The tone of District reports suggests continued slow growth in the economy with little change in the underlying inflation rate. Reports on the behavior of consumption are mixed, and construction is indicated to be softening further. Capital goods industries are, on balance, pointing toward growth, and manufacturing is expected to strengthen in several Districts.

Recent behavior in retail sales and reports from retailers in several Districts indicate that sales have been slow in recent months, and are expected to remain so in the short term. It is unclear how much of the recent softness in retail sales represents temporary factors, such as unusual weather over the last several months.

Both residential and nonresidential construction have been edging downward in recent months in most Districts, and indicators of future construction suggest further softening.

Prospects for a good harvest this year should be improved as a result of ample rainfall in previously drought-stricken regions of the country, but cool, wet weather has delayed planting by as much as several weeks.

The slow-growth economy is accompanied by an easing in demand for credit. Real estate loans, consumer loans, and business loans are still growing, but at reduced rates in recent months. Lenders are reported to have tightened standards especially for real estate loans, but there is still little information that suggests credit restraint is spreading into other markets.

Consumer Spending
District reports suggest very little growth, if not a decline, in real consumer spending for durable and nondurable goods this quarter from last. Retail sales have been marked by sluggish behavior in several Districts that has apparently continued into May and early June (Boston, New York, Philadelphia, Cleveland, Chicago, Richmond and St. Louis).

Unseasonably cold and wet weather has reduced demand for summer goods and for apparel. Weakness in home furnishings is attributed to softened conditions in housing.

Retail sales in Atlanta, Dallas, and Minneapolis apparently continued to increase in May, but at a reduced pace from earlier this year. Kansas City described retail sales as having increased moderately over the past three months, and San Francisco described sales as "continuing healthy."

Several Districts reported that retail inventories are either high, or larger than desired (Boston, Philadelphia, Cleveland, St. Louis, and Kansas City).

Retailers in several Districts are cautious about the short-term outlook for retail sales. In Boston and Cleveland, respondents apparently expect little improvement at least through the summer months, and Philadelphia reports that some retailers are lowering their sales forecasts.

Manufacturing
Manufacturing production has been relatively flat over the last few months, but several Districts expect strengthening in output despite softness in some industries. Defense, building construction machinery, and apparel industries are experiencing some softening. In contrast, the aerospace industry is a source of strength in several regions of the country, (Boston, Minneapolis, and San Francisco), and the energy sector is expanding (Dallas and Kansas City).

Capital goods industries still point toward growth, despite mixed performance. Construction machinery, excluding building, is "doing well," agricultural machinery is strong, and orders for communications equipment are rising, according to Chicago. Demand for heating and air conditioning and industrial pumps is strong in Atlanta, and capital goods is "surprisingly strong" in Minneapolis. Cleveland reports that capital spending plans are stronger than reported in the latest Commerce Department survey, which should be an important support to manufacturing output.

Output in the auto and auto-related industries, such as glass and rubber, has been a drag on manufacturing in Atlanta, but Chicago and Cleveland note some strengthening in auto production that should add to total output this quarter and perhaps next. Steel production has rebounded, and some analysts have upgraded their steel outlook for 1990 (Chicago).

Construction and Real Estate
In most Districts, except San Francisco and Minneapolis, residential and nonresidential construction has been flat to declining in recent months, with prospects for further easing. Housing sales were either flat or fell in recent months in Philadelphia, Richmond, and Kansas City, but were generally stronger in Minneapolis, and rebounded in California. Housing sales have been increasing at double-digit rates in Oregon, Idaho, and Utah.

Contract awards for future starts fell in April in Chicago and Dallas, and permits in Minnesota were off 20 percent in March from a year earlier. Atlanta notes that contracts for both residential and commercial construction continue to slow, in part because of overbuilt markets.

An underlying problem in commercial construction is an apparent excess supply of new office space in many parts of the country. Commercial construction in downtown Manhattan is marked by the highest office vacancy in two decades. Dallas notes that office occupancy rates in major metropolitan centers in that District have been increasing, but are still low.

Agriculture
Recent rains in the Southeast, the North Central states, and California generally relieved drought conditions and appear to have improved farm crop yields. Richmond reports that grain yields are expected to be normal to above normal. Recent rains in the North Central states "substantially brightened prospects for agriculture," especially in Minnesota and North Dakota, and ranchers in Montana expect a record year this year (Minneapolis). Kansas reports heavy spring rains ended the drought of the pest two years and boosted prospects for winter wheat output. Expected yields range from average to well above average, with record crop yields likely in much of that state. Recent rains in California have relieved some of the drought conditions, but storms have caused significant damage to some fruit crops.

Heavy rainfalls in the Chicago, St. Louis, Kansas City, and Dallas Districts however, have damaged crops and delayed other crop planting by several weeks. Below-normal temperatures and above- normal rainfall since mid-May have delayed planting of an estimated 13% of corn acreage and 47% of soybean acreage as of June 2, according to Chicago. St. Louis reports that poor weather and disease and insect problems suggest that 1990 crop yields may fall below normal in some parts of that District. Moreover, an estimated one-fourth to one-half of the wheat and cotton crop is rated as in poor to very poor condition in several states.

Credit Market Conditions
Loan demand continues to expand, although the pace has eased for most types of loans. Philadelphia reports easing in growth for most loans, and Atlanta comments that weak loan growth has led lenders to encourage borrowing. Home equity loans continue to rise in New York and Richmond, although growth in Philadelphia has slowed along with other kinds of consumer loans.

Constraints on credit seem to be primarily in real estate, although limited information suggests small business firms in some areas may also be affected. New York notes that home builders report a shortage of credit for acquisition and construction loans is becoming a major problem, especially in downstate New York and northern New Jersey. Cleveland points out that credit restraint is largely confined to multi-family construction and commercial buildings, but that there appears to be ample funds for single- family housing. San Francisco reports that "lending standards have become more stringent in recent months," and both Richmond and St. Louis reported about credit constraints for the first time this month.