August 6, 1984
Overview
Economic activity is continuing to expand in most regions and
industries, but at very different rates. Consumer spending is still
providing much of the strength, particularly in the automotive
sector, where vigorous activity is leading to supply constraints and
buoying a variety of supplying industries. Construction activity has
been mixed, with most regions showing continued strength in
nonresidential building, but various degrees of slowing on the
residential side. Foreign competition and slower housing
construction are seen to be restraining activity among producers of
building materials. Foreign competition is also being blamed for
lagging demand in the textile and apparel, furniture, lumber, and
primary metals industries. Inventories are generally near desired
levels, and price increases remain moderate. Loan demand remains
generally strong, with the exception of the residential mortgage
component. Deposit behavior has been mixed, but, on balance, growth
appears to have slowed, which has caused some institutions to
increase their issuance of CD's. On the agricultural front, crop
conditions appear generally improved, although trouble spots remain.
Manufacturing and Industry
Manufacturing activity is continuing to expand in most areas, but
more slowly in several, and with actual declines in some industries.
Apart from seasonal factors, the automobile industry and related
industries are operating at high and increasing rates. Atlanta finds
suppliers of the auto industry bringing long idle capacity back on
line and struggling to keep up with demand. The paper-related
industries are also near capacity according to Atlanta, Chicago, San
Francisco, and Richmond, and high levels of activity are reported
for the chemicals, construction equipment and electronic equipment
industries in several districts. In contrast, Cleveland and San
Francisco report declining activity in the steel industry due in
part to increased steel imports. Foreign competition is also
reported to be restricting activity in the textile, apparel, and
lumber industries. Producers of building materials are facing weaker
markets as housing activity softens, although Boston and Dallas find
significant continuing strength in that sector.
Consumer Spending
Retail sales are still generally strong, although there are
indications of weakness in some areas. Both Boston and San Francisco
reported that sales accelerated in July, but Cleveland found some
weakening in general merchandise sales, and Minneapolis reported
spotty results in rural areas dependent on agriculture. Retail
inventories have declined slightly overall and seem to be generally
at comfortable levels. Automobile sales remain robust across the
country. In lines other than automobiles, apparel was doing well in
the Philadelphia, Richmond, and San Francisco Districts, and
strength was also reported in sales of home entertainment
electronics goods, furniture, and appliances.
Atlanta, Minneapolis, and Richmond all reported mixed results at tourist and vacation sites in their districts. Some areas appeared to be meeting expectations, while others were having disappointing peak seasons.
Construction
Most districts report some degree of slowing in the residential
sector, although Chicago found surprising stability, and in the St.
Louis District backlogs of orders are continuing to support single-
family construction. Where activity is slowing, recent increases in
mortgage rates appear to be a principal factor. Also, several
comments suggest that both borrowers and lenders are becoming
disillusioned with adjustable rate mortgages. Nonresidential
construction is apparently holding up well, with increased building
reported in several districts. San Francisco reports that several
metropolitan areas in the Twelfth District are "on the brink of a
boom," and an increase in commercial construction is expected soon
in downtown Chicago. New York, however, reports rising vacancy rates
in office buildings in lower Manhattan and Long Island.
Finance
With the exception of residential mortgages, loan demand is
continuing to make substantial year-over-year gains. Business and
consumer loans are still rising strongly in most areas, although
some banks in the Boston District reported a leveling off of loan
demand, and Kansas City found loans flat to up slightly. Deposit
growth has slowed in the Atlanta, Cleveland and San Francisco
Districts, but remains steady in the Dallas. Minneapolis. and
Philadelphia Districts.
Agriculture
Crop conditions have improved in recent weeks, although conditions
remain poor in areas along the Gulf Coast, in central and southwest
Texas, and in parts of California and New York. Kansas City reports
generally good wheat, corn, milo, and soybean crops, with only
isolated and relatively mild weather problems. Despite improvement
in the near-term outlook, however, debt levels and falling land
values continue to plague farmers.