Beige Book

SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS BY FEDERAL RESERVE DISTRICTS DECEMBER 1986 TABLE OF CONTENTS SUMMARY .......... ....... i ...................................... - Boston....................................... I-1 Second District - New York...................................... II-1 Third District - Philadelphia.................................. III-i First District Fourth District - Cleveland..................................... IV-1 Fifth District - Richmond...................................... V-1 Sixth District - Atlanta...................................... VI-1 Seventh District - Chicago..................................... VII-1 Eighth District - St. Louis..................................... VIII-1 Ninth District - Minneapolis.................................. IX-1 Tenth District - Kansas City.................................... X-l Eleventh District - Dallas ...................................... 'Xl- Twelfth District - San Francisco XII-1 SUMMARY* District report Banks Reserve indicating some from sluggish to generally good with more than half recent Strength in consumer improvement. the widespread than in a healthy result some of pace, increase sector but oversupply. in Manufacturing prices has construction has is still been slowed as a relatively weak, noted. While the and energy remains depressed, an increase in the number of operating oil Farmers experienced near-record corn and soybean in some areas despite heavy rainfall, and livestock producers are benefitting has improved because of in somewhat more Residential construction continues nonresidential input rigs has occurred. yields is spending last report, and most retailers anticipate a moderate to good holiday season. at ranging conditions economic real from estate and promoting actively prices. higher loan bank activity some upturn in business lending and strength consumer the Commercial use lending. of home commercial Many lines equity of banks are credit for consumers to retain interest deductibility under the new tax law. Consumer Spending Philadelphia Richmond an improvement in retail sales. districts see states that sales were up strongly, and California and Most also had generally good gains. Sales were sluggish in Boston, Cleveland, Dallas and St. Louis, but the remaining districts *Prepared at the Federal Reserve Bank of New York. are based on information available prior to District reports November 21, 1986. report moderate increases. Items electronics, furniture, and other the improvement recent anticipate a moderate satisfactory or in to good manageable and and levels. were for season. Prices As apparel, a result of the most Inventories part are (when mentioned) at were However, Chicago attributed a jump in prices saw significant a demand retailers holiday apparel Dallas strong home furnishings. sales, generally reported as stable. textile in to recently imposed increase in import prices restraints, of imported electronics. All districts September and a reporting sharp dropoff on auto sales in October, had strong mirroring the gains in national pattern. Construction and Real Estate Most districts though at activity, report a somewhat high the level of slower residential construction pace than earlier this year. that home sales have been weakening due The Richmond district notes to healthy home prices there. Atlanta reports a shift away from construction of multi-family units because of a high level of condominium to most other inventories and areas, residential generally poor demand. In contrast building in the Dallas district is substantially below a year earlier. Nonresidential construction has parts In of New York where an Chicago and Minneapolis, continues at a steady pace. vacancy rates in the slowed in Atlanta, Dallas and oversupply of however, office space work on new now exists. office buildings Reflecting higher demand for space, Minneapolis district fell September for both office and industrial buildings. between June and iii Manufacturing Industrial activity remains relatively weak, and plans recently been announced for additional plant closings and several districts. will result and will do an areas overall months. aerospace industry competing areas. Many Cleveland, which is manufacturers are Some industries and districts in and and producers (Boston, and holding to their and Cleveland manufacturing Francisco the in USX the Chicago, Dallas) attributed their San doing well, City in the Chicago district The Philadelphia steel some as well. Boston districts Kansas job losses improvement Both benefit prices, than 20,000 other layoffs in largest is the scheduled G.M. cutback, which gains, however. have seen recent in more affect report The have the own that and York, to Cleveland Philadelphia, an increase in the decline in the strike continues New prices sectors state Chicago mentioned districts in input dollar. Most firm, however. Several districts reported no discernible benefit from the dollar's decline, San Francisco noted that increased exports of electronic products and higher capital goods orders have resulted from the weaker dollar. Energy and Resources The led to stabilization increased an However, the total of number is less oil of prices demand low level. The and San for than half the wood Francisco steel and have a operating oil and gas number is up somewhat pipe forest higher level drilling rigs. somewhat in operation a year Chicago found that the oil and gas ago in the oil-producing states. industry's at products improved from a recent very industries further. These of Minneapolis districts report an upturn and brighter outlook in copper mining. also Agriculture Despite heavy rainfall experienced record or Cleveland, Kansas City, and flooding corn near-record Minneapolis in many areas, and farmers soybean yields and St. Louis in the districts. Moreover, a feared storage crunch was alleviated by the rain-induced stretch-out of the harvest season. Attractive alternatives that encouraged farmers to redeem their PIK certificates and sell rather than store producers from The grain and lower San also dairy feed farmers costs Francisco helped and avert in from district excess several districts higher reports stockpiling. livestock a record are and Livestock benefitting milk pistachio prices. crop and higher potato and grape prices, while Florida expects an 8 percent increase in orange and grapefruit production over the year. Financial Sector Loan activity improved somewhat in recent weeks. Philadelphia reports continued strength in commercial and industrial loans and an upturn in consumer loans, and Atlanta also states that lending has slightly loans in remained strong. all registering major the Cleveland notes that loan demand rose categories, greatest with growth. real estate A marginal and consumer increase in Cleveland's C&I loans represents an improvement following no growth in the third quarter. St. Louis also reported strong real estate and consumer lending as well as some growth in commercial loans. Several districts noted that banks are promoting the use of home equity lines of credit as a means for consumers to retain some V measure of interest reported that demand region", while deductibility under for Chicago, home equity the loans new "has New York. Philadelphia, tax law. Atlanta surged across the Richmond and St. Louis noted an expansion in banks' promotion of these credit lines. FIRST DISTRICT - BOSTON Economic activity in the First District remains sluggish. Retail markets in the region softened in October and were mixed in early November; nonetheless, sales remain solidly ahead of last year. promotional activity is holding down prices. Extensive Manufacturers continue to report that business is slow, with no evidence of a pickup. Price competition from both domestic and overseas producers is said to be very intense. Respondents are devoting much attention to cost containment. Retailing Several retail contacts reported sales below plan in October but above last year. November to date is much better in some stores, but similar to October in others. Year-to-date sales growth figures are generally better than those for recent months. The weakening occurred in most product lines, although clothing categories were off more generally than appliances and home electronics. Inventories are high in some stores but they are not reported to be a serious problem. Prices have changed very little because retailers perceive a need for persistent promotional price reductions. According to one contact, "Customers are looking for victory every time they go into a store." In a similar vein, a department store representative reported opting for more and shorter sales events rather than a few traditional "big seasonal sales" to satisfy consumer demand for more