January 25, 1989
Overview
The District economy generally continued to grow at a moderate pace
in December and early January, and in some regions—such as the
Washington metropolitan area—growth was still very strong. Retail
sales were stronger than in November, and department stores
experienced a somewhat better Christmas season than a year ago.
Manufacturing shipments rose again; other measures of producer
activity were mixed. The demand for commercial and industrial loans
stayed flat, while the demand for consumer credit remained
relatively strong. Export activity increased at District ports,
while import volume was largely unchanged. In the agricultural
sector, below normal precipitation continued to be a concern. Most
business, financial, and agricultural respondents were optimistic
about prospects for their businesses and for the economy in general
in 1989.
Consumer Spending
Responses to our regular survey of District retailers indicated that
seasonally adjusted retail sales during the first half of January
were above those of the last half of December and those reported in
November. Almost half of the respondents to this month's survey
reported increased sales while about 40 percent reported declines.
In contrast, November reports of declines were about equal to
reports of increases. Most automobile dealers reported increased
sales during the first three weeks after Christmas, and almost half
of the department stores reported increases. Three-fourths of the
retailers expect sales to increase in the next six months.
Christmas sales were reported to be somewhat stronger than last year by department stores in the District. Over half of the respondents said their sales were higher than a year ago, while 15 percent said their sales were lower. Most respondents said merchandise markdowns during the Christmas season were about the same as usual.
Manufacturing
District manufacturing activity was mixed in mid-January compared to
a month earlier according to our regular mail survey. About half of
the survey respondents indicated no change in their activity. Among
those reporting changes, reports of increases in shipments and new
orders outnumbered reports of declines, but reports of declines in
backlogs of orders exceeded reports of increases. The length of the
workweek and the level of employment were generally unchanged; labor
was reported to be scarce in some areas. As compared with our
previous survey of manufacturers in mid-November, our most recent
survey indicated a slightly slower expansion in producer activity.
Reports of higher prices of materials were made by about 60 percent
of the respondents-slightly above the percentage reporting increases
in our November survey.
Among manufacturers who export, about half said their export volume was flat in 1988, while about 45 percent reported increases. Only two respondents, both textile producers, indicated declines in their exports. Looking ahead, about three out of every five respondents expect increases in their exports in 1989 over 1988. Only one respondent expects his firm's exports to decline.
In this latest survey, more District manufacturers were optimistic than in our previous survey. Forty-nine percent of the January survey respondents expect their shipments to rise in the next six months and 15 percent expect declines, compared to 34 and 26 percent, respectively, in November. In the January survey, respondents expecting increases in each category of manufacturing activity—new orders, shipments, backlogs of orders, employment, and the workweek—outnumbered those expecting declines.
Ports
Representatives from the three major District ports—Baltimore,
Charleston, and Hampton Roads (Norfolk)—noted increases in exports
in December compared to November. Imports were apparently steady,
with shipments reported to be only slightly higher at Hampton Roads
and unchanged at Charleston and Baltimore. Strong increases in
export activity are expected at the two largest District ports over
the next six months; the port of Charleston expects export activity
to remain about the same. When asked to compare their current
activity to that of a year ago, all port representatives indicated
that their export activity was growing faster than their import
activity.
Financial
The majority of Fifth District bankers responding to our telephone
survey reported that demand for commercial and industrial loans,
particularly commercial construction loans, had been relatively flat
in recent weeks. However, roughly two-thirds of the respondents
characterized the demand for consumer credit as relatively strong.
The bankers contacted held divergent expectations of loan activity
in 1989, but several indicated that they expected reduced lending
activity. Their assessments of the national economic outlook were
also mixed, and several respondents emphasized that the economy's
course will depend on future fiscal policy. Only one respondent
expects a recession in 1989. A large majority expect a further rise
in interest rates through mid-year, followed by a leveling off and
then a decline in rates during the second half of 1988.
Agriculture
Although rainfall in most of the District was about normal from
September through November, a relatively dry December left pond and
stream levels lower than normal. Our contacts were optimistic that
grain prices would strengthen in 1989. One large poultry producer
expressed concern that low stocks of corn and the resumption of
exports to the U.S.S.R. could drive feed costs even higher in the
coming months.