Beige Book Report: Richmond
May 3, 1989
Overview
Signs of slower growth in the District economy were apparent during the first half of April. Retail sales were weaker, especially auto sales. Manufacturing activity expanded in late March and early April, but less than in February, while the prices of raw materials continued to rise. Export activity at District seaports was higher, but import activity was mixed. Both residential and non-residential building were weaker. In agriculture, persistent rainfall has kept farmers out of their fields, delaying normal spring planting. Among financial institutions, higher interest rates appear to have encouraged more savings, while the Impact of these higher rates on loan activity has been mixed.
Consumer Spending
District retail activity slowed during the first half of April according to our regular mail survey. About 40 percent of the respondents said their sales decreased while less than one-third reported increases. The proportion of respondents indicating lower sales was slightly greater than in February. Department stores reported that sales were generally flat except for somewhat stronger sales of big-ticket items. Almost three-fourths of the car dealers surveyed indicated lower sales. Most retailers expect their sales to increase in the next six months.
Manufacturing
District manufacturing activity grew at a moderate rate in late March and early April, although the pace of growth was somewhat slower than in February. Smaller proportions of our regular survey respondents reported increases in shipments, new orders, backlogs of orders, and employment than in February, though reports of increases still outnumbered decreases. Respondents indicating declines in the length of their workweek, however, slightly outnumbered those reporting increases. Growth in new export orders was reported to have slowed since February.
Manufacturers reported that the prices of both finished products and raw materials continued to rise in recent weeks at about the same rate as in February. A number of respondents indicated their profits would suffer because they were afraid to pass along the increases in raw materials prices.
District manufacturers remain optimistic about prospects for continued economic growth in the nation and for their businesses in the next six months, although their optimism has diminished somewhat from our February survey. In the current month's survey, as in the previous one, the number of respondents expecting increases in shipments and new orders exceeded the number expecting declines. In a reversal of the results of our February survey, however, the majority of respondents to our current survey now expect backlogs of orders, employment, and the length of the workweek to decline in the next six months.
Ports
Reports received from the three major District ports—Hampton Roads ( Norfolk), Charleston, and Baltimore—showed increased export shipments so far in April compared to the same period in March. The import picture was mixed with shipments reported to be about the same at Charleston and Baltimore but slightly lower at Hampton Roads. All ports indicated that, compared to a year ago, export activity was outpacing that of imports, and port representatives expect this trend to continue during the next six months.
Financial
A telephone survey of Fifth District bankers indicated that the demand for consumer credit grew slightly in the first half of April. Demand for home equity loans continued strong, while the demand for auto loans was reported as mixed. Most of those contacted reported that their commercial loan activity was either unchanged or slightly higher. Nearly all respondents reported increases in consumers' savings, which several attributed to higher interest rates. Over sixty percent of the respondents said they have seen no signs of a slowdown in their local economies.
Agriculture
District farmers intend to plant about 10 to 12 percent more acres of corn, soybeans, and barley this year, but recent rainfall has saturated fields in much of the District, delaying planting activity. Only about five percent of the corn acreage is in the ground, compared to 12 to 20 percent considered normal for mid-April. If fields do not dry soon, some farmers may not be able to get corn planted in time and may wait until June and plant soybeans instead.
A late freeze killed a large number of fruit blossoms in Virginia and the Carolinas, but yields are not expected to be reduced appreciably.