reduced-price merchandise. The decline in the value of the dollar may force some price increases, however. A contact from a discount chain expects vendor prices to rise fairly soon I-2 because of exchange rate changes; the chain imports a substantial fraction of its products. This contact also expects to be buying more goods in the United States in response. But neither of these changes has yet occurred. First District merchants are moderately optimistic about the remainder of the year. They expect "pretty good" Christmas sales, finishing out the year with sales growth between 5 and 7 percent on a comparable stores basis. Manufacturing Manufacturing activity in the First District remains slow. Contacts have not experienced any deterioration in orders in recent months, but with one exception they see no improvement. Aerospace, consumer electronics and housing-related products are reported to be doing well; the general industrial market is flat to down; the demand for construction materials and supplies is down, apparently in response to weakness in nonresidential construction. The decline in the value of the dollar has been of no discernible benefit to most of the firms contacted. Cost containment is receiving much emphasis. Most respondents have ongoing inventory control programs that are enabling them to operate with lower inventories than in the past. Employment levels are being reduced, even at firms with satisfactory sales results; more attention is being paid to the efficiency of white collar personnel. Capital spending plans for 1987 are conservative; contacts planning to reduce spending outnumber those planning increases. The manufacturers contacted either report no increases in input prices or report increases in the 2 to 4 percent range, which they expect to offset with efficiencies in purchasing procedures. Several respondents have recently instituted increases in their own prices of about 3 percent. However, competitive pressures are said to be very intense, with domestic competitors mentioned as frequently as overseas producers. New England Economic Project Outlook The New England Economic Project (NEEP), a nonprofit corporation made up of New England businesses and educational institutions, has just released economic projections for the six New England states. Taken together, the six state forecasts call for employment growth in the region to accelerate somewhat in 1987, then slow again in 1988. of growth is projected to change. The composition While nonmanufacturing industries will continue to account for most of the new jobs created in the region, the manufacturing sector will not be the drag on the region's economy that it was in 1985 and 1986. NEEP forecasts that manufacturing employment will increase, albeit very modestly, over the course of the next two years. Unemployment rates in the region will average a little below 4 percent in 1987, slightly higher in 1988. Per capita incomes in the region are projected to increase relative to the national average. II-1 SECOND DISTRICT--NEW YORK The modest uptrend in the Second District economy continued in recent weeks. ranging Retailers reported over-the-year from moderate to strong. Business very activity good was and sales gains residential generally steady banks report that home equity lines of credit building remained to leasing of office space moderated in some areas. in October improved, though Small Second District represent only a small further over-the-year portion of their consumer loans. Consumer Spending Second District retail sales showed improvement during October with respondents describing gains as ranging from moderate to very good. be an important accessories, factor, furniture Purchases by foreign visitors continued to particularly and home in New furnishings York City. were cited from 6-13 as Apparel, items in generally strong demand. Sales increases during October were percent above year-earlier levels and, in most cases, were 2 to 3 percent higher than targeted. As a result, inventories are well under control and respondents do not anticipate the need for heavy promotional activity in move merchandise during the coming Christmas season. order to Retailers generally expect moderate over-the-year gains in holiday sales but one respondent, whose Christmas catalogue orders have been strong, is looking for a double-digit increase. Business Activity Little change occurred expansion since the last meeting. managers surveyed in Rochester in the Second District's economic Eighty percent or more of purchasing and Buffalo reported that business II-2 conditions were stable or improved during October and three-fourths of the managers in the Syracuse area's third quarter survey also gave that response. While inventories were generally described as at satisfactory levels, an increasing percentage of managers has been experiencing a rise in commodity prices. News concerning the District's employment outlook has been mixed On the negative side, G.E. plans to end its color TV in recent weeks. tube operations in upstate New York, where it continues phasing out large engine production, and ITT may cut back its international operations in New York City. and On the other hand, several thousand jobs in the chemical transportation equipment industries have been retained due to the successful negotiation of some longstanding problems. In addition, a new railway car plant has opened operation in the garment unemployment rates in in Yonkers and plans for industry have been announced. New York State and New a sizable new As of October, Jersey remained 1 1/2 percentage points below the national average. With regard to the District's longer term development, New Jersey officials recently announced plans for the first new rail line in the New York metropolitan region in 50 years. The $825 million trolley-bus system will link billions of dollars of proposed residential and commercial projects along 15 miles of the Hudson River waterfront. Construction and Real Estate Activity among District homebuilders continued strong in recent weeks, though the pace was less hectic than at the height of the season in the spring and summer. builders in several After two years or more at a record pace, areas report that pent-up demand seems finally to have been satisfied, and they anticipate a more normal but healthy rate of activity in 1987. While some seasonal slack will occur over the next II-3 few months, a number of builders have already signed contracts for homes to be constructed in the spring of next year. Leasing activity in the commercial slow to moderate weeks. A major pace in much exception was of the real estate market was at a Second District downtown Manhattan financial center buildings remained strong. where during recent leasing of new While no dramatic absorption of space occurred in areas such as northern New Jersey, Fairfield County, and Westchester County, exist, few months. major new where more projects have As a result, vacancy rates year declines. However, in than ample been supplies of office space undertaken there in recent in these areas have shown over-the- downtown and mid-Manhattan, where many new buildings have come on line, rates have moved somewhat higher though they are still well below the national average. Financial Developments Small banks in the Second District report that home equity lines of credit consumer currently represent only a small loans. While all of the portion of their outstanding surveyed banks have increased their efforts to market the product, each expected only moderate growth in its volume rapid of these growth non-banks and loans would also be through restrained by refinancing arrangements. of the 1987. a by continued Several banks competition surge in additional cash from flow for business. that other second more banks and mortgages Loan officers state that the most credit line include consolidating debt, providing believe and common uses financing education, and The banks they can prevent consumers from using the line of credit suggested that as a proxy for other types of consumer loans by providing counseling and by maintaining high underwriting standards. However, only one bank indicated that it required its applicants to provide information on how the money is to be used, and none used this type of information as a criterion for lending. III-1 THIRD DISTRICT - PHILADELPHIA Economic conditions in the Third District are generally good. Manufacturing activity increased in November for the fifth month in a row, and retail sales rose strongly in October and November following slower than expected growth in September. Total loan volume at major Third District banks increased in October at about the same rate as it has been growing since August, slightly above the pace earlier in the year. Bankers