Beige Book: National Summary
May 3, 1989
The nation's economy grew at a moderate, sustainable pace in February, March, and early April. Business activity was relatively strong in the Midwest and South. Consumer spending in most of the country was moderately strong, but signs of slowing were apparent in the Northeast and West. Manufacturing activity expanded at a fairly strong pace throughout the country, and manufacturers are generally optimistic about sales prospects for the rest of the year. The backlog of new orders has been mixed, but no significant changes were found. No serious bottlenecks were reported. Despite the continued strength in manufacturing output, none of the districts report significant increases in input prices or labor costs. Residential construction was mixed, but nonresidential construction levels were described as moderately strong. Much of the winter wheat crop was lost due to dry weather early this spring. Recent rains, however, have improved the outlook for the spring wheat crop, as well as for agriculture in general. Favorable conditions were apparent in the mining and lumber industries.
Consumer Spending
Consumer spending slowed significantly in several districts but grew
fairly strongly in others. Boston, New York, Philadelphia, Richmond,
and San Francisco report sluggish retail sales. The sales slowdown
was particularly marked in consumer durables. Lower-than-expected
automobile sales were reported by Richmond, Minneapolis, Kansas
City, and San Francisco. A large dealer in the Minneapolis-St. Paul
area describes the slowdown in car sales as the worst in over twenty
years. Boston reports that retailers are curtailing
their capital spending programs due to disappointing sales growth,
focusing spending instead on upgrading distribution systems rather
than on new construction. Several districts point out that the early
Easter this year made sales comparisons with last year difficult.
Consumer spending on general merchandise is described as fairly strong by Cleveland, Chicago, St. Louis, Minneapolis, Kansas City, and Dallas. These reports suggest that the economic expansion has been stronger lately in the South and Midwest than elsewhere in the country. Several of these districts also report an early-April recovery in auto sales, partly attributable to enhanced incentives for buyers.
Inventories were at acceptable levels in all districts. The rate of retail price increases is largely reported as being fairly moderate. Boston and Minneapolis point to an increase in wholesale prices of goods purchases by retailers. Retail prices, however, have not risen much, and Boston reports concern about eroding retail margins.
Manufacturing
Manufacturing activity continued to expand at a fairly strong pace.
None of the districts report declines in shipments; most report
significant increases. St. Louis reports that manufacturing
employment rose by an impressive 10.8 percent from December to
February. Cleveland reports that cold-rolled and galvanized steel
operations were at full capacity. Chicago reports that shipments of
major home appliances reached record levels.
Manufacturers are generally optimistic about sales prospects for the year. San Francisco reports strong demand for commercial aircraft; Atlanta reports significant increases in capacity in the broiler- chicken producing and processing industry; and Chicago cites brisk demand for equipment installed in construction projects. Reports are mixed on the backlog of new orders.
Boston and Atlanta report some weakness in new orders, but Philadelphia, Cleveland, Richmond, and Chicago note that new orders increased in many industries.
Capacity utilization was generally at satisfactory levels: no serious bottlenecks were mentioned. Atlanta reports that capacity constraints are easing in several sectors. In contrast, reports on capital spending plans are somewhat mixed. Boston reports that half the manufacturers they surveyed plan to increase capital spending, but a third plan to invest practically nothing. New York reports plans for a $70 million business park in the Rochester area. Dallas reports that electronics manufacturers are planning significant increases in investment spending. Atlanta, however, reports that capital investment appeared to be slowing.
None of the districts mention significant increases in input prices or labor costs. Boston reports that most of their survey respondents were not alarmed by steady to slightly higher input prices. Philadelphia reports that higher prices were not quite as widespread as they were over the winter. Chicago also reports that prices paid by manufacturers showed increases, but less so than earlier. Respondents to a survey by Kansas City indicate that input prices are expected to stabilize or decrease in the near future.
Construction
Housing construction reports are mixed. New York reports that a glut
of houses in the metropolitan areas of New York City and New Jersey
is deterring homebuilding in the area, but homebuilders in upstate
New York are quite active. Residential construction was vigorous in
the Chicago area, but first-quarter housing permits in St. Louis
were down 31.8 percent from a year earlier. Minneapolis and Kansas
City report declines in residential construction, but Dallas reports
that single-family housing permits were above last year's levels.
San Francisco reports that construction activity was strong, though
limited by a lack of available land.
Nonresidential construction is generally described as moderately strong. New York reports that office-leasing activity has been brisk. Chicago reports that district contracts for nonresidential buildings were at their peak last year, and Dallas reports that nonresidential building activity showed year-over-year gains in contract values.
Employment
Conditions in the labor market are described as largely
satisfactory. Unemployment rates are generally low. Boston reports
that the region's labor markets seemed less tight. New York reports
that the unemployment rate there dropped sharply, primarily because
of a decline in the number of job seekers. Atlanta reports that wage
increases remained mostly in the 3 to 5 percent range, which is not
regarded as too high. However, Atlanta also notes shortages of
skilled workers in many sectors. St. Louis reports that payroll
employment from December through February grew at a relatively high
6.3 percent annual rate.
Agriculture and Resource-Related Industries
Soil moisture conditions have improved somewhat in several regions
after last year's drought. Rains in March and April eased the
stresses of the drought in California, parts of Missouri, and North
Dakota. Chicago reports that soil moisture conditions were adequate
for the start of the growing season in most of the district except
western Illinois and much of Iowa. However, the recent rains came
too late for much of the winter wheat crop. Wheat yields are
expected to be below normal in Kansas and parts of Oklahoma due to
dry conditions throughout the early spring. According to Dallas, the
winter wheat crop was damaged by insufficient moisture and by
insects. Production of fresh vegetables is reported to be recovering
from the effects of a February freeze in parts of the South and
Southeast.
Oil prices have risen sharply in the aftermath of the Alaskan oil spill. The spill is temporarily helping the Alaskan economy, though not the ecology: fishermen are being paid $2,500 per day for use of their boats for cleanup activities. Oil and gas drilling activity reports are mixed but show some recent signs of strength. Dallas reports that the rotary rig count in the district was up sharply in March. Kansas City reports a decline in drilling rigs from February to March but a rebound in April.
The lumber industry appears to be doing very well. Minneapolis and San Francisco report that the main problem is a shortage of available logs. Minneapolis also reports that environmental concerns have delayed logging activity. Reports on capital expenditure plans in this sector are mixed, with Minneapolis reporting substantial expansion in capacity but San Francisco reporting that lumber shortages have caused mills to reduce expenditure plans.