September 10, 1986
All districts continue to report sluggish economic growth. Retail sales continued to improve over the summer with moat districts reporting strong consumer demand. Prices are stable and largely unaffected by the lower value of the dollar. Manufacturing, however, generally remains weak. Homebuilding continues strong, but high vacancy rates and the provisions of the new tax legislation have caused nonresidential construction to lag. Both commercial and consumer lending have slowed, while mortgage lending remains strong. Crop yields will set new records in many Midwestern states, but will strain grain storage capacity. Recent rains have improved prospects for some crops in the drought-affected Southeast, but have arrived too late to help the corn crop.
Consumer Spending
Most districts report strong retail sales. This general strength
represents an improvement over the last Beige Book. Boston and New
York indicated sales above retailers' expectations. New York
reported that merchants feel that the lower value of the dollar is
responsible for increased sales to foreign visitors. Dallas
indicated that, although sales remain depressed, retailers
anticipate improvements later in the year. Inventories were reported
to be at desirable levels. All districts reporting on prices
signaled continued price stability and little or no evidence of
increasing import prices due to the lower value of the dollar.
Most districts reported sluggish domestic auto sales. Philadelphia and Chicago, however, reported strong sales. Sales of imported cars were strong in all reporting districts despite recent price increases.
Employment
Cleveland and Minneapolis reported declines in unemployment rates,
while weakening labor markets were noted by Atlanta and St. Louis.
The steel industry showed little improvement, with the month-long
shutdown of USX lingering and a layoff of 2,000 workers in the
Midwest.
Chicago indicated that work stoppages this year have held back production more than in recent years. Both New York and Chicago reported shortages of skilled labor for the homebuilding industry.
Manufacturing
Although Philadelphia and Richmond noted that shipments and new
orders were up in August, widespread reports of flat or slightly
decreased industrial activity suggest little improvement in the
performance of the manufacturing sector in most parts of the
country.
San Francisco indicated that the dollar's depreciation has had little impact on most manufacturers, while Atlanta reported that it has helped the pulp and paper industry by allowing higher prices for some of their products. Boston reported downward pressure on the prices of manufactured goods due to competition from both importers and domestic producers. Philadelphia and Atlanta indicated manufacturers in their districts expect improvement in the next six months; those in the Fourth District anticipate little change. Chicago reported that demand for steel for appliances and construction has increased this year, but is down for autos and the oil and gas industries.
Energy
Kansas City, Dallas and San Francisco reported lower levels of oil
rig activity. All three districts, however, indicated that the
recent increases in the price of oil may signal a bottom to the
decline of oil drilling activity. Minneapolis also indicated lower
production of oil, gas and coal in North Dakota and Montana.
Construction and Real Estate
Most districts continue to report healthy homebuilding activity.
Contacts in Cleveland expect a robust residential housing market for
the remainder of 1986 and into 1987. The Southern Florida and
Atlanta markets are softening, and contacts in Kansas City
anticipate housing starts to flatten or decline for the rest of the
year.
Nonresidential construction is slowing in most areas. High vacancy rates reported by New York and Atlanta and concern over tax reform have affected commercial construction. Atlanta noted, however, that the national concern over the effects of tax reform on commercial real estate is not shared by local developers who feel that regional economic conditions will far outweigh any negative effects of tax reform.
Financial Sector
Total loans appear to be expanding at a slower rate than previously
reported. The growth of commercial and industrial lending has slowed
in most districts. San Francisco attributed this slackening to
reduced loan demand for tax shelter and commercial real estate
projects as a result of expected tax law changes. Philadelphia and
St. Louis, however, reported strong commercial loan activity. Small-
and mid-sized banks in the Second District indicated increased
competition for commercial loans stemming primarily from the large
regional banks and smaller bank holding companies. Most districts
noted that the rate of consumer loan growth is slowing. Philadelphia
reported that the growth of credit card lending in particular has
slackened and Third District bankers expect a further slowing in
consumer lending. Cleveland, on the other hand, noted strength in
consumer installment lending, expanding at an annual rate of 15
percent thus far in the third quarter. Residential mortgage demand
remains strong in most regions with Atlanta attributing their real
estate loan growth to heavy refinancing activity.
Agriculture
Very favorable growing conditions will result in record-breaking
yields of corn and soybeans in Midwestern states. The expected large
harvests and low prices have caused a shortage of grain storage
capacity. Livestock producers in most regions are benefiting from
low feed costs and higher livestock prices. Recent rainfall in the
Southeast has improved prospects for the area's soybeans, cotton and
pastures, but has come too late to help the corn crop. Reports from
San Francisco suggest the lower value of the dollar has reduced
imports of foreign seafood and has aided the increase in exports of
forest products to Far Eastern markets.