Beige Book: National Summary
March 23, 1983
Overview
District reports are nearly uniform in the suggestion that an
economic recovery began shortly after the first of the year. In most
areas the recovery is being led, in many cases exclusively, by
personal consumption expenditures and residential real estate sales
and construction. Automobile sales are generally improved relative
to year earlier levels, but are not consistently sustaining the
levels reached in January of this year. The manufacturing sector
remains spotty. Housing and auto related industries are improving.
Capital goods, on the other hand, remain severely depressed in most
areas. Inventories are generally characterized as light to moderate
but there is no clear pattern of intentions with respect to changes
over the near term. Despite the improvement in business activity the
employment picture seems to have improved little, if at all. Banks
and thrifts continued to experience strong deposit inflows,
primarily into MMDAs. Loan activity is essentially flat with modest
gains in real estate and consumer lending about offsetting declines
in business loans.
The Manufacturing Sector
Manufacturing activity is mixed both nationally and in most
districts. Generally speaking, consumer, automobile, and housing
related industries are showing marked signs of recovery. Building
materials, in particular, are buoyant and upward pressures on their
prices are developing.
Minneapolis, Dallas, and San Francisco all indicated that their lumber and forest products industries are strengthening. Chicago reports some gypsum plants operating six days a week with output above rated capacity. In the Boston District, housing activity is boosting production of roofing materials, building parts, wiring, electrical devices, and appliances.
In the Philadelphia and Richmond Districts the strength in manufacturing activity is more broadly based. New orders and shipments have zoomed according to Philadelphia, while in Richmond's area there has been broad improvement in shipments, orders, and order backlogs.
In other areas developments are less encouraging. Cleveland notes little change on balance, although steel orders are responding to increased auto production. Mills are operating at 50 percent of capacity as compared to 30 percent some months ago, and the price of scrap is up sharply. Industrial production remains depressed in the St. Louis District where several large plant closings are reported. Energy related industries also remain weak, and in Chicago's words, "machine tool order backlogs have evaporated."
Consumer Spending
Consumer spending appears to be strengthening on balance, but the
improvement is spotty, both across districts and across the various
segments of the retail sector. The relatively robust sales of
January have moderated, in some areas because of extreme weather
conditions. The composition of sales also varies from district to
district. Soft goods, particularly apparel, seem to be doing well
generally. Activity in durable goods is less consistent. Only
Richmond, Atlanta, Dallas, and San Francisco specifically note
strength in big ticket items. New York, on the other hand, reports
that big ticket items remain weak.
Retailers' inventories are modest to trim over all, but there appears to be no widespread tendency or intention to add to them. Atlanta sees stocks at department stores on the rise, responding to brisk sales. Boston characterizes inventories as high but satisfactory.
New car sales, although up from recent levels, are still below expectations. Nonetheless, they are sufficient to have fostered some optimism and have encouraged production among suppliers, with the notable exception of tire manufacturers.
Construction and Real Estate
The most consistent and widespread source of strength is the
residential real estate sector. Sales of existing houses are up
sharply in most areas. Construction of new structures is beginning
to follow, and information on applications for and issuance of
building permits suggests further progress in coming months. In the
Minneapolis metropolitan area, home sales for the first two months
of 1983 were up 34% from a year earlier, while in the San Francisco
District housing starts are running at twice the level of the
comparable period in 1982. Kansas City describes the situation there
as a boom in housing starts.
Commercial and industrial construction, however, is pervasively weak and, in many areas, is slowing. Only St. Louis specifically notes any strength in non-residential construction.
Banking and Finance
There has been little tendency to date for loan demand to respond to
the gains in economic activity. Modest and scattered strength in
real estate and consumer lending is offset by continued weakness in
business lending. Even consumer lending by banks and thrifts does
not appear to have matched the gains in consumption expenditures. It
is conjectured that captive finance companies may be handling some
of the new car financing. The low level of business lending is
attributed to sounder financial positions rather than to reduced
business activity.
Banks and thrifts are continuing to experience heavy inflows of funds into MMDAs. Kansas City suggests that other classes of deposits are actually declining, but that MMDA growth is so strong that it is holding the growth of total deposits up. There are indications from several areas that institutions are coming under increased pressure to find outlets for these new funds and are therefore becoming somewhat more aggressive in marketing loans, especially in the retail lines.
Agriculture
Despite some improvement, the farm sector remains troubled.
Production costs are moderating and land prices have stabilized.
Winter wheat conditions are good in the Kansas City District, where
a mild winter and higher prices are also helping livestock
producers. Bad weather has caused heavy crop losses and delays in
planting in the western part of the country and is expected to lead
to price increases later in the spring. Heavy participation is
generally expected in the PIK program, which will result in reduced
acreage in some crops and areas.
The Outlook
The outlook is generally positive. The failure of activity to match
January levels is considered transitory. Many industries still
languishing are expected to feel the upswing before long. There is
little optimism regarding the capital goods industries, however.
Further, there is little expectation of significant gains in the
employment over the near term. There is some scattered concern over
the potential for higher inflation rates. Recent rises in non-petroleum industrial prices are seen as ominous in some quarters.