say this growth continued into November as well. The outlook in the Third District business community is generally positive. Manufacturers expect to make further gains over the next six months. Retailers are optimistic for the Christmas shopping season and believe that 1987 will be a good year, although they expect the growth of sales to be somewhat less than it was this year. Bankers have the least optimistic views. They believe economic growth is likely to slacken next year, bringing a slowdown in lending and possibly lower bank profits. MANUFACTURING Manufacturing activity in the region is posting its fifth consecutive monthly gain, according to the latest Business Outlook Survey. Thirty-five percent of the industrial companies participating in the November survey have stepped up operations from last month's rate, while only 13 percent have cut back. Although this is the most widespread improvement since February, specific measures of industrial activity reflect only moderate growth this month. New orders and order backlogs are edging up, and shipments are rising fractionally. Employment indicators are mixed; the length of the average workweek is increasing slightly, but payrolls are unchanged. Overall, business conditions III-2 are slightly better in the nondurable goods sector than in the durable goods sector. Some upward price movement is noted by this month's survey respondents. Although two-thirds say their input costs are steady, 22 percent report paying higher prices for materials and supplies. Area firms have held the line on the prices of their own products, however. Local manufacturers' expectations remain mostly positive. Looking ahead six months, 42 percent of the November survey respondents predict further improvement, 34 percent foresee steady conditions, and only 15 percent anticipate a slowdown. On balance, companies polled this month expect increases in new orders and shipments and a slight buildup in order backlogs. plan greater capital outlays over the next six months. They also However, most firms plan to hold employment at current levels. RETAIL Retailers in the region reported good sales in November, generally. Department stores have been experiencing greater than expected improvement over last year, with some marking gains in excess of 10 percent. Although discount stores are not achieving gains quite this large, store executives say they are pleased with the year-over-year increases they are making. furnishings are selling particularly well. Appliances and home Merchants say the new lines of fall clothing are proving to be very popular also. While sales continue to be strong, store executives contacted recently say profits remain under pressure due to higher expenses. Many retailers are repositioning themselves for up-scale markets, which involves large up-front outlays for store remodeling, advertising, and new inventories. Merchants say the current strength of retail sales indicates a good Christmas season for them, and they are raising sales projections accordingly. III-3 Looking into 1987, retailers in the region believe the first half, at least, should be good. The consensus forecast for the year as a whole calls for solid gains but a lower year-over-year increase than expected for 1985-1986. FINANCE Total loan volume at large Third District banks in October was up approximately 12 percent from September and 16 percent above the October 1985 level. Commercial and industrial lending is described as strong by bank lending However, narrowing net interest margins and a concern for credit officers. quality have led some banks to direct funds to money market investments rather than loans. Figures from weekly-reporting banks indicate that consumer loan growth slackened in October in the Third District, but banks contacted in November said that credit card and other consumer installment lending was picking up. Banks in the region are beginning to offer affinity group credit card programs and they are expanding promotion of home equity lending; however, they say it is too soon to tell whether these programs have significantly affected consumer borrowing. Bankers expect economic growth to slow during 1987, and they expect both business and consumer loan demand to ease as a result. Regardless of economic developments in the coming year, bankers express concern about the outlook for bank earnings in 1987. Some note slower deposit growth currently, and say their cost of funds will rise if they have to pay more for deposits to support asset growth. The impact of the new tax law on banks is also mentioned as a negative factor for earnings. IV-1 FOURTH DISTRICT - CLEVELAND Summary The showed economy regional during improvement slight October. Production and new orders are up in some major cities in the district, and both manufacturing and nonmanufacturing Other economic indicators are mixed: in household and soft goods; pace; but auto sales continue employment retail sales to increase. have picked up, mostly housing starts are progressing at a moderate have fallen dramatically. A number of the respondents characterize their local economies as weakly healthy. Retail Sales Retail sales unevenly lines. picked up slightly from a slow September pace but were distributed Major improved retailers more appliances than have furnishings, throughout in report many tapered off the fourth that of sales their in the district Ohio past Inventories are reported product their Pittsburgh outlets outlets. Sales 6 weeks, and soft goods show strong gains the country. across in and while relative to be at normal claim that prospects for the holiday season have to of major furniture, home other areas levels. improved some, of Retailers and they expect sales increases between 5 to 7 percent over last year. Domestic followed automobile national trends programs expired. especially on quantities of new in in which the sales fourth district dipped Inventories at non-GMC dealers small manageable, but this sales cars. appears models. GM dealers to be due Import state that inventory levels are rising. generally sharply after incentive remain on the low side, report to their dealers have that inventories are reluctance to order large report mixed sales, but all IV-2 Labor Markets Ohio's unemployment rate dropped dramatically seasonally adjusted rate of 8.5 percent (in in September) October, from to 7.7 a percent. The decline is due in part to an increase in employment of 75,000 jobs. The service sector appears for much to account Over the past year, service industry employment 3.0 in Ohio and 2.4 percent in the U.S. were particularly strong in Ohio this growth. increased by 7.0 percent, compared to 4.7 percent for services in the U.S. by of Overall employment grew Business service industries over the year, expanding employment by 13.2 percent. Fourth quarter suggest that these 1986 employment employment projections by Cleveland employers trends will continue for the rest of the year. Manufacturing Manufacturing employment in the fourth district increased by roughly .3 percent during September, although employment is still below the level achieved a year ago. The in recent employment the growth was shared by most metropolitan areas Pittsburgh. Average weekly hours and earnings are up slightly over last district, with the notable exception of month. report Manufacturers an increase in new orders, prices but constant inventory levels during October. in production models. is However, attributed a current to the strike Part of the increase beginning of at facility a GM production, and production of has new car caused shutdown of operations of a number of assembly plants in the district. addition, GM recently announced that two large assembly plants the In employing IV-3 6400 workers in the Cincinnati area will be closed by 1990. Steel production in the fourth district continues modestly, despite the continued shutdown of USX. the first part of November was Falling inventory years. Capacity Specialty steel levels have utilization production 13 percent now reached is still is also above their One increase Raw steel production in the pre-strike lowest relatively up. to low level. level at in two 58 percent. customized steel finishing company reports that they are fully booked through December and overbooked through January. Housing The slowdown in Midwestern housing markets has tapered off. Housing starts and sales are increasing at a healthy but moderate pace. Many midwestern mortgage borrowers prefer to mortgage rates, apparently mortgage rates cycle. Nonetheless, to be the because trough the they in perceive long-term adjusting rate lock in the rates currently low current for mortgage level this is of economic growing in popularity. Banking Loan demand has risen slightly at district banks. in all major