July 1, 1983
Overview
Economic conditions are improving. Reports of solid increases in
retail sales are widespread; hard goods such as appliances and home
furnishings are moving particularly well. In manufacturing, orders
and shipments have increased for consumer products and for the
materials and parts used to fabricate these products. Demand is also
strong for construction materials. However, most capital goods
industries are still waiting for the recovery. Housing sales and
construction remain vigorous, but in some areas the pace has slowed
from that set earlier in the year. Financial institutions continue
to experience deposit growth; inflows to MMDAs have slowed but are
still substantial. Loan demand remains sluggish.
Retailing
Retail sales are up in almost all Districts, with Boston,
Philadelphia and San Francisco reporting year over year increases in
double digits. Sales of appliances, furniture and other hard goods
are generally stronger than sales of nondurables, although apparel
is selling well in a few areas. Auto sales have picked up; bigger
cars are in the greatest demand. Low interest rate programs are an
important stimulus to car sales according to Dallas and San
Francisco. Retailers are optimistic about prospects for the rest of
the year. Inventories have increased, but for the most part are
considered satisfactory.
Manufacturing and Mining
Manufacturing orders and shipments are increasing. The demand for
lumber, gypsum and other building materials is especially strong.
Atlanta reports that cement plants and lumber mills expect to
operate near capacity in the next few months and Chicago finds
gypsum board plants already at full capacity. Production of consumer
products and inputs to consumer products has also strengthened. The
improved outlook for auto sales is having a broad impact, with
Boston, New York, Cleveland, Chicago, Minneapolis and San Francisco
reporting increases in a variety of auto-related products. Defense
is another source of strength in the St. Louis and San Francisco
Districts, high technology products in New York and Dallas. The
major area of weakness is the capital goods industries; Boston, New
York, Cleveland, St. Louis and San Francisco all note that these
industries have seen little evidence so far of a recovery. An
important exception is Chicago which reports an upturn in capital
goods production, mostly for replacements rather than expansions.
Both Chicago and Boston note that the high value of the dollar is
discouraging exports.
The increases in manufacturing activity have been achieved largely through increases in the workweek, but the Philadelphia, Cleveland, Richmond, Atlanta, Chicago and San Francisco Districts have also experienced increases in manufacturing employment.
Manufacturing inventories have fallen recently, according to Cleveland and Chicago. A large part of the decline observed by Chicago was involuntary, with sales exceeding expectations; rebuilding is now underway. Richmond and St. Louis find that a majority of firms are satisfied with current inventory levels.
Decreases in drilling costs have stimulated oil and gas exploration in the Minneapolis and Dallas Districts. Metals mining in the Minneapolis District remains depressed.
Construction and Real Estate
Housing sales and construction remain vigorous, well above 1982
levels; but Philadelphia, St. Louis and Cleveland report that the
pace has slowed from that set earlier this year. Demand has shifted
towards smaller less costly homes according to New York and San
Francisco and to more expensive homes according to Cleveland and
Atlanta. Realtors in several districts expressed concern about the
effects of rising mortgage rates; however, Atlanta and Chicago
speculate that the small rate increases so far may have spurred
sales, as potential buyers sought to lock-in current low rates.
Boston and Chicago note that buyers continue to show a strong
preference for fixed rather than adjustable rate mortgages.
Those districts commenting on nonresidential building activity generally see a lot of work in progress but few new projects. An exception is San Francisco which reports that although construction activity is below year ago levels, nonresidential building permits are increasing.
Banking and Finance
Deposits continue to grow at financial institutions in all districts
reporting on this subject. Inflows to MMDAs account for a large part
of the deposit growth, but Philadelphia, Cleveland, Atlanta and San
Francisco note that the growth in MMDAs has slowed. Loan demand
remains sluggish, with only Philadelphia, Atlanta and Minneapolis
reporting substantial growth overall. Commercial and industrial loan
demand is especially weak. Faced with a shortage of attractive loan
applications, financial institutions in the Dallas and San Francisco
Districts are increasing their holdings of securities.
Agriculture
Cold and wet weather delayed plantings in most Districts. Crop
development is back to or close to normal in the New York, St. Louis
and San Francisco Districts, but still behind schedule in Chicago
and Minneapolis. Kansas City notes that while plantings of row crops
were delayed, the wet weather has produced an excellent wheat crop
and good range conditions. The PIK (Payment-in-Kind) program is seen
as having a positive effect on the incomes of wheat, corn and cotton
farmers, but Atlanta warns that livestock farmers and agricultural
suppliers will be adversely affected. Chicago and Minneapolis see
abundant world supplies and weak export demand putting downward
pressure on agricultural prices.