January 28, 1986
This month's commentaries on regional economic activity suggest that the economy is growing at a moderate pace on balance. Several Banks, including Philadelphia, Richmond, Minneapolis, Kansas City, and San Francisco, pointed to signs of improving business activity in their respective Districts. Most other Banks reported little change. Dallas reported that its economy remained sluggish, and St. Louis noted a continuation of the conflicting signals reported earlier for its region. Chicago pointed to continued weakness in its District and indicated that it expected business activity there to lag the national economy in 1986.
The economic picture is uneven across sectors. Consumer spending appears to have been moderately strong during the Christmas season in most regions, although Chicago reported that sales were disappointing. Construction activity was also reported to be relatively strong, especially in the residential sector. Manufacturing activity, however, is mixed, ranging from a boom in military electronics in the San Francisco District to activity that remains in the "doldrums" in time Cleveland District. Elsewhere, several reports noted continuing problems in agriculture, including declining livestock prices (Minneapolis and Dallas), rising delinquencies on farm loans (St. Louis), low orange prices (Atlanta), and low tobacco prices (Richmond). Several pockets of strength in the agricultural sector were mentioned, however, including poultry, almonds, and winegrapes.
Consumer Spending
Much of the comment on consumer spending focused on sales during the
Christmas season. Most of the reports indicated satisfactory sales
despite the shorter-them-normal selling period between Thanksgiving
and Christmas. Sales were 5 to 10 percent higher than last year in
the New York District. They were up 3 to 7 percent in the
Philadelphia District, and were described as relatively strong in
the Kansas City District, above expectations in the Dallas District,
and either level or up moderately in the Boston, Atlanta, Chicago,
St. Louis, and Cleveland Districts. Retail inventories appear to be
under good control for the most part; they were variously described
as relatively low, satisfactory, or well-balanced. Profits of retail
merchants were reported to be well above the year-ago level in most
districts, due to reduced price competition this Christmas. St.
Louis, however, reported that profits were about equal to 1984
levels.
Automobile sales have apparently responded to the latest round of interest rate incentive programs. Cleveland, for example, noted that sales in early January were up as such as 30 percent from year-ago levels. Dallas, however, reported that sales have recently weakened and that inventories of domestic cars were excessive.
There were mixed views of the outlook for consumer spending. While sales are generally expected to increase, some of the reports suggest the increase may be modest in some regions. For example, Kansas City reported that sales are expected to increase only slightly, and Philadelphia indicated that most retailers expect flat sales in the first half.
Manufacturing
Manufacturing shipments and orders, on average, appear to be growing
at a slow rate, while manufacturing employment continues to decline.
Conditions vary widely, however, across industries and regions.
Philadelphia noted that orders and shipments are up in its District,
but that employment is steady. Boston reported that orders are flat,
or increasing modestly, while employment is being cut by attrition.
Cleveland indicated that employment had fallen substantially at more
than half of the establishments it had surveyed.
Atlanta and Sam Francisco reported that defense spending had stimulated industrial activity in their Districts, particularly in the electronic equipment and shipbuilding industries. Richmond and Atlanta reported that activity in the textile industry, hit hard in recent months by imports, had recently stabilized, albeit at a low level. Sam Francisco and Dallas stated that the output of lumber and wood products in their areas had continued to decline.
Several Banks noted little tangible response to the recent decline in the foreign exchange value of the dollar. Richmond, however, indicated that several District manufacturers had recently reported renewed contacts with former customers. Also, Boston reported that sales to European buyers had picked up quite markedly in the second half of 1985 due, at least in part, to the dollar's decline.
Mining
Dallas reported that the drilling rig count was at its lowest level
since 1976, and that the seismic crew count was continuing to fall.
Minneapolis also noted declining oil and gas activity but mentioned
that a copper mine was reopening. San Francisco indicated that
mining activity for metals such as copper remained depressed, but
that gold and silver mining were expanding.
Construction and Real Estate
Seven districts reported moderate to strong increases in residential
building activity. Dallas, however, painted a bleak picture of
construction activity in its District. It indicated that the value
of both residential and nonresidential construction contracts had
fallen in each of the last three months. Atlanta reported that
office construction had outpaced leasing recently, and Cleveland
reported concern that speculative construction of new office space
was excessive in some midwestern cities.
Agriculture
Several Banks mentioned low farm prices and the resulting low farm
incomes. Richmond reported low tobacco prices, Atlanta noted low
orange prices, and Minneapolis and Dallas found falling livestock
prices. Dallas also reported a continuing decline in foreign demand
for cotton, and San Francisco noted generally weak farm prices.
The reports on agriculture were not uniformly bleak, however. Richmond indicated that the demand for poultry was strong, and San Francisco found that the lower dollar had aided producers of almonds and winegrapes. Chicago and Minneapolis stated that recent increases in some farm commodity prices were a positive factor. Also, Kansas City reported that excellent crop yields and higher livestock prices had produced a better than expected farm loan situation.
Banking and Finance
Several Banks reported that both household and business loan demand
were strong. Kansas City, however, indicated that loan demand in its
District was flat, and Dallas noted that both consumer and business
demand were below the year ago level. Only two Banks mentioned the
removal of minimum balance requirements on Super-NOW accounts, and
both reported that the removal had not yet produced any significant
change in deposit pricing policies in their Districts.