The general consensus that emerges from the August district reports is of continued moderate growth in consumer spending and little prospect of significant advances in plant and equipment investment. Retail trade, particularly automobile sales remains strong and residential construction continues at a brisk pace. Concern over a slowdown in economic activity during the next six months has produced a cautious inventory strategy and restrained new business investment. Consumer loans remain strong, but sluggish business lending is common in most districts. The combined effects of bumper crops and drought have reduced farm income and increased agricultural indebtedness in many areas.
Consumer spending was generally strong during August. Solid gains in department store sales were achieved in Boston, New York, Atlanta, Chicago, Cleveland, Minneapolis, and Dallas, although Philadelphia merchants describe sales as below expectations and St. Louis reports only modest gains. Philadelphia and San Francisco report strong sales of durables, such as furniture and appliances, matching the growth in residential construction. Sales of 1977 model automobiles, apparently stimulated by price increases announced for next year's models, continued to be excellent in the Atlanta, Chicago, Dallas, Kansas City, St. Louis, and San Francisco districts.
Both residential and non-residential construction continued their vigorous advance in many areas, although scattered reports of labor and material shortages have appeared. Dallas reports that housing starts are down only slightly from the record June pace and that shopping center construction in Texas is triple the level of last year. The Atlanta, Chicago Kansas City, and St. Louis housing markets remain robust. The housing boom continues on the west mast, but San Francisco reports that the rate of increase has apparently reached a plateau in most areas. While no district is experiencing a shortage of mortgage funds, Chicago, St. Louis, Atlanta, and Dallas report spot shortages of various building materials and skilled construction workers.
Manufacturing activity presents a mixed picture, with materials shortages appearing in some districts and concern over the health of the steel industry growing in others. Dallas reports a continued rise in industrial production, led by increases in the output of oil field equipment and building materials. Shortages of brick and cement are reported to be widespread, however. Record offshore oil and gas production has stimulated shipbuilding activity in Atlanta, but "serious shortages" of all types of oil handling equipment have developed. In New York, production cutbacks announced by a major steel producer will further retard the sluggish recovery of the western part of the state. Cleveland expresses concern over layoffs and salary cuts at steel plants in its district. Manufacturing output continues to increase at a moderate rate in St. Louis, particularly among consumer goods, although steel shipments are down 10 percent or more from year earlier levels and new orders for several lines of chemicals slowed in August. Reports from other districts are more optimistic. Growing manufacturing activity has provided new jobs in Minneapolis, and is expected to continue to do so. Shipments were generally up in Richmond, but new orders showed little change. In Boston, on the other hand, a slight drop in production reflecting normal seasonal influences is expected to be reversed in the near future due to an increase in new orders for defense goods. Philadelphia reports a rise in industrial production, especially in durable goods, while Kansas City is experiencing an energy-sector led increase in business activity.
Investment in inventories and capital projects may best be described as cautious. In view of the slowdown in business activity expected in many districts over the next six months, current low inventory/sales ratios are generally regarded as satisfactory. Inventories appear to be at desired levels in Boston, Philadelphia, St. Louis and Dallas. Excessive inventories in specific industries are mentioned by New York, Chicago, and Minneapolis. Business surveys in the Richmond district suggest some unintended inventory accumulation, with an increase in the number of respondents who view their inventories as excessive. Less optimistic business expectations are also reflected in the behavior of plant and equipment expenditure. New York reports "very conservative" capital spending plans; only 37 percent of firms surveyed in Philadelphia plan increases in capital spending over the next six months; Kansas City, Cleveland, and Atlanta cite energy and tax legislation as important causes of business uncertainty; San Francisco sees capital spending as generally weak in the west, with a significant portion of new investment tied to pollution control equipment.
Loan demand continues its familiar pattern, with consumer loans, particularly for automobiles, remaining strong and business loans remaining flat in most districts. Commercial loans are up in Boston, but the funds are being used primarily for plant modernization rather than for new capacity. Atlanta and St. Louis note that a recent court decision in Tennessee upholding the 10 percent limit on consumer loan interest rates has caused a virtual halt in consumer lending in that state. Bankers in the Cleveland, Kansas City, and Philadelphia districts expressed fears of possible disintermediation due to the recent rise in short rates, although current deposit inflows have remained strong in these and other districts.
Agriculture is a particular concern in many districts. In some areas, record harvests, by driving prices down, and unprecedented drought, by driving costs up, have reduced farm income, increased agricultural indebtedness, and decreased the demand for heavy agricultural implements. This basic pattern is mentioned by Chicago, Minneapolis, Kansas City, Dallas, and San Francisco. In other areas, such as Boston, Richmond, and Atlanta, the crop-reducing effect of the drought has had the most pronounced effect on farm income. Atlanta notes that prices for Florida citrus fruits are double last year's level, however.