May 4, 1988
Continued moderate growth of the nation's economy is again confirmed by reports from the Federal Reserve Districts. Manufacturing sector activity remains strong, with export growth a major contributor. Recent retail sales growth generally has been modest. Housing activity in most Districts has shown some recent improvement, but remains below that of a year earlier. Nonresidential construction activity is mixed. Conditions appear to be improving in resource industries, including energy where there is some pickup in oil drilling activity. Farm sector conditions are also continuing to improve. Generally stronger loan demand is reported at banks in a number of Districts.
Consumer Spending
Recent improvement in retail sales is best described as generally
modest, with this year's early Easter affecting comparisons with a
year earlier. Several individual District reports use words like
sluggish, slow, and modest in describing recent sales growth (New
York, Philadelphia, Cleveland, Atlanta, and Minneapolis). Somewhat
greater strength is suggested by reports from Richmond, St. Louis,
and Boston. Where specific lines of goods are mentioned, apparel
sales are generally described as weak, while strength in sales of
appliances and home furnishings varies from region to region.
General merchandise and department store sales appear to be faring
better than sales at specialty stores. Retail inventories are being
closely monitored, with aggressive markdowns reported in several
Districts in order to keep inventories under control. Several
Districts note strong sales for domestically produced new cars,
including light trucks and minivans. Inventories of new cars were
generally described as satisfactory to tight.
Manufacturing
Manufacturing sector activity remains strong. The strength appears
to be generally broad-based, with export growth often cited as a
major contributor. Boston, Philadelphia, and Richmond note general
strength in both shipments and orders. Chicago remarks on the
reopening of export markets for heavy trucks. Atlanta reports
apparel exports are growing and textile mills are running at or near
capacity. St. Louis and Dallas, however, note some slowing in
textile and apparel production. Chicago and Cleveland report
continuing strength in heavy industries such as steel and machine
tools. Chicago reports strength in steel mill orders into the third
quarter. Steel fabricators have orders backlogged into the third
quarter, and service center business is also strong. Prices are up
for most types of steel, with some types in short supply.
Manufacturers' purchasing agents in both the Chicago and Kansas City
Districts are seeing a longer delay in deliveries of goods ordered.
Respondents are also concerned about higher materials prices,
especially for steel, paper, plastics, and aluminum.
Construction
Housing sector activity in most Districts has shown some recent
improvement, but remains below levels of a year earlier.
Nonresidential building activity is mixed. According to the Atlanta
Bank, the decline in nonresidential construction activity in the
southeast is slowing. Chicago reports modestly higher nonresidential
building activity and expects a higher level of industrial
construction this year. The pace of office leasing has improved in
the New York District and considerable hotel construction is
scheduled or underway in New York City. Overall construction
activity in the Dallas District continues to decline with little
evidence of recovery in the near future.
Resource Industries
Conditions appear to be improving in resource industries, including
the energy sector. San Francisco, Minneapolis, and Kansas City all
report some pickup in oil drilling activity, but Kansas City notes
further improvement may be limited by uncertainty about oil supplies
and prices. Dallas notes a sharp rebound in oil, drilling,
concentrated in Texas where the rig count increased for the first
time in six months; further gains are expected. Forest products
companies and copper mining in the San Francisco District are
benefiting from strong prices and improved cost structures.
Minneapolis reports its important forest products industry is
currently running at capacity.
Agriculture
Conditions in the farm sector generally continue to improve. Farm
incomes. are expected to be relatively high again this year but not
as high as in 1987, due primarily to smaller government payments and
smaller returns to the livestock sector. Farmland values are
generally rising in most areas and farm financial conditions appear
to be strengthening. Dallas reports the number of farmers and
ranchers leaving agriculture is slowing considerably. Cotton acreage
planted is expected to increase substantially in the Atlanta and St.
Louis Districts, Dry conditions are of some concern in several
states, with water shortages of increasing concern in the San
Francisco District where livestock producers are already suffering
and crop irrigation may be reduced this summer.
Banking
A number of Districts report stronger loan demand. Relatively strong
loan demand in the Cleveland District is concentrated in business
lending, with smaller gains in consumer installment lending.
Consumer lending growth is mentioned by several Districts, with
Richmond and Philadelphia noting some strength in the demand for
home equity loans. San Francisco, however, reports overall loan
demand appears about unchanged. Also, Dallas says loans in that
District are generally still in a slide, with business loans
declining most. Dallas also notes, though, that the rates of decline
in loans at large banks slowed markedly in the first quarter
compared with the last half of 1987.