categories at strength in accounts for installment increases the demand most loans in represented an third quarter. of for the rose commercial large banks real estate overall loan at and an annual industrial improvement over the increased and Loans outstanding in October. consumer installment growth. Both rate 20 of loans real loans estate percent. outstanding lack of business Continued and Marginal in October loan growth in the V-1 FIFTH DISTRICT - RICHMOND Overview Manufacturing remains at about the level reported a few weeks ago, which was improved from midsummer's pace, and producers are generally optimistic about prospects for their businesses in the months ahead. In retailing, non-auto sales are stronger, and store managers expect a good holiday season. Three-fourths of producers and retailers forecast inflation to be between two and four percent in 1987. Sales of homes are weakening faster than usual at this time of year, and realtors believe that it will take lower mortgage rates to increase activity in this sector. In the financial sector, home equity-line loans are being offered by most large banks in the District, and customer response has been strong. District agricultural bankers expect a new round of farm failures due to the drought-depressed harvest and low crop prices. Consumer Spending Retail sales, other than new car sales, are generally strong throughout most of the District, and store managers expect a good Christmas season, according to our directors. Their reports are confirmed by our survey of retailers; 61 percent say that their sales volume in November is running ahead of October's pace, seasonally adjusted. This month's survey of retailers also indicates that a higher percentage of respondents are optimistic about the outlook for their businesses and for general business conditions six months from now. Manufacturing Manufacturing activity in November is little changed from October, judging from District survey results. The average rate of capacity utilization is up one percentage point, but the percentages of firms reporting increases in shipments or employment are down slightly from the percentages reported last month. Reports of increases, however, still outnumber those of decreases. Compared with the results of last month's survey, those for this month show a larger percentage of manufacturers optimistic about their business prospects six months from now. Forty-five percent of the respondents indicate that they expect increased sales as a result of improved international trade conditions, while 15 percent expect reduced sales due to less favorable international trade conditions. All but a handful of the remaining respondents indicate that international trade conditions have no influence on their businesses. Housing Housing sales remain above year-ago levels but are weakening rapidly. The downturn appears to be more than seasonal and is attributed to higher home prices that are keeping some potential buyers out of the market, despite lower mortgage rates. Realtors believe that it will take another decline in mortgage rates to support this industry in the months ahead. Inflation Expectations We asked our survey respondents--primarily manufacturers and retailers--to forecast the general level of inflation for 1987. The results are summarized in the table below. 1987 Inflation Forecast Under 2 % 2% to 3% 3% to 4% 4% to 5% Over 5% Percent of Respondents 5 29 48 13 5 Financial A telephone survey of twenty large District banks was conducted to determine the activity in and terms of home equity-line loans. Eighteen of the banks surveyed are currently offering these loans, and most of these are very active in advertising their new product. The remaining two banks expect to be offering equity-line loans by December 15. The loans are structured in various ways. Most are tied to the prime rate, but some are tied to T-bills or CD's. Some banks offer the option of balloon payments or a rollover of the principal at maturity periods of up to 15 years, or amortization in monthly installments. Most of the banks offering the loans describe the response with words such as "very strong," "dynamite," and "hot," although four banks located in a relatively depressed part of the District did not regard the response as unusually good. Bankers feel that home-equity line loans will become increasingly popular. One respondent describes these loans as the most significant new product since money market accounts. Agriculture Revised estimates of crop yields based on nearly complete harvests are in line with estimates earlier this fall. As expected, drought damage will mean severe hardship for some district farmers, especially because of low crop prices. Agricultural bankers expect that more farmers will be out of business by next spring. VI-1 SIXTH DISTRICT - ATLANTA Economic activity in the Southeast remains mixed. Manufacturing employment has posted little growth, although employment growth in services is accelerating. Residential and commercial construction is active, but there has been a shift away from multi-family dwellings and office building. Lending has remained strong, but consumer purchases of cars and other durables have slowed. Stabilized oil prices have prevented further economic decline in the western part of the District. Crop production and income will be down substantially, although citrus growers should do well. Employment and Industry. The District's unemployment rate for September was steady at 8.1 percent. The services industry kept its lead over all industries in both the level and growth rate of employment. Employment in the trade sector grew by 3.8 percent from a year ago in September, a slowing from 4.8 percent in the previous year. By contrast, construction employment growth has been flat since April. Manufacturing employment has registered little change since the first of the year. Lack of demand for petroleum-related machinery and nuclear power generating equipment has forced layoffs in some regional states. A slump in some capital goods markets-electronics and construction equipment-has hurt fabricated metal producers. Labor disputes in the steel and transportation equipment industries have idled nearly 4,000 workers in Alabama. More positively, apparel and textile employment has been increasing since July. Employment growth for food processors has been steady; falling commodity prices have stimulated this industry. Consumer Spending. Sixth District retailers reported moderate sales gains during October. Cooler weather spurred apparel sales across the region, but movement of big- ticket items was sluggish. Retailers in Tampa, Orlando, Atlanta, and Nashville noted strong consumer demand induced by fierce price and promotional competition, cutting profit margins. Alabama, Mississippi, and Louisiana retailers, however, report weak VI-2 demand and less vibrant competition. Sales in Louisiana are expected to remain very weak despite the recent firming of oil prices. With the ending of aggressive marketing and financing programs in October, District car sales returned to the sluggish pace prevailing earlier this year. Car dealers in the region also fear that September sales have borrowed heavily from demand late this year and early in 1987. Construction. After declining in July and August, single-family building permits in the Sixth District turned up in September. Georgia led the nation in year-over-year sales growth of existing single-family homes. Florida placed third in the ranking, while only one state in the nation suffered a worse sales decline than Louisiana. Nashville stands out among District cities as a hotbed of activity. Contacts in Miami report an all-time high of condominium inventories, and poor demand has brought multi-family construction in New Orleans to a standstill. Although builders in Atlanta and Nashville note slowing of construction, they believe their markets will fare better in 1987 than most in the nation. Commercial developers across the Southeast report slowing activity and anticipate further deceleration in the coming months. New Orleans remains the region's weakest market, but contacts there report some expansion of retail construction to meet the demands of tourists and conventioneers. The south Florida market remains saturated with office, retail, and industrial space. developers Atlanta's glutted office market is leading to focus on retail and industrial construction. The relatively short construction time required for completion of such projects also suggests these markets will soon be saturated. Nashville developers are confident that their market will continue to experience strong but "controlled" growth. Financial Services. Total loans at large Sixth District banks grew at the same rate in September compared to a year ago. Real