March 25, 1981
Overview
The reports from the Federal Reserve Banks suggest little
overall strength in economic activity. Current economic conditions
are generally characterized as ranging from weak or sluggish to
stable, flat, and mixed; with the exception of the Tenth and
Eleventh Districts where business activity is seen as somewhat
better. Expectations for the future are in contrast to the current
situation, with optimism prevalent in varying degrees among most
Districts commenting on the outlook. San Francisco's report of
"gloomy" expectations for economic activity in the Twelfth District
is the major exception.
Consumer Spending
The current performance of consumer spending
varies across the country from improving slightly to remaining
sluggish. Dallas, Kansas City, Chicago, New York, and Boston report
sales as slightly improving. Sales in the San Francisco,
Minneapolis, and Cleveland Districts are described as weak or
sluggish, while the Atlanta and Richmond Banks report sales to be
essentially flat. Substantial gains in new domestic automobile
sales-due to the rebate programs-are reported by most Districts, but
the gains are expected to disappear with the termination of the
rebates.
Manufacturing
While manufacturing activity varies considerably from
District to District and from industry to industry, there is little
evidence of strength. New York and St. Louis emphasize the different
levels of activity in various industries, as does Boston where the
demand for high technology output is softening. Philadelphia and San
Francisco call industrial activity unchanged or flat, while
Minneapolis reports current weakness. Cleveland notes that capital
goods spending may have reached a trough, but Chicago says that
"orders for business equipment remain at depressed levels in real
terms." Steel demand, however, is showing surprising strength.
Inventories
Inventories of both retailers and manufacturers are
being kept under tight control, and are generally viewed as being at
satisfactory levels. The only significant difference was reported in
the Richmond District where, although retailers' inventories are
generally at desired levels, there has been some recent buildup in
stocks. Also, manufacturers' inventories in the Fifth District are
now reported as somewhat higher than desired.
Prices
Moderation in recent price increases and optimism over the
price outlook were reported by some of the Reserve Banks. Although
Philadelphia noted that "industrial prices have jumped again in the
Third District," Boston, Chicago, and Kansas City reported
observations of moderating tendencies in price increases. Optimism
about deceleration in inflation was expressed in the reports from
Cleveland and Kansas City.
Construction
Housing activity continues to be weak according to
most District reports. Atlanta and St. Louis note an increase in
potential customer traffic recently, but with little effect on
sales. The effects of weakness in housing include continued
depressed demand for home furnishings and building materials
(Boston) and great financial strain on small builders (Cleveland).
In some Districts (Atlanta, Richmond, St. Louis) strength in
commercial and/or industrial construction is helping to offset the
weakness in housing. Chicago, however, also reports weakness in
nonresidential construction. Dallas stands alone in reporting
overall strength in construction activity, with residential
construction advancing steadily and commercial activity booming.
Financial Developments
Reserve Banks generally describe loan demand
as flat or weak and sluggish, occasionally noting a direct
relationship to weakness in the District economy. Business loan
demand is sluggish at large commercial banks in New York, while
Richmond and Atlanta note a slight pickup in business loan activity.
In the Tenth District, business loan demand is flat-to-weak except
in energy areas. Total bank loan volume is up in the Dallas
District, with energy-related industries accounting for most of the
growth. In both Philadelphia and New York below-prime lending
activity has increased.
Agriculture
In most reporting Districts recent rainfall has eased
the problems of low soil moisture conditions. As a result, wheat and
pasture conditions have improved in the St. Louis, Kansas City, and
Dallas Districts. In the Minneapolis District, however, continued
drought and falling farm prices threaten the agricultural sector.
Chicago and Kansas City report financial difficulties for livestock
producers, and Chicago notes that farm income estimates for the year
have been adjusted downward.