January 28, 1986
Overview
Overall economic conditions in the Fifth District remain strong,
although the average conceals substantial differences among the
sectors of the economy and differences among the states within the
District. Consumer spending during the Christmas season was
generally satisfactory, with further gains expected in 1986.
Manufacturing compares favorably with mid-l985. The agricultural
outlook, however, remains poor.
Consumer Spending
Consumer spending remained strong in most areas of the District.
Sales during the Christmas season were characterized as satisfactory
or acceptable by several retailers. Those retailers noted that
volume increases were moderate when compared to year ago figures.
Retail profits were reported strong, however, due to much less price
promotion in 1985. Inventories at the beginning of the year were
reported to be moderate, due in part to restraint in placing orders
earlier in 1985.
Automobile sales appear to be strong in many areas. It is difficult to determine the extent to which that strength is due to national incentive programs that lower buyers' contract interest rates.
The outlook for early 1986 is positive, with employment growth in certain areas leading to predictions of robust consumer spending. Some pickup has been noted in particular areas, such as furniture and home furnishings.
Manufacturing
Despite the recent decline in the foreign exchange value of the
dollar, many manufacturers in the Fifth District continue to be very
concerned about foreign competition. Textile manufacturers, who have
reduced production, capacity, and employment over the last eighteen
months, now report some room for optimism in the short-term outlook,
with orders not weakening any further and inventories declining.
Certain markets for textiles, such as carpets and home furnishings,
were reported looking particularly attractive; others, such as
apparel, were holding steady.
Several manufacturers reported improved morale due to recent declines in the dollar. Reports of renewed contact with former customers were received from several producers. Most of the reports of higher morale, however, also indicated that the lower dollar has not yet led to higher sales orders, or production. Reports from manufacturers generally noted improved conditions relative to earlier this year.
Construction
Survey participants reported that commercial real estate vacancies
in metropolitan areas of the District were generally not above
average, based on the last decade's experience. Several did report
unusually low rent for particular projects, however. Respondents
reported moderate to strong single-family house sales in almost all
areas; the single exception was the Charleston, West Virginia area,
in which weak sales and a large inventory of unsold homes were
reported. Also in that area, office buildings were reported to have
a vacancy rate of about 20 percent.
Financial Institutions
The removal of minimum deposit requirement has not had dramatic
effects in this District. Changes are reported to have occurred at
few institutions and marketing activities have been low key and
scattered. Concern has been expressed over high levels of consumer
debt, with delinquencies especially apparent in credit card
operations.
Agriculture
Farm income in the District in 1985 was dampened by low crop prices,
particularly for tobacco. Although production expenses declined, net
income fell substantially. The outlook, according to state
agricultural officials, is for additional declines in farm income in
1986. In contrast to other products, poultry production and prices
have been robust, and a good 1986 is projected. Also, growing retail
demand in recent months was noted for pork products.