June 25, 1984
Overview
The pace of economic expansion appear" to have slowed recently.
Retail sales are strong and retailers are optimistic. Manufacturing
activity continues to use but at a reduced pace from earlier this
year. Retail and manufacturer's inventories appear to be close to
desired levels. No strong upward price pressures are reported. Sales
and starts of new houses are slowing. Rising interest rates and
adverse weather are reported to be hurting the firm sector. Loan
demand continues to grow in most districts.
Retail Sales
Retail sales for May and early June are reported to be strong and
better than expected in most districts. Year-over-year gains of
between 10% and 20% are common. Sales of summer apparel, fans, air
conditioners, outdoor furniture and grills were stimulated by
exceptionally hot weather in the east. Minneapolis reports sales,
depressed by cold weather in May, are firming in June. Inventories
are generally at satisfactory levels, although a few districts
report them to be slightly larger than desired. Retailers are
optimistic about the outlook for sales during the remainder at 1984.
Automobile sales continue to be strong, although St. Louis notes that sales are sluggish at sane dealers. San Francisco reports auto sales at their highest level since the late 1970s, are being supported by subsidized financing by dealers, and some auto dealers in the Cleveland district say that consumer lending rates haven't risen enough to damp sales. St. Louis observes that small cars are selling better than large cars, and Minneapolis reports recreational vehicles sealing exceptionally well.
Manufacturing
Manufacturing activity continues to expand, but at a slower pace
than earlier this year. Manufacturing employment is rising slowly in
most districts. Production of aluminum, paper, tires, heavy-duty
trucks and trailers, and medium- and full-sized cars is reported by
various districts to be at full capacity. Demand for electronic
equipment continues its strong growth. San Francisco reports lumber
producers are cutting payrolls because of the national homebuilding
slowdown, and Atlanta adds that softening housing demand has also
cut the furniture industry's demand for lumber. Various districts
report foreign competition is crimping production of copper, steel,
furniture, and machine tools. Dallas, however, notes strong
production growth and lengthening lead tines for primary metals.
Modernization and cost cutting are still emphasized in capital
investment but there are a few reports of capacity expansion. Boston
reports demand for capital goods used by the energy, steel, and farm
equipment industries remains depressed. Inventories are generally
near desired levels and are growing slowly. There are only a few
reports of shortages and lengthening lead times. Price increases are
being restrained by vigorous domestic and foreign competition.
Cleveland reports that major steel producers expect little or no
profit this year because of weak prices.
Construction and Real Estate
Sales and starts of new houses slowed in May and early June in most
districts in response to rising mortgage interest rates. Chicago
reports lenders have tightened credit standards. San Francisco notes
the slowing has been moderated by "increased public acceptance of
adjustable rate mortgages and the increased offerings on 'buy-down'
programs by builders." Dallas observes caution in multifamily
construction because of fears of overbuilding, but St. Louis reports
some building of apartments.
In contrast, New York reports house sales and starts are so strong that some builders have "suspended" sales because they are producing at capacity, and Richmond says the trend in housing construction is quite strong.
Nonresidential construction is reported to be strong by San Francisco and New York, "active" by Minneapolis, and down by Atlanta. Dallas reports a decline nonresidential construction.
Atlanta reports lumber prices are falling while Kansas City reports price increases for sheetrock and cement. According to Chicago, a shortage of gypsum board has ended because builders and distributors have stopped adding to inventory. Dallas comments that the high level of construction has some lumber, concrete, and brick plants running multiple shifts.
Agriculture
The agricultural sector is reported to be hurt by rising interest
rates and bad weather. Reports of adverse weather are widespread.
Droughts, blizzards, and excessive rain are reported to be hampering
agricultural production. Minneapolis comments that many counties in
that district have been declared disaster areas because of weather.
San Francisco notes that abundant vegetable harvests have pushed
prices to or below the break-even point for many producers. Rising
interest rates and weak income prospects are reported to be placing
extreme financial pressure on some farmers. Minneapolis reports that
it is increasingly difficult for banks to find acceptable
agricultural loans. In the St. Louis district, this year's crops are
reported to be "critical" to the financial survival of many farmers.
Kansas City says bankers in that district are concerned by the
"increasing number of farm bankruptcies."
Energy
Cleveland reports coal production is rising as users increase
inventories as a strike hedge. Richmond reports coal output has
risen significantly in 1984 but is facing strong foreign
competition. San Francisco reports the coal industry is laying off
workers because of foreign competition. Dallas reports oil drilling
activity is substantially above the year-earlier level, and drill
pipe inventories have fallen to desired levels. Atlanta reports
better prospects for its energy sector because of "sharply lower
drilling costs" and rising demand for oil.
Commercial Banking
Several districts report commercial end industrial loan demand is
growing strongly. Philadelphia says commercial and industrial
lending has been "especially strong" in the last six weeks. An
exception is Cleveland where business lending has not expanded in
the last month. Consumer installment lending is "brisk" in
Philadelphia and "robust" in Cleveland, but down in St. Louis. A few
districts report rapid deposit growth and Atlanta says banks are
very liquid. San Francisco notes a large runoff of funds from money
market deposit accounts. Two districts comment on the safety of
deposits: St. Louis reports that "a few corporate treasurers have
expressed concern about banking problems, and have lowered some
balances to decrease exposure at any one institution," and San
Francisco notes that some depositors at a few smaller institutions
have shifted some deposits into U.S. Treasury securities.