Beige Book Report: Richmond
June 23, 1987
Summary
Growth in the Fifth District economy is slowing, and business
optimism, although still relatively strong, has waned somewhat. Most
retailers and producers, however, report increased activity in June
and expect further slow improvement in coming months. District crops
are off to a good start, but higher grain prices are starting to
pinch the profits of poultry producers. Executives of depository
institutions report increases in mortgage loans, and they expect
loan demand for business capital expansion and modernization to rise
in the months ahead.
Consumer Spending
Major department stores throughout the District report increased
sales in early June. Most retailers expect their sales to rise in
coming months, but only about one-fourth plan to add employees. The
use of credit cards in many of these stores continues to decline
although discount chains report little change in credit card use.
Manufacturing and Mining
Manufacturing activity in the District remained on an upward trend
in early June. Over one-third of the producers who responded to our
June survey experienced May-to-June increases in shipments and new
orders, while one-fourth recorded declines. Employment, the
workweek, and raw material prices increased, the backlog of orders
was generally unchanged, and inventories declined slightly. Although
the survey indicates continued growth in the manufacturing sector,
comparisons with responses earlier this year show that this growth
is slowing.
Nondurable manufacturing seems to be improving more briskly than durable manufacturing. Among nondurable firms, those in textile and apparel manufacturing have recorded strong sales gains in recent months and expect further increases in coming months. Production and sales are strengthening in large chemical corporations, in some instances due to increased export orders. In the durable goods sector, nonelectrical machinery manufacturers report increased activity and a rise in their capacity utilization rate of 64 percent, the highest in some time. Furniture industry representatives, however, report a decline in shipments, which they attribute to reduced home and office building activity in the stone, clay, and glass industry, where the capacity utilization rate is 86 percent, business has improved slightly this past month. Plant managers expect lower production in the months ahead, however, as higher interest rates begin to affect homebuilding, which accounts for a large portion of their sales.
District coal production has increased in recent weeks and is now near its level a year ago, but coal employment is at an all-time low. There are indications that much of the recent production is being stockpiled in anticipation of a strike later this year.
Wages
In the building trades, collective bargaining now in progress
suggests little change in the moderate rate of wage gain recorded in
recent years. In the Washington metropolitan area, however, and
certain other District cities where labor markets are very tight,
there are reports of gouging by construction workers and builders.
In the suburban areas around Washington and elsewhere in the District where the unemployment rate is very low, it has become increasingly difficult to fill service jobs. Higher wages and other inducements are being offered to attract workers.
Agriculture
Plantings of most major crops across the District have progressed to
a normal level after falling behind earlier in the spring due to
cool temperatures and heavy rainfall. Growing conditions have been
excellent in all but a few parts of the District.
The production of hardwood lumber has been booming in West Virginia. Demand has prompted mills to build more kilns to dry the lumber.
Financial
Executives of District financial institutions report little change
from a month ago in commercial and industrial loan activity. Loans
secured by real estate, however, including home equity lines,
continue to rise. These financial executives are optimistic that the
economy will continue to grow, but are fearful that inflation may
accelerate. They project increases in coming months in loans to
consumers and loans to businesses for plant and equipment
expenditures, but they anticipate declines in loans secured by
office buildings.
A slowdown in home sales may be creating problems for institutions that specialize in originating and selling mortgages. At least one of these institutions finds itself unable to meet its contract commitment to mortgage buyers.