estate lending dipped slightly from August, while business and consumer loan growth maintained its August pace. VI-3 In response to the effects of tax reform, demand for home equity loans has surged across the region. Bankers say these loans have gained popularity because they retain at least partial interest deductibility under the new tax laws. Some bankers expect many homeowners to substitute these loans for card and installment credit. Tourism. Travel to the Southeast remains generally strong. Automobile travel has increased dramatically over last year. Passenger volume in the region's airports is also up, due largely to the addition of new flights. Cruise ship bookings are solid, according to industry sources. Convention business is up throughout the region. Year-todate tax revenues from the hotel industry are up around 10 percent over last year. However, in response to a large revenue shortfall, Louisiana has closed 22 out of 32 state-operated visitor facilities and is laying off tourist-related government employees. Agriculture, Forestry, and Mining. Since its low of $12.25 per barrel in midsummer, the price of Gulf Coast sweet crude petroleum has climbed approximately 15 percent to reach $14 in November. The price improvement was accompanied by a 20 percent increase in the number of oil rigs operating in the District. Even so, the 140 active rigs in early November equaled slightly less than half of the number a year ago. Approximately 2.3 million tons of coal were mined in October, down one million from October 1985 and roughly 9 percent less than in September this year. Despite a 5 percent coal price decline, oil and natural gas remain highly competitive. Agricultural conditions are mixed; poultry and livestock producers are doing rather well, but income is down for most crops. Recent unfavorable weather and insect and disease damage have lowered field crop prospects in Louisiana, while recovery from the drought in Tennessee and Alabama has improved expected yields. Florida orange and grapefruit crops are projected to be almost 8 percent greater than last year. The lumber market has been relatively stable in recent weeks; prices have been modestly higher than during the summer but 10 to 20 percent less than last spring. VII-1 SEVENTH DISTRICT--CHICAGO Trends in employment indicate that the pace of activity in this Summary. District continues to trail the U.S. Additional layoffs and plant closings recently have been announced in several industries. remains weak. Auto production schedules have been reduced but remain near year-earlier levels. strong. Capital goods demand generally Consumer spending and residential investment are relatively Commercial construction, mainly in the Chicago area but also in other District centers, continues at a high level. Some holders of real estate and other assets are pushing to dispose of these by year-end to receive more favorable tax treatment. Prices paid for materials and components increased significantly in October for steel and various other items. A large retailer reports prices of textiles rose after import restrictions were imposed. Livestock and dairy farmers have been helped by low feed costs. Plant Closings and Jobs. District companies in several industries continue to announce reductions in employment and shutdowns of manufacturing plants and other facilities. Most notable is General Motors' planned closing of 7 manufacturing plants and part of another plant in the District, currently employing more than 20,000. Cummins Engine, a leading diesel producer, plans to close two plants in the District employing 1,500. We are informed by industry analysts that the GM and Cummins plant closings are part of broad programs to reduce capacity. will be consolidated in other plants. Operations Other closings recently announced include a computer parts distribution center in Indiana, a town's largest employer with 1,000 workers; an Illinois hog processing plant, 780 employees; two motor vehicles parts makers near Chicago; and the Michigan headquarters of a machine tool maker. VII-2 Reasons cited for these closings include foreign competition, excess capacity, high labor costs, and mergers. A Chicago-based paper company is cutting 1,000 jobs after a merger, and its local headquarters is expected to close. At least two more tire manufacturing plants in Illinois and Iowa are likely to be shut down. Additional jobs cutbacks have been announced in computers, health care products, banking, machine tools, and heavy-duty transmissions. On the plus side, additions to employment totaling nearly 400 are planned by two consumer appliance makers in Iowa, a response to strong demand. Also favorable are the expansion plans of Japanese vehicle producers in several locations. Capital Goods. Demand for mechanical capital goods remains weak. industrial diesel engines is very slow. The market for Orders for machine tools have declined. Oil and gas development equipment continues depressed. The last U.S. producer of 50-100 horsepower tractors plans to close its Michigan plant, and shift all production to Europe. Most smaller tractors have been imported for years. The Department of Justice has signaled that it will raise no antitrust objections to consolidations that would reduce from four to two the number of U.S. producers of large four-wheel-drive tractors. Deere, shut down by a strike since August 1, has offered aggressive incentives to reduce tractor and combine inventories, including big discounts and zero-interest financing for up to two years. Orders have slumped for air conditioning equipment for office buildings, as construction nationwide has turned down. Motor Vehicles. Auto production schedules have been cut from earlier plans but remain at high levels through the first quarter of 1987. improved slightly. Heavy truck orders have Sales of heavies are projected by one analyst at 125,000 in 1986 and 130,000, possibly up to 140,000, in 1987. VII-3 Steel. The work stoppage at USX since August 1 has boosted demand for other steel producers. A leading Chicago-area producer is now operating at effective capacity, in part reflecting a reduction by one-third in the firm's capacity. Steel prices have increased on new contracts, but most integrated producers are still losing money. settled. Analysts expect prices to fall once the USX labor dispute is Orders for steel from capital goods producers remain weak. Oil and gas industry demand for pipe is up, from a very low level. Inflation. Prices paid rose at an "alarming rate" in October, according to the Purchasing Management Association of Chicago. broad range of products and materials. Higher prices were reported for a Largest increases were for steel sheet and plates, related to the work stoppage at USX, and also to the Administration's partially effective program to limit steel imports. Other categories with higher prices included corrugated and kraft paper, wood, caustic soda, resins, and precious metals. One airline analyst discounts reports of a renewed "fare war." Nonresidential Construction. Work on office buildings in downtown Chicago continues at a vigorous pace, despite high vacancies. Some projects have been deferred for lack of sufficient preleasing, but others already underway assure a high level of activity into 1987. Manufacturing building is low except for warehouse facilities in locations well-served by major roads. Highway work is slowing rapidly because Congress did not pass enabling legislation prior to adjournment. Residential Construction. Home building is well above last year in many parts of the Midwest including the Chicago area. substantially in the Chicago area. Multifamily starts also are up Thirty-year fixed-rate mortgages are commonly being offered at rates ranging from 9.5-9.75 percent. Mobile home shipments by VII-4 Indiana builders, a major center of this industry, are higher this year, in contrast with a declining national trend. Consumer Spending. A large general merchandise chain projects a sizable rise in general merchandise sales in 1986, with prices up only slightly. in dollar sales and larger price increases are expected in 1987. A smaller rise Restraints on textile and apparel imports are blamed for a recent jump in prices in these lines, which had been stable. with prices stable. Airline traffic was up strongly in September and October, A consultant expects consolidations and resulting cost cuts to improve profitability in 1987. Second mortgages are being advertised extensively by banks, S&LS, and other lenders. mortgages. Some advertisers are holders of first Second mortgages are being advertised as a way of tapping accumulated home equity and avoiding loss of interest deductibility under the new tax law. Agriculture. Bumper corn and soybean harvest estimates were raised