May 6, 1985
The pace of economic activity in moat Federal Reserve districts appears to reflect the slower first-quarter rate of national economic growth. Retail sales generally are showing modest growth through early spring, while strength in auto sales is continuing. Retail inventories are viewed as generally satisfactory. Residential construction activity remains strong and the short-term outlook is optimistic. Commercial construction appears to be thriving in most areas. Indicators of manufacturing activity, however, are mixed. Due partly to international trade effects, the performance of many industries is weak, although steel production is increasing as is the demand for machine tools. Conditions remain depressed in the agricultural sector where downward pressures on prices, a tight cash flow situation, and increasing financial stress are pervasive. Reports on bank loan demand are mixed, both across the country and within individual districts.
Consumer Spending
Retail sales are generally reported to be showing modest growth
through early spring. A notable exception is the Dallas district,
where sales are reported below 1984 levels and are expected to
remain sluggish in the near future. Some slowing in sales growth is
reported by Boston, New York, and Cleveland, while Chicago calls
recent sales gains "disappointing." Greater strength in retail sales
is evident in the reports from Philadelphia, Richmond, and Atlanta.
Apparel sales are frequently mentioned as an area of strength, and
auto sales are reported as continuing strong in most districts.
Retail inventories are reported to be generally satisfactory. Strong
growth in tourism in the Richmond and Atlanta districts has
contributed importantly to economic activity there.
Manufacturing and Industry
Indicators of manufacturing activity vary considerably from district
to district. Recent improvement is reported by New York, Cleveland,
and Richmond. But manufacturing activity has slowed in the Boston
district, especially in the high-technology sector which was
formerly a rapid-growth sector. Furthermore, nearly all districts
report significant variations among industries and among geographic
areas.
Foreign trade effects continue to be very important. Atlanta reports that import competition is still adversely affecting its district industries. While growth of textile and apparel imports has recently slackened, increased imports of refined petroleum products are hurting Louisiana's petrochemical industries. Minneapolis notes that Ninth District pulp producers are being hurt by low foreign pulp prices. San Francisco reports that, due partly to vigorous foreign competition, forest products industries and primary metals industries are still the weakest sectors in the district, with a number of plant closings occurring in each industry. On the other hand, Richmond notes that coal production is off to a good start in 1985, partly due to increased exports of metallurgical coal. And exports of southern pine to Europe are on the increase, according to the Atlanta report.
Steel production is rising, but remains below early-1984 levels. The stronger demand is centered in cold-rolled and coated sheets, primarily for motor vehicles, appliances, and light construction. Cleveland notes that the steel industry remains in difficulty, however. Both Chicago and Cleveland report growing demand for machine tools, but orders are still below past levels. Cleveland also states that "major producers of capital goods believe spending on plant and equipment is not likely to be slower in the second half than in the first half of 1985, despite the results of the recent survey of spending plans."
Construction
Residential construction activity remains generally strong and the
short-term outlook is generally optimistic. Builders remain
cautious, however, with speculative building reported only by
Atlanta. House sales seem to be keeping pace with construction in
most instances. Strength in multifamily unit construction was noted
particularly by Atlanta and St. Louis. But Kansas City reports
housing starts off from a year ago, and Dallas indicates a
continuing slide in all residential construction.
Commercial construction appears to be thriving in most areas, including both Philadelphia (where vacancy rates are below the national average) and Chicago (where the vacancy rate is described as "substantial"). Atlanta cautions about potential oversupply, however, and Dallas reports a first- quarter decline in nonresidential activity as evidence of oversupply there becomes more apparent.
Agriculture
Conditions in the agricultural sector continue to deteriorate in
most areas, Weak export demand and large domestic supplies
contribute to more downward pressure on prices of farm products. A
tight cash flow situation leads lenders to foresee increasing
financial stress for farmers. Kansas City reports that liquidations
and partial-liquidations of farm businesses are much higher than
considered normal by lenders. Farmland values are still falling, off
in Iowa by 40 percent from the previous peak. A decline in pork
marketings has been accompanied by weaker prices, as poultry
production increased and more pork was imported from Canada. In
spite of large declines in corn and soybean prices, surveys show
farmers intend to increase plantings. Minneapolis suggests that
overproduction of dairy output is again likely. Atlanta reports
that, even with a growing imbalance between the demand and supply of
cotton, Sixth District farmers plan to expand cotton acreage. Kansas
City notes that the winter wheat crop is in good to excellent
condition, with the potential for harvesting a large crop. In spite
of soft prices and weak exports, the condition of the more
diversified western agriculture appears to have stopped worsening,
according to San Francisco. And Dallas reports that cropland values
in Texas have risen, on the average, keeping farm bankruptcy rates
lower there than elsewhere.
Banking and Finance
Loan growth appears to be mixed across the country and within
individual districts. Large New York City banks show relatively
modest growth of assets, but small Second District banks have rapid
loan growth in all categories. Philadelphia and Richmond report
strong loan demand growth, while weakness in loans is reported by
Cleveland and Atlanta. San Francisco cites steady loan demand and an
improvement in loan quality, particularly among agricultural loans.
Some districts report softness in consumer lending due to aggressive
nonbank competition for auto loans. St. Louis notes considerable
legislative activity on regional interstate banking, among the
states of its district.