June 25, 1985
The pace of economic activity in all Districts seems to be slowing across most sectors. Retail sales generally continue to sag yet inventory levels appear satisfactory and the outlook remains optimistic. An important exception is auto sales which are strong in most areas and the strength is extending to suppliers. While primary metals manufacturing is improving in some areas, manufacturing growth in general seems to be modest or declining. Residential construction is a source of strength throughout the country, but signs of weakness exist in parts of some districts. Non-residential construction is mixed. Agricultural conditions remain difficult almost everywhere, but financial problems appear concentrated in the Plains states. Mining and drilling activity is declining throughout the country. Bank loan activity is mixed with most growth occurring in the consumer sector.
Consumer Spending
Consumer spending has slowed in recent weeks and continues to vary
widely across the country. Six districts report generally weak
sales; strong sales are reported by Richmond and St. Louis. Atlanta
and San Francisco report a more mixed picture with significant
growth in much of their districts but still some sluggishness in
certain areas. In general, demand in the automotive sector appears
strong, as a result of lower interest rates and promotions by
manufacturers and dealers. Retailers' inventories were generally at
satisfactory levels, but Chicago, Minneapolis, and Kansas City
report that some actions have been taken to reduce stocks.
Automobile dealers reported tight inventories, especially for
imports, in three midwest Districts.
The outlook for consumer spending was generally optimistic across the country; lower interest rates and increased mailings of tax refunds were commonly expected to boost demand. Only Dallas mentioned expectations of further slowing.
Industrial Activity
Manufacturing activity seems to have slowed in much of the country,
but remains varied across districts and industries. Five districts
reported weak or slowing industrial activity, and four reported
stable levels or only modest growth. The only report of sharp
improvement was for Missouri. The outlook generally is for little
change, but Philadelphia and Cleveland report moderation of growth
forecasts, Dallas reports an increase in optimism, and some
observers in the Eighth District expect a slight improvement.
Business for primary metals producers was mixed. Continued distress for steelmakers was reported in the Cleveland district and in the Chicago area. Minneapolis noted that iron ore processing cutbacks are soon expected. However, steel and other metals producers report gains in the Dallas District as well as in New York. Alabama, and the Detroit area.
Two districts report slowing in high-tech industries, Boston and San Francisco both report weakness among semiconductor firms (with signs of recovery only in Arizona), attributed to weak domestic demand. Business for New England computer manufacturers was mixed. Suppliers to the auto industry have benefitted from that industry's strength, according to reports from Boston and Chicago. Energy-related producers in three districts report slack demand.
Then were several reports of hardship caused by import competition and the strong dollar. Reports of adverse impacts come from steelmakers (Cleveland), manufacturers of home appliances and capital equipment (Chicago), paper producers (Atlanta and Dallas), the lumber industry (San Francisco), and apparel and textiles firms (Richmond and Atlanta).
Construction and Real Estate
Construction activity varied greatly across the United States.
Residential construction has been proceeding at an exceptionally
rapid pace according to New York, Boston, Minneapolis. and Richmond;
but Atlanta, St. Louis and Kansas City report some areas with
significant weakness. Non-residential construction slowed in the New
York and St. Louis districts, and Cleveland indicates that no new
construction contracts are expected for the next few years due to
recent overbuilding. In contrast, absorption is "strong as ever" in
Atlanta. The market was "vigorous" in the Chicago district but
observers believe a glut may develop next year when a great deal of
space comes on line. Industrial construction has been increasing
according to reports from Richmond.
Agriculture and Mining
Weak prices across commodities continue to compound the difficult
conditions in the farm sector. Dairy prices and output are weakening
largely due to reduced federal support. St. Louis, Dallas, and San
Francisco report attempts to reduce inventory in livestock. Good
weather and early planting using full acreage should yield large
harvests in the autumn in most areas except South Dakota and
Montana, where dry conditions currently prevail. This may put
additional price pressure on farmers. Vegetable, fruit, and poultry
producers in the Mid-Atlantic and the West coast, however, seem to
face a much better outlook than others.
Most natural resource industries seem to be hard hit. Dallas notes a continued slide in the number of drilling rigs, primarily due to declining petroleum prices. Richmond and San Francisco report employment declines in mining. Minneapolis contacts, however, observe a boom in the wood products industry as a result of strong construction activity. Forest fires in the Sixth District have created tremendous, and largely uninsured, timber losses.
Finance
Despite the sluggishness of retail spending, growth in total loans
seems to be sustained primarily by consumer lending. St. Louis, for
example, reports a retail lending increase of more than 30 percent
over last year. Chicago notes, however, that the rapid rise in
consumer credit is accompanied by a rising delinquency rate. For the
most part, real estate lending remains strong, while weakness in
commercial lending seems widespread and Dallas has even been
experiencing a decline in business loan volume. Only Philadelphia
and San Francisco report continued strength.
Financial pressures in agriculture seen to remain concentrated in the Plains states. Kansas City reports that agricultural bank closings have shut many farmers out of the credit markets due in part to higher credit standards of the remaining banks. Chicago adds that pressures seem to be increasing on the cooperative Farm Credit System.