recently for Iowa and Wisconsin, contrary to many analysts' projections following heavy September-October rains. Production estimates were cut slightly for Indiana. Prices remain low but have edged higher in recent weeks. A feared storage crunch was lessened by a stretched-out harvest season, caused by heavy rains, and attractive options offered to farmers which encouraged them to redeem PIK certificates and sell their grain rather than store it under the government's support program. Returns to livestock producers are quite favorable because of low feed costs and higher prices for cattle and hogs. benefitting from lower feed costs. Dairy farmers also are Milk prices have recovered to year ago levels as cuts in dairy cow numbers, from the whole-herd buy-out program, and strong gains in commercial demand for milk have trimmed the milk surplus. VIII-1 EIGHTH DISTRICT - ST. LOUIS Summary The District's expansion of employment and construction exceeded the nation's in recent months, while the pace of retail sales trailed the national trend. Strong real estate and consumer lending characterize the local banking market. Harvests are nearly complete except in Missouri where heavy rains have delayed the fall harvest. Employment District nonfarm employment increased at a 4.6 percent rate in the third quarter compared with 1.7 percent for the nation. Nonfarm employment growth in the region was led by the construction sector, with third quarter employment 15.8 percent above last year's third quarter level. Despite a 1.4 percent rate of decline in manufacturing jobs, the food processing sector continues to expand. Employment in the District electrical equipment sector picked up in the third quarter after declines in the first half. The weaker dollar reportedly has led to increased foreign demand for the region's wood pulp and paperboard products. Depressed coal prices have contributed to the contraction of mining activity in Western Kentucky this year. A strike by workers in an auto electronics plant in Indiana caused the layoff of 5,000 auto workers in St. Louis and 900 workers in Bowling Green, Kentucky beginning November 18. Construction Third quarter construction activity expanded faster in the District than in the nation. The value of residential construction VIII-2 contracts awarded in the District grew at a 10.9 percent rate compared with a 5.0 percent rate of decline nationally. Third quarter residential contracts in the District were 14.0 percent above the level of the same period in 1985, exceeding the nation's 5.7 percent growth. In contrast to District trends, Louisville reported a sharp increase in multi-family building in comparison with last year. The value of nonresidential construction contracts expanded at a 15.4 percent rate in the third quarter, compared with the nation's 0.5 percent pace. Consumer Spending District retail sales grew at a 2.2 percent rate in the three months through August, with sharp losses in Missouri dampening regional growth. In comparison, national sales grew at a 6.8 percent pace during the period. Contacts reported vigorous spending on new cars in September, but few sales in October. Banking For the three months ending October, total loans at large District banks grew at a 12.8 percent annual rate, more than twice the 6.2 percent rate for the same period last year. Real estate loan growth was the dominant factor, expanding at a 24.1 percent rate compared with 4.0 percent for the same August-October period in 1985. Commercial lending, which had declined during the third quarter, picked up slightly in October. Consumer lending continues strong, expanding at a 19.9 percent annual rate, a rate comparable with the same period last year. A recent survey of District bankers indicates a continued willingness to make consumer installment loans as they have not VIII-3 experienced rising delinquencies. Bankers are actively promoting home equity lines of credit in response to the phasing-out of the tax deductibility of consumer interest costs. One large bank has eliminated all points and closing costs for home equity loans until January 31, 1987. During the last five weeks, numerous banks and savings and loans have lowered their passbook rate to a range of 4.8 to 5.0 percent. One large bank, however, in an attempt to gain market share, increased its rate to 6.0 percent for accounts maintaining a minimum balance of $200.00. Agriculture Contacts suggest that despite low crop prices, high government payments have allowed many local farmers to improve their financial positions. They indicate that the failure rate of farmers is unchanged or slightly lower than last year because the most financially stressed farmers have already left farming. The slide in land prices is expected to slow or stop but no significant appreciation is anticipated. Harvests are nearly complete or are ahead of schedule in all District states except Missouri where heavy October rains delayed corn and soybean harvests. Flooding destroyed approximately 4 percent of Missouri's soybean crop. Despite the adverse weather, Missouri farmers enjoyed a record corn yield and a strong soybean yield. IX - 1 NINTH DISTRICT--MINNEAPOLIS Moderate growth appears to have continued this fall in the Ninth District. Labor market conditions have held firm, as have most types of con- sumer spending. Aggregate nonresidential construction has held up, as has the district's important wood products sector. brightened by the attendant government Ninth District labor markets have not weakened recently. The Minne- payments. likelihood of big crops The agricultural outlook has been and their But farm bankruptcies have not abated. Employment apolis-St. Paul help-wanted advertising index rose 2.7 percent in September. District unemployment rates did not rise significantly in September. Minne- sota's unemployment rate fell a bit, to 4.2 percent, while its Twin City area rate rose a bit, to just 3.7 percent. At the same time, additional hiring in durable goods manufacturing helped bring South Dakota's unemployment rate down to 3.6 percent. Total employment declined somewhat in both Montana and North Dakota, but the unemployment rate rose only slightly in the former and fell in the latter. Still, Twin City manufacturing employment continues to be affected by the problems of its large multinational manufacturers. One of those re- cently announced that 1,000 of its 19,000 area employees will be laid off by January. Consumer Spending Retail spending on general merchandise has held up well recently, reflecting the national trend. One large chain reports its October sales up 12.4 percent from a year ago and its November sales also good. Inventories IX -2 are in good shape. A banker reports that another chain operating throughout South Dakota has had good October and November sales too. But Bank directors continue to report the problems of small town, "Main Street" retailers in farm areas. Motor vehicle sales have also been consistent with the national trend; they have fallen off recently after big gains earlier this fall. The district office of one domestic manufacturer notes that this October its car sales dropped 4.2 percent below last October's level. Another manufacturer reports a similar pattern, but notes that its inventories are still low. Bank directors and members of the Ninth District Advisory Council on Small Business, Agriculture, and Labor report healthy levels of tourist spending in most district tourist areas. They say summer spending was generally higher than last year, as expected, and most are expecting winter business to be brisk. Housing activity has slowed from its rapid pace earlier in the year. Minnesota's Twin City area home sales were lower this last. Over there. A banker reports that bad weather slowed housing activity in South the Dakota as well. same period, multifamily housing starts October than were also lower But a Bank director notes that the demand for seasonal dwell- ings in Minnesota resort areas has been good. Construction In contrast to housing, the steady pace of nonresidential building has continued. Reflecting higher demand for space, the vacancy rates for both commercial office and industrial buildings in the Minneapolis-St.Paul metropolitan area fell between June and September. In fact, nonresidential build- ing contracts in Minnesota were 64 percent higher this September than last. A IX -3 Bank director notes an unusually large number of big construction projects in and around ports Duluth, Minnesota. And while a labor leader in North Dakota re- that construction activity in North Dakota has fallen overall, recent activity has included some public works and military-related construction. Resources Resource-related performance. well. industries have continued to show a wide The large and growing