This may lead to some resurgence in construction. The value of nonresidential construction in the District is holding steady, although the number of projects is up significantly. reflects strength in light office and warehouse construction. This Some office and commercial projects are being developed, but overbuilding has resulted XI-3 in a generally weak market for new projects. Previously strong markets such as Dallas are showing signs of slowing, although San Antonio and Austin are still strong. Monthly deposit growth at the District's member banks is declining slightly, although recent year-over-year growth rates remain well above the averages for the first three quarters of 1984. At large banks, the recent pattern of absolute monthly declines in deposits is continuing and year-over-year growth rates are slowing significantly. Borrowings by large banks have declined substantially, but remain high in comparison to two years ago. Large bank asset growth is slowing. Year-over-year growth rates in business, consumer and real estate loans continue to decline, with the largest reduction coming in consumer loans. While large bank real estate loan growth remains very high on a year-over-year basis, real estate loans have remained virtually unchanged since late in the summer. Respondents continue to report that a significant portion of real estate lending is for projects outside the District. Texas cattle and sheep producers are gaining from high seasonal prices, despite an increase in drought-induced production costs. Stable prices and costs, along with increased production, should improve crop producers' net cash receipts. Because of herd liquidations, dairy program cutbacks and problems associated with the drought conditions of last summer and early fall, Texas beef producers marketed 25 percent more fed cattle in October than a year earlier. XII-1 TWELFTH DISTRICT -- SAN FRANCISCO Economic vigorous activity levels in earlier the Twelfth District in the year, although remain above their levels of one year ago. stores remain healthy, but month. Automobile certain parts sales of the exception of continued deterioration moderation have in wood economic from the indicators Retail sales at major department significantly remain states above in residential rates. and, in a few instances, and but most however, remains healthy. lumber declined region, mortgage many slow to are at a flat or slightly slower pace than last California, in continues the since 1983 With have activity Non-residential month levels. District building last in the experienced despite construction the activity, Increases in manufacturing employment have slowed unemployment products rates industries in are up the from a month ago. Pacific Northwest The remain particularly weak, with continued plant closures and activity levels in some products that harvests have products, remain below depressed those in 1979. significantly the Weak foreign prices for demand many consumer loan demand large agricultural threatening the income and solvency of western farms. loan demand remained cool but and Commercial appeared to be strong, leading some to anticipate strong holiday sales activity. Consumer Spending The rapid clearly has growth stores in retail but sales ceased, optimistic about of sales volumes experienced are healthy credited Southern Pacific with Northwest and most the upcoming holiday buying season. California, for example, stimulating generally particularly reported strong increased in the year retailers The large experienced volumes about 12 percent higher than a year earlier. is earlier are department October sales Good weather in Oregon retail retail sales sales and volumes the over XII-2 last year. stimulus are In Alaska, to value such as this anticipate inventory actively consumer conscious, home an video but service are holiday strategy. The sector. tourism to and fashion high season sales sales of new are and state the levels of of consumer a year ago. spending is has that and clothing. consumers Most cars provided luxury following used slowed significantly throughout the District since are above report large-ticket but both program Retailers attracted equipment strong promoted items, retailers a cautious appear to have last month but generally Confirmation of the generally healthy provided by low consumer loan delinquencies, and steady levels of credit card usage and consumer borrowing. Manufacturing and Mining With healthy a but few exceptions, manufacturing activity in the District remains with little evidence of rapid The growth. lumber and wood products industries in the Pacific Northwest appear to be the weakest in the District, products hinge on with continued plant remaining below those a recovery of home closures of five sales and production years ago. and some Hopes relief provided by a recently passed federal growth of the electronics manufacturing industry offers offering announced in wood products manufacturing. two thousand by one additional U.S. and four jobs foreign recovery of the economy has slowed but East state and the still strength generate agricultural extremely low sectors at 4.2 of the optimism. and in percent. by law. costly hope of or 1987 manufacturers. In Arizona, Tucson, Mining timber offsetting Plans for five new plants -- 1986 and some In Oregon, continued -- were In large inflows of capital aerospace for for this industry from contracts the declines levels electronics growth Arizona, activity the in California, from the Far industries continues in unemployment the recently District in all rate the nonis remains XII-3 sluggish as prices. the of result a However, new strong foreign silver competition, discovery Shoshone in brightens prospects in that one part of the region. and lower County metals in Idaho The decline in world oil prices has had a significant effect on western oil producers and states that rely on severance income. in the price of a barrel of revenue to the state. In Alaska, for example, each dollar decline oil in the loss of $150 million in results A major railroad reports generally steady or slightly declining activity, confirming that despite only the variations within the District and between industrial sectors, the economy of the District is in something of a holding pattern. Construction and Real Estate Construction and have slumped in sales recent activity in residential real estate appear months the throughout running below 1983 described as levels Oregon, and in residential building permits Washington, the home building "stalled." In California, the pace of homebuilding remains above that of 1983 and architects, increase in prospects are In District. to is industry contractors, and builders being report an completely encouraging The available home sales reports for new projects. suggest a continued slowing despite declines in long-term interest rates and generally easier mortgage credit. The general weakness in demand is reflected by the modest increases in home prices experienced in California this year to date; prices generally have increased only at or even slightly below the general rate of relatively Arizona. of stronger throughout the Nonresidential District and is construction remains extremely strong in However, in Southern California, there is concern about oversupply commercial real estate activity. inflation. and that sector is experiencing a weakening in In Oregon, the new entry of five electronics manufacturing firms XII-4 and the plans expansion of others several expected are stimulate to construction activity significantly in the Portland region. Agriculture The sector agricultural throughout the Twelfth accumulated debt, weak export demand, and large crops. have having These are brought about by a combination of serious financial difficulties. the problems is District are particularly acute, In California, where the values of Central Valley farmland fallen 20-40 percent below that of a year ago and thousands of acres unable to survive farmers will be Observers anticipate that many are on the market unsold. year another of similar region, problems are similar but complicated by local the Elsewhere in conditions. In Oregon, factors. for example, although crop yields have not been high, prices have been low and farm incomes depressed. Additional problems have been posed by a gypsy Only the cattle, berry, and potato crops in moth infestation in that state. Oregon offer a promising outlook. been District have not cotton farmers intermountain are appears it is to have remains the world price large, seriously pressed region relative success; unusually Similarly, although cotton crops to previous repay weathered this debt. in the low and harvest year's reported that farm cash receipts will the Only with increase in that region this year. Financial Institutions Commercial banks in the Twelfth District experienced continued growth in assets in the third quarter of the year -Much of the increase was attributable to at a 7 percent continued strength annual rate. in consumer lending, as commercial, industrial and mortgage lending were generally flat during the third quarter. Funding denomination CDs and other time deposits. occurred primarily through large Money market deposit accounts and demand deposits in general did not register large inflows. XII-5 A similar pattern of growth is observed in the savings and loan industry, although the financial problems of a large Association generated a large savings outflow for total deposits of the Eleventh Federal Home Loan Bank District in August and September. in September Mortgage although total mortgage lending level achieved in 1983. loan commitments declined in 1984 to date exceeds the There have been declines in profits for the savings and loan industry as a whole since 1983 as new lending increasingly has been financed by expensive, consumer time deposits.

Federal Reserve (1984, December 17). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19841218

@misc{wtfs_beige_book_19841218,
  author = {Federal Reserve},
  title = {Beige Book},
  year = {1984},
  month = {Dec},
  howpublished = {Beige Book, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/beige_book_19841218},
  note = {Retrieved via When the Fed Speaks corpus}
}