Beige Book: National Summary
March 15, 1989
Economic activity for most of the country is reported to be expanding at a moderately strong pace. Consumer spending, except for autos, has apparently gained momentum while manufacturing, especially for export, continues to show strength almost everywhere. Energy and, to a lesser extent construction, remain the weakest sectors.
In this environment, there is evidence of pressures on costs and prices. Despite additions to productive capacity and improvements in efficiency that are forestalling widespread bottlenecks, materials and product prices are edging up, albeit sporadically and at an uneven pace. Labor markets continue to tighten, with labor shortages noted for both skilled and unskilled workers. Due largely to weather, there are also indications of present and possible future price pressures in agriculture.
Aside from widespread evidence of cost and price pressures, several imbalances are reported. There are signs that excess construction inventories are being perpetuated in some areas. Also while reports of credit problems are isolated, deposit growth is generally weak.
Consumer Spending
Most Districts reported strong gains in consumer expenditures for
January and February, with the exception of autos. Growing shortages
of retail workers as well as other cost and price pressures were
noted in a few Districts. Apparel sales, particularly women's
clothing, contributed significantly to strength. Some Districts also
pointed to brisk purchases of home furnishings and electronics. In
contrast, new car sales have slowed and new incentive programs are
said to be needed to reduce higher-than-usual inventories. General
merchandise inventory levels are typically viewed as lean.
General merchandisers are typically optimistic about spring sales, although Philadelphia expressed concern that an early Easter this year could lower overall sales n advance of the holiday. In a number of Districts, retailers expressed uncertainty about the long range outlook.
Manufacturing
Most Districts cited some tightness in manufacturing labor markets
or the Districts that reported on costs and prices, most anticipate
increasing pressures due either to current strong conditions or
attempts to pass through last year's large increases for particular
inputs. In other Districts such as Philadelphia and Boston, more
moderate pressures were reported.
Manufacturers generally are optimistic about near-term production prospects, frequently because exports are outpacing growth in domestic demand. Orders for producers durables are strong in the Districts where this industry is relatively important to the economy. Aside from machine tools and the like, transportation equipment sales are also strong. Factory orders for apparel are up strongly in Dallas, and apparel and textiles production is rebounding in Richmond and St. Louis. Production for defense is generally reported as weak except in the St. Louis District, where backlogs are supporting activity. The paper and chemical industries continue to turn in strong performances according to Dallas and Atlanta, although their growth rates have slowed recently.
As far as capital spending is concerned, some of the largest and most broad-based increases are noted by Chicago. However, in the industries where reports were obtained on capital spending, it was generally not expected to exceed last year's strong pace. Often, investment was said to be improving efficiency and modernizing equipment rather than for expanding capacity. While industries in several Districts are said to be operating close to full capacity, there are few comments about serious bottlenecks. In this regard, Chicago and Richmond note capital spending directed towards reducing bottlenecks. San Francisco reports one of the exceptions—capacity constraints are binding and long delivery times typify production of commercial aircraft and aerospace supplies.
Construction
Comments characterize housing and real estate activity as ranging
from stable growth to weakness. Several of the Districts that
reported on this noted high vacancy rates in this area. In
construction, multifamily appears weaker than single-family
homebuilding almost everywhere.
Nonresidential activity also reflects a heavy inventory condition in several of the Districts that reviewed this. At the same time, building is strong in the St. Louis and Chicago Districts, reflecting industrial expansion in the latter. Chicago also reports very heavy demand for construction steel, whereas in other Districts softening domestic demand for construction materials was seen.
Resource-Related Industry
Several Districts noted a cautious optimism in resource-related
industries. Expectations of higher farm income are fairly widespread
and export demand for several products, such as lumber, shows
continued strength.
Of the nine Districts that reported on agriculture, four observed concerns that soil moisture problems could threaten crops. The winter wheat crop is already threatened in a number of Districts with the exception of Richmond. The effect of herd reduction during last year's drought has pushed cattle prices higher. Descriptions of the energy industry suggest continued weakness.
Financial Services
The comments on loan demand suggest little growth, with the
exception of Philadelphia. Two Districts reported no trend in
delinquencies and San Francisco indicated credit standards for auto
loans were tightening. Some others indicated that concerns were
expressed about forthcoming upward adjustments in rates on
outstanding ARMs. Atlanta noted that delinquencies, defaults and
bankruptcies are on the rise in real estate, with developers in
certain overbuilt areas under pressure. Deposit growth was described
as weak by all of the Districts that reported on this. Two noted
deposit outflows at thrift institutions in recent months.