wood products sector continues to do quite A Bank director reports that paper mills the district are running at full capacity. rise more. range of He notes that competition from new plants plants in this district. in the northeastern part of Pulp prices are quite firm and may waferboard plants are also may create problems for running full and existing wood that products An open pit copper mine employing 300 is now operat- ing in Montana, and the important White Pine copper mine in the Upper Peninsula of Michigan is now doing a little better than breaking even. But both iron and oil extraction are still at low levels, with an uncertain future. Agriculture Big crops tural conditions. sota. and government payments are brightening overall A record or near-record corn crop is agricul- being reaped in Minne- A Bank director expects government payments on the excellent wheat crop in Montana to help the hard-pressed wheat farmers there. One respondent cites the potential economic stimulus inherent in the $670 million government payments to North Dakota. are going to use depleted savings. a However, a South Dakota banker believes that farmers lot of And income just several repaying respondents still rising in parts of the district. note debts and that increasing their farm bankruptcies are TENTH DISTRICT - KANSAS CITY Overview. Only modest improvement is apparent in Tenth District economic activity. Retail sales continue to improve, although district auto sales shared in the national decline. Inventory levels generally are viewed as satisfactory, and prices are expected to remain relatively stable. energy and agriculture sectors remain weak. activity is expected. The Some weakening in housing Demand for mortgage funds has moderated and mortgage rates are expected to remain steady. Total loan demand at commercial banks was generally constant or down over the past month. Retail sales. Tenth District retailers report that sales are moderately stronger than a year ago and generally have been improving over the last three months. Recently, retail sales of furniture, electronics, and women's apparel have been particularly strong. Prices have changed little during the last three months and are expected to remain relatively stable. Most retailers are satisfied with their current inventory levels, although some would prefer to trim their inventories modestly. Most retailers expect sales during the holiday season to be as good as or better than last year. Automobile sales. Tenth District automobile dealers experienced poor sales in October following the end of low-interest factory incentives. Inventories of 1986 models have been depleted, but dealers are building their stocks of 1987 models cautiously because they are not optimistic about the short-run sales outlook. Buyers have been conditioned to expect incentive programs, and many dealers expect that sluggish sales will soon force the automobile manufacturers into a new round of incentives. Purchasing agents. Purchasing agents in the Tenth District continue to report slightly higher input prices, due partly to the depreciation of the dollar and the steel strike. Most purchasing agents expect relatively stable X-2 Materials are readily available, and no prices over the next three months. problems with availability or lead times are expected. generally are regarded as satisfactory. Inventory levels Some firms, however, have been trimming inventories and plan to continue this policy for the rest of the year. Housing activity and finance. Most homebuilders report that single- family housing starts have increased from last year's levels, but multifamily starts have varied widely by locality. Homebuilders expect normal seasonal declines in single-family starts during the winter. Multifamily construction, however, is expected to be substantially weaker because of overbuilding in many areas. New home sales are generally above year-ago levels. Builders report no problems with either the availability or delivery of housing materials. Materials prices have been steady, although some builders expect rising lumber prices. Many Tenth District savings institutions have accepted limited savings inflows in the face of intense rate competition and flat loan demand. expect this situation to continue into 1987. moderated. Most Demand for mortgage funds has Mortgage interest rates have stabilized and are expected to remain steady or trend slightly downward. Energy. The district's weakened energy industry continues to suffer from the uncertainty surrounding international crude oil markets. have firmed somewhat, but remain well below year-ago levels. Oil prices As a result, exploration and development activity in the district has rebounded slightly but remains generally depressed. The average weekly number of operating drilling rigs in the Tenth District was up again to 223 in October from 215 in September, but remains far below the 550 rigs working in January. X-3 Agriculture. Wet fall weather conditions have delayed harvest operations in many regions of the Tenth District. The corn, soybean, and milo harvest is 85 to 100 percent complete in some areas, but elsewhere 50 to 65 percent of the crop is still in the field. Yields have been high across the district, with record yields expected in many areas. Many regions are experiencing tight storage conditions, but storage shortages are expected to ease as more of last year's stocks are marketed. Most areas report good to excellent winter wheat and wheat pasture conditions. Harvest delays have meant production loan paydown delays, but many lenders still expect paydowns to improve over last year. Lenders also suggest no loosening in credit conditions for the coming production year, with credit refusal rates expected to be about the same as last year. Effects of the new farm bankruptcy legislation may be reflected in the 1987 farm credit situation. Lenders feel that the new Chapter 12 provisions weaken their position with troubled loans and marginal borrowers. Lenders expect the added creditor risk to lead to tougher credit review standards and more cautious lending. Banking. Total loan demand was generally constant or down, and total deposit activity was mixed at Tenth District banks during the past month. In all categories of loan demand, more bankers reported increased weakness than reported increased strength. Consumer, real estate, and agricultural loans were areas of particular weakness. While most banks have lowered rates on consumer loans, further interest rate declines are generally not expected. Demand deposits, large CDs, and small time deposits tended to remain constant or decline, while NOWs, Super-NOWs, and passbook savings accounts tended to remain constant or increase. remained unchanged. MMDAs, IRAs, and Keough accounts, on balance, Most banks are considering lowering their passbook savings rate below 5 1/2 percent, if they have not already done so. XI-1 ELEVENTH DISTRICT--DALLAS The Eleventh District economy is flat. slight evidence of strengthening. months. Manufacturing is showing Drilling has been stable for several Construction is substantially below a year earlier, but it appears to be leveling off. Auto sales have weakened lately, chiefly owing to the end of concessionary financing. year's level. Retail sales are slipping compared to last The balance sheets of the District financial institutions reflect the weakness of the District economy. Lower feed prices and higher meat prices have increased the profitability of.District ranchers. District manufacturers continue to report that orders have stabilized at low levels. Some respondents note slight increases stemming from strengthening in the national economy. For makers of primary metals, fabricated metals, and nonelectrical machinery, sales increases outside the District have helped to compensate for flat to declining sales in the region. Orders of electrical machinery are stable. Among apparel manufacturers, sales are unchanged overall and product prices are firm. Demand for stone, clay, and glass products, and for lumber and wood products, is weak because of reduced orders from the construction sector. Chemical and paper products sales are increasing slightly. Transportation equipment manufacturers say the pace of their orders is little changed. Refinery production has ebbed slightly as inventories of many products have been built up to high levels. A significant number of manufacturers link the falling value of the dollar to increases in prices of their inputs and to small upturns in their orders. XI-2 Drilling activity has varied little during the period from June through October. The number of well permits issued in the District states has been fairly steady since June. Respondents expect some upward movement in oil prices, but they believe that