September 8, 1987
Overview
The District economy continued to expand in August, although
agriculture suffered from the weather and growth was sluggish in
some service-related sectors. Employment rose and labor markets
remained tight in much of the region. Manufacturing activity
accelerated in August, but retail sales and port activity were
generally unchanged. Bankers report that the demand for non-
residential construction loans declined over the summer. Respondents
to our regular surveys of business and financial conditions remain
optimistic that the economy will improve in the months ahead.
Consumer Spending
Retail activity in August was generally flat according to our most
recent mail survey. Retailers report little change in their total
sales, but an increase in sales of big ticket items in mid-August as
compared with late July.
Retailers continue to expect higher sales in the next six months, but the proportion of those expecting rising sales declined since our previous survey. Forty-two percent of the respondents predict increased sales in the next six months, while the remainder are evenly divided between those predicting lower sales and no change in sales. By comparison, 60 percent of the July respondents had expected increases in sales. Thirty-five percent of the respondents described their inventory levels as "too high" and 48 percent said they were "just right." Nearly 60 percent of the respondents believe that prices for the items they buy will rise in the next six months.
Manufacturing
The pace of manufacturing activity increased in August according to
our survey. Half of the respondents reported increased shipments in
August, as compared with 37 percent who cited upturns in July.
Stronger growth was also indicated by reports of increases in new
orders, backlogs of orders, and the workweek. Manufacturers continue
to indicate increases in the prices of both raw materials and
finished products. Inventories of materials rose slightly, while
finished goods inventories were generally unchanged. About two-
fifths of the respondents described their inventory levels as "too
high." while another two-fifths considered theirs to be "just
right."
The proportion of manufacturing respondents expecting growth in activity increased since our July survey. Fifty-seven percent of the August respondents expect shipments to rise in the next six months, compared with 46 percent of the July respondents. Also, 38 percent of the August respondents predict increases in their capital expenditures in coming months, as compared with 31 percent of the July respondents.
Labor Markets
Manufacturers and retailers responding to our surveys report
tightness in their labor markets. Employment rose in both
manufacturing and retailing in August, but thirty-nine percent of
the manufacturing respondents and 52 percent of the retail
respondents say they have job openings that remain unfilled.
Port Activity
Import and export volumes at the major ports in the District were
generally unchanged in August from July. However, port
representatives expect shipping activity to increase in the next six
months.
Agriculture
The summer's hot, dry weather caused substantial damage to some
District crops. Corn yields were hardest hit, tobacco and peanut
yields were marginally affected, and the soybean crop remains at
risk. There have also been several reports of heat stress on poultry
flocks and dairy herds. Recent scattered rainfall and cooler
temperatures should limit further losses.
Two District states have asked the federal government to designate some of their drought-stricken counties as disaster areas, and other states are in the process of doing so. Such designations would allow some farmers to be eligible for federal disaster relief payments.
Financial
A survey of large banks across the District indicates that the
demand for nonresidential construction loans has slackened compared
with demand earlier in the summer. Some respondents attribute the
downturn to seasonal factors, and they are optimistic that activity
will increase after Labor Day.
Large banks in the District expect interest rates to be stable on intermediate-term loans through the next 90 days, but they predict higher rates for loans of longer duration, such as mortgages.