January 30, 1985
The economic expansion continued in most districts. The pace of recovery, although slower than early in the year, was moderately strong at year end. Retail sales activity during the holiday season was satisfactory and, in some cases, better than expected. Home sales and construction activity appeared to have rebounded significantly in response to declining mortgage interest rates. Manufacturing, employment and output continues to grow in most districts and manufacturers are reportedly optimistic about future sales prospects. The major sources of weakness appear to be agriculture and the mining and minerals industries. Overall, however, most districts report favorable trends in unemployment and continued low inflation.
Construction and Real Estate
In sharp contrast to reports of just a month ago, most districts
report increased strength in home construction and sales activity.
The recent decline in mortgage interest rates is credited with
fueling this turnaround. Only Chicago, Minneapolis and St. Louis
report continued significant weakness in housing activity.
Nonresidential construction activity also is reported to be at
satisfactory levels in most districts. Some overbuilding and
weakness in commercial rental markets is reported by New York,
however.
Manufacturing and Industry
Manufacturing employment and output growth was reported by many
districts in December. Major sources of strength include the
automobile, aerospace and electronics industries. San Francisco and
Atlanta also report improved conditions in the paper and wood
products industries. Chicago reports cut-backs in year-end steel
production, however, and manufacturing activity appears to be
generally sluggish in Dallas.
Agriculture
Agriculture appears to be broadly weak. The continued strength of
the dollar and heavy debt burdens have depressed product prices and
affected adversely the financial conditions of many farms. San
Francisco estimates that 15 percent of agricultural loans in
California are currently nonperforming. Kansas City estimates that
this percentage may be as high as 90 percent in some areas of that
district. The new federal debt adjustment program appears to be
having only limited success in offsetting these developments.
Consumer Spending
Retail sales activity over the holiday period was healthy in
virtually all districts. Boston, for example, reports sales
increases of 6 to10 percent. In the Philadelphia district, retail
sales were up 5 to 10 percent over December, 1983. A few districts-
such as Cleveland-ascribe the strength of Christmas retail sales
growth partly to unusual, pre-holiday promotional events and price-
cutting. In most districts, however, retailers appear to be
optimistic about future sales volumes as well.
Finance
Loan demand generally reflected the upturn in economic conditions
with reports of increased commercial and consumer lending. Mortgage
rates have declined significantly and increased home sales have
generated increased demand for mortgage debt. In New York, however,
the rebound of housing has yet to be reflected in mortgage lending
data. Normal seasonal borrowing patterns also needed to be
considered in evaluating year-end financial activity. As Atlanta
reported, year-end commercial borrowing often softens as the result
of reduced inventory financing requirements.