December 5, 1984
The economy continues to show a widespread pattern of slowing expansion across both regions and industries. Manufacturing output is growing overall, but most Districts report substantial variation among industries. Retail sales growth on a year-over-year basis is sluggish compared to earlier this year. Auto sales continue to increase more than is seasonally normal. Residential construction is still weak, but lower interest rates are leading to some signs of a pickup. Most Districts note steady loan demand overall, although consumer lending is strengthening in some Districts. In agriculture, crop prices continue to fall while cattle prices are rising further. Agricultural debt remains a concern in several Districts.
Manufacturing and Industry
Manufacturing is growing slowly in every District, although some
industrial sectors continue to perform vigorously. Growth is highest
among paper and allied product firms and electrical equipment
producers. Atlanta, Minneapolis, and Dallas report strong
performance by the former, while Dallas and San Francisco indicate a
good showing by the latter. Increased orders from defense firms and
the automobile industry are contributing to demand in some
manufacturing sectors. The weakest industries are those most exposed
to import competition, especially the textile, apparel, wood
product, and metal working industries. Boston, St. Louis, Richmond,
Chicago, and Minneapolis all report deteriorating performance in at
least one of these industries. Several Districts report that
inventories are rising, but among those reports only a few indicate
that inventories are above desired levels. Input prices are stable
or rising only slightly. Uncertainty about future growth is
increasing, as evidenced by Chicago's notation of recession fears on
the part of some respondents. Oil and gas drilling activity is
continuing to improve, but the recent oil price decline threatens
the industry's recovery.
Consumer Spending
Retail sales are increasing on a year-over-year basis, but they are
slower than expected in several Districts. Boston and New York
attribute slower sales growth to relatively warm fall weather.
Richmond, on the other hand, reports quite strong sales. The pattern
of sales is also uneven between consumer durables and nondurables
across Districts. Many stores are increasing their advertising and
markdowns to stimulate business. Respondents anticipate increased
holiday sales, but the expectations regarding the strength of
Christmas sales are lower than earlier.
Automobile sales are above year-earlier levels in each of the nine Districts reporting them. Inventory shortages are responsible for slower expansion in some areas. Availability problems persist, but increased production and recent strike settlements lead many dealers to expect further gains in sales.
Construction
Lower mortgage interest rates are contributing to an upturn in some
previously declining residential construction markets. Philadelphia,
Cleveland, and St. Louis report growth in residential construction
New York is reporting exceptionally strong residential construction
levels despite a shortage of skilled labor. San Francisco, Dallas,
Chicago, and Minneapolis note general weakness in their residential
markets, although some regions within these Districts are doing
well. Atlanta and Kansas City expect strengthening residential
construction on the basis of lower interest rates.
Nonresidential construction is generally more vigorous than residential. Several Districts comment that commercial construction is proceeding at a strong pace. New York is the exception with ebbing markets for nonresidential construction in all parts of the District except mid-town Manhattan.
Banking and Finance
Mirroring the slowdown in the overall economy, asset growth is
moderating. Commercial lending is remaining flat, although St. Louis
reports a recent pick-up in local demand and Philadelphia expects
such an increase soon because of continued economic expansion.
Consumer lending still appears strong with widespread reports of
sizeable increases. Atlanta and Cleveland report slight increases in
mortgage lending. Mortgage loan demand is generally steady elsewhere
despite the decrease in rates. Several Districts expect a demand
pickup in the future. Dallas indicates that declines in oil prices
may limit the availability of bank funds to the oil and gas
industry.
Agriculture
The agricultural situation varies among Districts reflecting the
diversity of products, weather, and market conditions. Harvests this
year will be considerably larger than last year, but declining
prices are blunting the possibility of substantial gains in farm
income. Atlanta reports that late gains have significantly damaged
the cotton and soybean crops in portions of the District. Both San
Francisco and Chicago comment on the importance of poor export
markets as one cause of low U.S. prices. Improving cattle prices are
helping ranchers in many parts of the country, although St. Louis
notes that increased herd liquidations are putting downward pressure
on cattle prices. The brightest agricultural picture is offered by
Richmond where a better growing season and stable input costs are
improving repayments of agricultural loans. Several Districts note
that many farmers are having difficulty meeting interest payments
given current prices.