October 18, 1988
Summary
Business activity continues to rise in the District, paced by the
strengthening in capital goods and exports, and supported by the
high level of motor vehicle sales. Some contacts, however, note a
less rapid rate of growth in activity at their companies or in their
industries. Employment in District states has risen further in the
second half of 1988 though at a slower rate than in the first half.
Chicago purchasing managers report continued widespread gains in
output and orders, and an uptrend in inventory building, accompanied
by rising prices. Vigorous demand for steel from motor vehicle,
equipment, and construction markets is maintaining output near
effective capacity. Construction activity appears to be holding up
fairly well, but some sectors have slowed and further slowing
appears likely. Sales at retailers sampled in the District were slow
in August and mixed in September. The fall harvest has progressed at
a normal pace, but part of the crop is of poor quality or
contaminated as a result of the drought.
Steel Mills are largely booked through year-end. Production slowed less than usual last summer as producers used vacation and maintenance shutdowns at customers' plants to reduce order backlogs. Some maintenance work at steel mills has been deferred in order to meet strong demand. Among major markets, demand for construction steel is strong, particularly for industrial projects. Orders also continue strong from makers of construction equipment and other machinery, are at a good pace from auto companies, and have risen (from a low level) from makers of railcars. However, orders for oil country tubular goods have dropped as buyers, facing lower oil prices, have tried to cut inventories. In addition, delays in pipeline construction have curtailed orders for steel from that sector.
Motor Vehicles
Car sales continue strong and truck sales appear headed for a record
this year. Second shifts are being added at two truck assembly
plants in Michigan. Regular production was started last month at a
new auto assembly plant in Illinois which is owned jointly by a
Japanese and a U.S. firm. A Japanese-owned plant which began
production in Michigan a year ago plans to shift some car assemblies
to that plant next year from Japan to counter the high yen.
Other Manufacturers
Demand is either rising or at a high level for most manufacturers,
but some reports suggest a slowing in the pace of expansion. A large
diversified producer indicates that gains in sales, though still
strong, have been less rapid in the second half of 1988 than earlier
in the year. A maker of corrugated shipping containers has seen some
slippage in the second half from the record-setting pace of the
previous two years. In contrast, a producer of capital goods
reported strong gains in orders, and did not note indications of
slowing growth. A maker of diesel engines is operating at capacity,
with strength both in motor vehicles and nonautomotive markets.
Construction machinery sales are reported up strongly. Major
appliance sales, though at a high level, have trailed 1987 and are
expected to slow further.
Construction
Reports on construction activity in the region have been mixed.
Advance indicators such as residential and nonresidential building
contracts have trailed 1987. But employment in construction has
risen in the District states. Total shipments of gypsum board to the
five states have been about even with last year, and shipments of
cement have been rising. Strong sectors include industrial
construction and public works, particularly streets and highways.
Weakness has persisted in apartments, and contractors are reported
less active on single-family housing construction.
Consumer Spending
A survey of Illinois retailers showed sales in August trailed the
year-earlier level. Weakness was attributed to the summer heat wave.
Large retailers in the District reported mixed sales performance in
September.
Agriculture
Crop prices, although still high, have trended somewhat lower in
recent weeks as the fall harvest has progressed at a normal pace
over most of the District. Elevators have been reluctant to accept
some early-harvest deliveries because of poor seed quality and the
presence of aflatoxin, a highly toxic substance to humans and
animals, in some corn. Testing procedures for aflatoxin are
complicated and, as yet, the extent of the contamination is unknown.
But concerns were eased earlier this week when the FDA reissued
guidelines that will permit elevators to blend contaminated corn
with clean corn to achieve tolerance levels acceptable for
interstate shipments.
Recent figures confirm that farm equipment sales turned sluggish again this summer as farmers became apprehensive about the drought. However, industry analysts are looking for a modest upturn to resume by early next year. Despite the drought, the demand for farm equipment is likely to be sustained by high cash farm earnings and by a sizable increase in crop plantings next year.