May 6, 1986
Virtually all districts report continued moderate economic growth. With the exception of Dallas, which is plagued by problems related to railing oil and gas prices, no district reports general stagnation. Energy sector problems, coupled with problems in agriculture and some manufacturing sectors, have led to unbalanced growth in the Kansas City, Boston, Cleveland, and Minneapolis districts. New York, Philadelphia, and Richmond report a more general improvement.
Consumer spending—particularly for housing—appears to have been strengthening lately. Active housing markets in almost all districts have generated much construction activity, boosted the demand for building materials, and caused a spurt in mortgage lending.
Sources of weakness include the energy and agriculture industries and some manufacturing sectors. Oil and gas price declines have led to drastic cutbacks in drilling activities and related supplies and spending. Low prices still hinder many farmers' attempts to return to profitability. While many districts mention that manufacturing output has been steady or rising, a few point out that manufacturing employment is still falling.
Consumer Spending
Most districts say that retail sales of general merchandise have
registered gains, with San Francisco noting particular strength.
Richmond and Kansas City say that sales have been improving—in the
Richmond district, significantly in recent weeks. New York has seen
greater strength in sales at stores that cater to high-income
shoppers. Inventories have rarely been excessive.
Auto sales, though, have leveled off lately. Kansas City, Dallas, and Philadelphia all say that vehicle sales have fallen off. But Boston has received mixed reports, and Cleveland believes that sales have been high, but flat.
Most districts report very active housing markets—as one New York contact says, in this industry "business is booming." Only the Dallas district reports the opposite. Chicago mentions that housing permits are 40 percent above their level last year at this time. Atlanta also adds that, except in New Orleans and Jackson, single-family home sales throughout the Southeast are higher than a year ago.
Atlanta and Richmond report healthy levels of tourist spending. Some districts are looking forward to more of the same, fueled by lower gas prices, the lower dollar, and citizen concern about overseas travel.
Construction
Housing activity has led to a lot of construction in most parts of
the country, particularly of single-family homes. Several districts,
including New York and San Francisco, see signs of strength in
commercial construction as well. Nonresidential construction
contracts in the St. Louis district increased in the first quarter.
The Boston and Chicago districts report much demand for commercial
space in their Reserve cities. Atlanta notes that Southeastern
industrial space construction is beginning to accelerate. But
Richmond notes that high vacancy rates have been hindering urban
office construction there.
Manufacturing
Reports from manufacturers are mixed. While Chicago notes that auto
and steel production plans are being cut back some, Cleveland
reports that sales of Ohio-made Hondas have been particularly
strong. Demand for wood- based products is also strong. Chicago
reports "near-boom conditions" at its cardboard box plants, while
Minneapolis notes that waferboard production is high. Aerospace
manufacturing—both commercial and defense—is a welcome help in the
San Francisco and Dallas districts.
Among the weaker sectors, computer equipment production has remained sluggish in the Boston district. Both San Francisco and Dallas haven't seen a turnaround in the faltering electronics industry, but they think the worst times may be behind it now. While apparel production has remained steady in the Richmond district, Dallas reports a big layoff, but hopes that modernization and marketing efforts will help this sector.
Resource-Related Industries
Mixed conditions also characterize the resource-related sectors.
Drilling activities have plunged with oil and gas prices. The rig
count is down 50 percent from a year ago in the Dallas district, 40
percent in the Kansas City district, and substantially in North
Dakota and Montana. Atlanta reports that this has made Louisiana's
unemployment rate the nation's highest. Cleveland points out that
coal prices are down, too. But Richmond and San Francisco note
growing lumber demand driven by housing starts.
Agriculture
With a few noteworthy exceptions, the nation's agricultural
conditions aren't good. Low grain prices are hurting Minneapolis and
St. Louis district farmers. St. Louis observes that corn futures
prices recently reached their lowest level in nine years. Winter
wheat has suffered substantial winter kill in the Chicago district,
and dry weather is hurting spring-planted crops in the Atlanta
district. Demand for Kentucky horses is down, and cattle ranchers in
the Minneapolis and Kansas City districts are upset about the
aftermath of the government's dairy herd buy-out program. But San
Francisco reports that production of many fruits and vegetables is
still profitable, while Atlanta says that poultry production is more
profitable than last year.
Finance
Lending activity appears to be fairly good. Leading the way is
mortgage lending. In Cleveland, for example, mortgage lenders report
that lending increased 100 percent over last year. Home refinancing
is up across the country. Regional differences have occurred in
commercial lending—picking up in Boston, Philadelphia, and San
Francisco while falling off in Cleveland, Atlanta, and Dallas. Only
Boston and San Francisco also note increased consumer loan growth.
More agricultural loan losses are foreseen in the Dallas and St.
Louis districts.