November 2, 1983
Overview
Economic expansion continued through the early fall in all Federal
Reserve districts. Generally increasing strength is reported in
retail sales, as consumer confidence improves along with income and
employment. Retailers in most districts are anticipating excellent
Christmas season sales.
Manufacturing activity is growing at a moderate pace, but only limited improvement is reported for capital goods industries. House sales are generally reported to weaker. Crop production was restricted by drought and acreage reductions, but farm income is being supported by higher prices and federal farm programs. Nearly all districts report increasing bank loan demand, while reports on deposit growth are mixed.
Consumer Spending
Continuing and generally increasing strength in retail sales is
reported in all 12 Federal Reserve districts. Some districts, such
as Cleveland and Kansas City, mentioned the widespread or broad-
based nature of sales increases. Many other districts noted that
sales were especially good for apparel, and for home furnishings and
other household items. New automobile sales were also reported as a
source of strength in consumer spending.
In addition to growth in income and employment, most-often-mentioned sources of the strength in consumption were a turn to more favorable weather conditions and a significant improvement in consumer confidence. While Philadelphia and St. Louis reported heavy promotional activities by retailers, Atlanta noted a strong rise in sales with negligible sales promotions. Retailers in most districts appear optimistic about sales in the fourth quarter, and are reported to anticipate excellent Christmas season sales.
Retail inventories described as generally satisfactory to a little high, are apparently not regarded as troublesome in the light of sales expectations. Chicago notes, however, that some retail inventories are tight enough to lead to sales losses if the Christmas season is as strong as expected.
Industrial Sector
Overall manufacturing activity continues to grow at a moderate pace
according to most district reports. Gains in production and orders
are generally reflected in reports of increases in employment and
length of work week, though Boston reports a cautious recalling of
production workers only and San Francisco notes weak manufacturing
employment growth in its district. Manufacturers' inventories are
generally reported as stable to accumulating somewhat, and appear to
be generally regarded as satisfactory. Prices in the manufacturing
sector are reported as ranging from stable to increasing moderately.
Cleveland and Chicago note that steel orders are continuing to rise, but emphasize differences among types of steel products. Cleveland notes the most improvement in demand for flat-rolled steal, while Chicago reports demand concentrated in lighter products with plates and structurals very slow. Cleveland notes some increased demand for steel from capital goods producers. Both Chicago and Cleveland report only limited improvement in their districts' capital goods industries.
Construction
Although there maybe mixed results within a given district,
residential construction activity is reported by most districts as
down from earlier this year. Clear expectations are New York, which
reports "Homebuilders have been quite busy and expect to remain so
over the next few months," and St. Louis, which notes that
"construction of homes...continued at a rapid pace." House sales are
generally reported to be down, except in the Atlanta district where
a recent revival is attributed to the increasing popularity of
adjustable rate mortgages. In the Chicago district, however,
variable rate mortgages are reported to be "shunned by most home
buyers." Several districts report increases in nonresidential
construction activity, and New York notes that some state
governments in its area have authorized increased spending on
infrastructure restoration.
Agriculture
Drought and reduced acreage cut crop production in a number of
districts, but farm income is being supported by higher product
prices and federal farm programs. Results varied according to
geographical area and type of farm enterprise. For example,
Minneapolis reports a good year for soybean farmers in its district,
while Atlanta notes that producers of peanuts and tobacco—not
covered by the PIK program—sustained heavy income losses because of
the drought. Livestock farmers and ranchers are feeling the impact
of high feed costs and low livestock prices. Meat prices may fall in
the short run due to increased marketings, but are expected to rise
again next year.
Financial Developments
Nearly all districts reported increasing bank loan demand, although
Atlanta noted slower recent loan activity following "healthy" growth
last summer. The picture for business loans is somewhat mixed, but
they appear to have been an important part of total loan growth in a
number of districts. Aggressive seeking of new customers by banks
was noted by New York, Richmond, and Philadelphia. The latter
reports that "consumer credit demands have responded very positively
new-marketing efforts."
Reports on deposit growth also vary among districts and by type of deposit. Several districts commented on the actions of banks and customers with regard to the deregulation of time deposits on October 1. New York noted that many banks and thrift institutions offered "very attractive rates" but Cleveland reported that its district banks were not aggressive about the new deposits. Richmond and Kansas City agreed that there was little effect on their financial institutions and little response from customers. San Francisco saw some significant early growth in new deposit accounts, but does not expect them to generate substantial inflows of new funds.