March 15, 1988
Without exception, reports confirm a moderate expansion of the nation's economy. Strength in the manufacturing sector and continued moderate growth in employment are sustaining the current expansion. Consumer spending, which had provided much of the earlier stimulus to the economy, has continued to expand sluggishly. Auto sales, however, improved and have risen strongly in some districts. Construction activity remains mixed, while bank loan demand is generally flat. Consumer lending has declined sharply in keeping with the slower growth of consumer spending. The farm sector outlook remains positive.
Manufacturing
Most districts report a general expansion of manufacturing activity.
The declining foreign exchange value of the dollar is credited with
spurring manufacturing growth in many districts. Orders for steel or
fabricated metals produced in the Boston, Chicago, St. Louis and
Dallas districts are increasing rapidly. Many producers are using
all available capacity causing higher prices in some areas. Paper
production is growing rapidly according to Boston, Atlanta and San
Francisco. Several districts also mention growth in electronic
equipment orders. Atlanta, Dallas and St. Louis report strong gains
in textile and apparel orders, with labor shortages reported by
Atlanta. Tight labor markets are also mentioned by Boston and St.
Louis. Despite manufacturing's general strength, Chicago and St.
Louis note auto production declines. Dallas and San Francisco also
report weakness in defense and construction-related manufacturing.
Boston and Dallas find manufacturers' inventories generally at satisfactory levels, but Kansas City reports higher-than-desired inventories of material inputs. Of the six districts that mention manufacturers' input prices, most report price increases. Boston, Philadelphia and Richmond report generally stable prices for manufacturers' products. Prices of some products, such as paper and steel, however, are up sharply.
Employment
Most Districts indicate generally favorable employment growth.
Declining unemployment rates are mentioned by New York, Cleveland
and Minneapolis. Areas of weakness include layoffs in New York's
financial sector and in the auto industry of the Chicago and St.
Louis districts.
Consumer Spending
Retail sales for January and February are flat or weak in all
districts. Despite the weakness, retail inventories are near or
slightly below desired levels in all districts except Minneapolis.
New York and San Francisco point out that many retailers are
reserving their judgment on the outlook for the year pending the
results of Easter sales. Boston and San Francisco report that prices
of imported consumer goods have risen. Kansas City found only modest
general price increases.
Strong auto sales are reported by Cleveland, Atlanta, St. Louis and Minneapolis. Other districts indicate that auto sales are on target or slightly ahead of last year. A number of districts find that domestic autos are selling better than imports because of import price increases and domestic manufacturers' incentive programs.
Construction
The performance of the construction sector is mixed. Boston,
Chicago, Kansas City and Philadelphia report an improved
construction environment, whereas St. Louis, Dallas and San
Francisco report a weakening in overall construction activity.
Residential construction, while expanding in the Atlanta, Boston,
Philadelphia and St. Louis districts, is declining in most other
districts. Boston and Philadelphia report strong new home sales.
Commercial construction continues to show mixed results.
Construction activity in the Chicago district is likely to remain at
a high level in 1988. The Minneapolis district reports that January
nonresidential building contracts were three times higher than in
January 1987. In Dallas, construction continues to decline and
remains the weakest sector of the economy.
Banking
Loan demand at the nation's largest commercial banks remained
generally flat. Most districts report that reductions in lending
rates during February have not triggered a significant increase in
loan applications. Richmond was the only district reporting an
increase loan demand across all major loan categories. Two-thirds of
the bankers surveyed by Richmond anticipate increased demand over
the next six months for both consumer and real estate loans.
Cleveland, Kansas City, Philadelphia and St. Louis report a slowing
in consumer lending. Cleveland, Richmond, Philadelphia and Atlanta
report strength in real estate and commercial lending. Atlanta cites
rising exports as the primary reason for the increased commercial
loan volume. New York reports that demand for commercial mortgages
for office construction is particularly weak, and some bankers
believe the suburban office space surrounding New York City is
overbuilt. Dallas reports further declines in deposit and loan
growth due to widespread concern about the stability of District
financial institutions.
Agriculture and Natural Resources
Of the districts mentioning agriculture, all describe strength in
the farm sector. Richmond and San Francisco report stronger farmland
values, while Chicago and Kansas City report increased farm
equipment sales. St. Louis and San Francisco find that farm loan
demand has fallen, while Kansas City indicates flat loan demand.
Three districts indicate increased oil drilling activity. The lumber and forest product industry and the West's mining industry are strong.