January 25, 1989
Summary
Business activity continues to expand in the Seventh District. The
Christmas shopping season was stronger than expected for many
retailers. Paperboard shipments have picked up after growing more
slowly in the second and third quarters. Demand for steel continues
strong. Motor vehicle production plans are at high levels, but some
contacts expect slower sales in 1989 to require cutbacks. Demand for
equipment is robust across a range of industries, but one contact
notes increased hesitancy about further additions to capacity, out
of concern that the economy may turn down in 1990. Construction
activity has been above expectations, but advance indicators suggest
that declines are likely. Some labor markets have tightened in
recent years, but conditions vary widely among locations and
occupations. Farm debt owed to banks rose last year, after declines
in previous years.
Retail Sales
Merchants report generally favorable results for the Christmas
selling season. An Illinois retailers' group estimates that its
members' sales during the period were 6 percent or more above a year
earlier. Many engaged in less promotional activity than in recent
years. The picture is mixed, however; year-to-year sales gains at a
large general merchandiser's Chicago-area stores were relatively
weak compared with other parts of the country. Where sales were up,
strength was in both durables and nondurables, including women's
apparel. The pickup in apparel is expected to continue. Credit sales
are high. Contacts have indicated that delinquencies have risen but
not alarmingly.
Labor Markets
Markets for labor have tightened in the District over the past few
years, but conditions differ substantially among geographic areas
and occupations. A manufacturer planning additions to employment
foresaw problems finding qualified factory workers at a plant in a
"booming" Chicago suburb, but not at other plants. Stores in large
shopping centers around Chicago reported difficulty finding clerical
staff, particularly through the Christmas season. Fast food
restaurants advertise continuously and prominently for employees.
Some skills are in short supply. On the other hand, openings for
other skilled and experienced workers appear quite limited,
attributed partly to corporate downsizing and mergers. An
outplacement firm reports a sharp rise, during the past 2 years, in
the proportion of people willing to relocate out of state.
Steel
Orders for steel are strong but "orderly," with lead times shorter
than at seasonal peaks last spring. Demand from auto and appliance
makers continues at high levels. Sales to industrial equipment
makers remain well above levels of a few years ago. Adequate
capacity for these types of steel is in place for further expansion.
Construction steel markets are strong, and the largest backlog in
years will keep shipments brisk at least through the first half of
1989. Steel service centers' sales continue vigorous.
Motor Vehicles
Industry observers think auto production plans may be excessive
relative to likely sales. Inventory accumulation would lead to
enhanced sales incentives, production cuts, or both. One source
forecast a 2% decline in unit auto sales in 1983. Another expected a
drop of 5% or more. Truck sales in 1989 were expected to be near
all-time highs, but down a little from 1988's record pace. A heavy
truck maker predicted continued strong demand for large trucks in
early 1989, but thought a weaker economy and higher interest rates
may subsequently cut into sales.
Equipment
Reports on the outlook for business equipment are mixed. The
producers' durable goods sector continues to "roll on with great
momentum," according to one source. Another expects capital spending
programs begun in 1988 to keep investment vigorous in 1989.
Strongest have been chemical process industries. Other industries
reported to be adding to capacity include manufacturers of glass,
appliances, tires, and some types of electrical equipment, as well
as food processors, printers and airlines. Farm equipment sales may
rise 15% to 20% this year, according to one producer.
Buying of construction and mining equipment was up strongly last year, but an industry source thinks the replacement cycle in these sectors may be nearly over. Another contact reports increasing concerns about the risk of economic weakness in 1990 may result in smaller spending increases than indicated by recent national surveys. A maker of communications equipment and electronic components sees indications of slowing in both sectors, and expects the downtrend to continue.
Construction
Declines in contracts for residential and nonresidential building
construction in the 5 District states point to a slowdown ahead.
However, suppliers indicate that the current pace of building
activity remains fairly high. Work on industrial buildings is
particularly strong in the Midwest. Work on hospitals, convention
centers, and office buildings is also described as strong. Gypsum
board shipments to District states rose somewhat in 1988 (based on
11 months of data) and are expected to be about even in 1989. (In
view of the strength of construction material shipments to building
sites and of construction industry employment, two contacts regard
Commerce Dept. figures on nonresidential construction activity
nationwide in 1988 as too low, particularly for industrial
buildings.)
Agriculture
Farm debt owed to banks turned up modestly in 1988, following a 16
percent slide over three years in District states and a 13 percent
decline nationwide. Call Report data as of the end of the third
quarter show that farm debt owed to banks was up 3.4 percent from a
year ago in District states, and up 3.0 percent nationwide. The
gains stem from continued strong growth in farm real estate loans
and, for the first time in 15 quarters, a nominal rise in farm
production loans. Farm debt owed to other lenders continued to
decline through the third quarter, but at a much slower pace than in
recent years. About a year ago, banks moved ahead of the Farm Credit
System as the largest institutional lender serving farmers.