the increases will not lead to a significant upturn in drilling activity. Construction continues to show signs of stability, but the potential for further downturns is evident. In Texas, the total value of construction contracts for the third quarter was slightly above the second quarter's total, but it was down 25 percent from a year earlier. As with total construction, nonresidential contracts have been steady in recent months at roughly 30 percent below last year's level. The downturn has been concentrated in office and retail construction, leaving other categories of nonresidential building only slightly lower than a year earlier. The market for office space is still weakening. In Houston, bankruptcies and consolidations have led to reductions in the amount of office space that is occupied. dropped by half since last year. slightly. The office absorption rate in Dallas has Residential construction is falling The value of residential contracts was slightly less in the third quarter than in the second quarter. Permits continue to drop, led by precipitous declines in multifamily building. Nonbuilding construction is steady. Dealers attribute a recent sharp drop in automobile sales to the end of concessionary financing programs. As a result of sluggishness in the District economy, sales have also fallen significantly from a year earlier. Inventories are not excessive, as dealers have held their orders to modest levels. Respondents report that the full advantage of the XI-3 appreciating yen has been reduced by increases in the price of domestic models and by increased imports of non-Japanese autos. Retail sales continue to falter. The largest declines have been in the energy-intensive regions of the District. electronics have risen significantly. Prices of imported Apparel prices remain stable, but respondents expect increases as a result of new import restrictions. Retailers are keeping their inventories quite low in anticipation of continued economic sluggishness. Total assets at large District banks are still declining, principally as a result of reductions in business loans. lending continues to expand, but at a decreasing rate. slight growth on a year-over-year basis. increased steadily throughout the year. Real estate Consumer loans show Holdings of securities have Total deposits at large District banks have fallen dramatically since the first quarter, led by reductions in large time deposits. Borrowings have increased, but not enough to completely offset the reductions in time deposits. A decline in deposits at commercial banks has been more than offset by growth at thrifts, so that deposits at all financial institutions are up from a year earlier. The pace of expansion has slowed, however. In District agriculture, crop prices are markedly down from a year earlier while livestock prices are up. Since last July, cattle prices have increased 5 percent while feed prices have fallen 25 percent. profit margins for ranchers have widened. As a result, An early freeze has reduced the value of District cotton production, through quantity and quality losses, by an estimated $100 million. XII-1 TWELFTH DISTRICT -- SAN FRANCISCO Overall improvement in the Twelfth District economy appears to be continuing. The trade and service sectors continue to stimulate growth in regions not hard hit by other economic problems. suggests that exports of products manufactured improve. Moreover, markets for some Available information in the West are likely western agricultural to products, including potatoes, pistachios, and grapes, have improved in recent months. Forest products industries are prospering while gold and appear likely to recover during the next several months. family remains activity has residential building relatively healthy. Apartment slackened and in copper Although single recent nonresidential activity, in contrast, continues to weaken in many areas. mining months it construction Surveyed bankers agree that asset quality problems are likely to continue through next year, particularly in sectors that have experienced problems already. Consumer Spending The trade and service the Twelfth Washington sectors continue to flourish in most parts Retail District. sales and California, and has growth been has been satisfactory very in Oregon However, in areas with struggling economies sales are weak. strong of in as well. In Idaho, for example, retail sales have shown virtually no increase during the past 24 months. Alaska retail sales also have been slow. In California's central valley, retail sales reportedly have been flat, which actually represents an improvement compared to recent declines. Manufacturing Several respondents should improve soon. argued Exports of that exports of some electronic manufactured products products have risen in XII-2 recent have months due to the reduced value of the dollar. shown strong improvement, largely due to global Aircraft exports increases in demand for commercial aircraft. Capital goods producers indicate that machinery orders from Europe are picking up, due to declining declining U.S. dollar. U.S. production costs as well In addition, one respondent reports as to the that Japanese distributors have begun contacting U.S. companies about purchasing consumer products, products partly because and partly Japan now because of is encouraging the changing the purchase dollar-yen of U.S. relationship. Taiwan also is beginning to promote imports from the U.S. in an attempt to deter U.S. protectionist measures. Recent trade developments are products industry sources report only slightly increased mills. the not all positive, that the decline prices of however. Forest of the U.S. dollar has imported machinery used in lumber This machinery, most of which is produced in northern Europe and Scandinavia, still enjoys price and quality advantages relative to U.S. farmers, some made machinery. Agriculture and Resource Related Industries Although recent problems improvements continue for many have been noted. Twelfth District In Idaho, potato prices have risen significantly, providing farmers a chance to return to profitability. California, In the pistachio crop harvest was the largest ever recorded, and the bumper crop should not depress pistachio prices much because pistachios bear only in alternate years. harvested year's. this year than last Although 12 percent fewer wine grapes were year, grape prices are higher than last XII-3 Most economic indicators in the forest products industries suggest that, despite the national slowdown in residential construction, prosperity has returned at least for the moment. In Oregon, the number of millworking jobs in September set a new record for that month. products, including lumber, pulp, and dramatically. because imminent paper have Exports of many forest increased, although not Competition from Canada has been less fierce lately, partly Canadian lumber settlement, and workers are on partly because strike with little a preliminary ruling hope of that an would impose a 15 percent tariff on softwood lumber imports from Canada requires that, while waiting for a final decision, Canadian exporters post a bond with customs officials equal to the 15 percent duty. The lingering problems of the mining industry in Utah appear to have bottomed out, and stability or perhaps even slight improvement is expected during the coming months. The outlook for the copper industry currently is much brighter than it has been for several years, and some observers expect copper to be a source of strength during the coming year. The prospects for gold mining gold deposits in Nevada also have improved. Additional have been discovered, but at this point it is unclear whether they can be mined profitably. Construction and Real Estate In most areas nonresidential of the construction is District, slowing. the Single pace of family remains relatively strong despite recent slackening. multifamily home and construction Although activity has been heavy in both new and used home markets, housing prices in most areas reportedly are flat or down. Financial Sector Surveyed bankers indicate that significant loan quality problems are XII-4 likely to continue in such sectors as agriculture, energy, consumer credit, and commercial real emerge estate. In addition, a few bankers in health care portfolios. Strength at least partially offset these problems. in mortgage expect problems to portfolios should

Federal Reserve (1986, December 15). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19861216

@misc{wtfs_beige_book_19861216,
  author = {Federal Reserve},
  title = {Beige Book},
  year = {1986},
  month = {Dec},
  howpublished = {Beige Book, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/beige_book_19861216},
  note = {Retrieved via When the Fed Speaks corpus}
}