September 20, 1989
Summary
Most Federal Reserve districts describe the growth of economic
activity as modest or slow, although regional variation in activity
is substantial. Consumer spending has been mixed, but most districts
report strong sales of apparel and cars recently. Manufacturing
conditions are generally satisfactory or improving in the nation's
Southern and Western regions, but some weakening was noted in New
England and much of the Midwest. Construction activity is mixed.
Agricultural conditions continue to improve over much of the nation.
Consumer Spending
Merchandise sales have been mixed across the country. Retail sales
have expanded at satisfactory rates or above in the New York.
Philadelphia, St. Louis, Minneapolis, San Francisco and Kansas City
districts. Boston, Richmond and Dallas all report that retail sales
have softened in recent months, while Cleveland reports mixed sales
patterns. In several districts, increased sales of women's apparel
have spurred overall apparel growth.
Inventories appear to be under control in the New York, Philadelphia, St. Louis, Minneapolis and Kansas City districts, while in Boston and Cleveland, inventories are a bit high. The sales outlook for the remainder of the year is optimistic in the Richmond, Minneapolis, Dallas, Cleveland and Kansas City districts. St. Louis retailers expect sales to be flat or slightly higher, while Philadelphia retailers believe a slackening in demand through next spring is more likely than an acceleration in spending. Boston notes that retailers are split half-and-half over sales potential for the rest of 1989, while Chicago reports that retailers expect further weakness in spending on durables. A surge in auto sales has helped reduce auto inventories over most of the nation. In several districts, dealers are worried that recent incentive-boosted sales may cut into 1990 model sales.
Manufacturing
The performance of manufacturing is mixed, varying significantly
among districts and across industries. Increased activity was
reported by New York, Richmond, Atlanta, Kansas City and Dallas.
Weak or slowing activity was reported by Boston, Philadelphia,
Chicago and Minneapolis and St. Louis. Although manufacturing
conditions in the San Francisco District are generally satisfactory,
some sectors, such as defense-related production, continue to
decline. Cleveland also reports that manufacturing activity remains
at a high level, but some softening is apparent in the production of
steel and capital goods. Manufacturers' inventories are generally at
satisfactory levels, but are being reduced from relatively high
levels by producers in the Kansas City District. Five districts
report that input pricing pressures have eased, while the Kansas
City District reports an increase in such pressure.
The outlook for manufacturing is mixed. Of the districts that mentioned an outlook, Philadelphia and Richmond contacts generally anticipate a weakening in conditions while Boston contacts expect activity to continue at its current pace through the end of the year. Several manufacturers in the Atlanta District, primarily in the chemical, textiles and primary metal industries, recently have revised their expectations for the near future upward.
Construction and Real Estate
District reports indicate substantial variation in the strength of
construction and real estate activity. Recent strength in
nonresidential construction was reported by the Richmond, Chicago,
St. Louis, Dallas and San Francisco districts, while nonresidential
activity reportedly weakened in the Minneapolis-St. Paul area.
Residential construction activity, though generally weak compared
with a year ago, picked up in the Richmond, St. Louis and
Minneapolis districts and remained strong in the San Francisco
District. New York reports that homebuilding in parts of its
District has been deterred by an oversupply of existing homes. Home
sales picked up in the Boston, Richmond, Chicago and Minneapolis
districts and remained strong in the Far West, but are slow in the
Kansas City District. Several districts report that declines in
mortgage rates stimulated the construction and sales of existing
homes.
Labor Markets
Three districts report labor shortages. Boston reports that,
although manufacturing labor market conditions are generally
unchanged or softer, some types of labor continue to be hard to
find. St. Louis reports a reduction in the availability of skilled
labor in several sectors, while San Francisco noted shortages of
retail and construction workers in some areas.
Financial Markets
The demand for loans continues to vary considerably by region and
type of loan. Overall loan volume is reported up in Philadelphia and
San Francisco. Commercial and industrial loan growth has been good
in Philadelphia, and Richmond and Kansas City report steady demand.
Cleveland, however, notes a continued softening in commercial and
industrial loans. Consumer loan demand has fallen off since last
year in the New York District, but Philadelphia reports that
consumer loan growth has strengthened. Auto loans appear to be a
major factor in determining consumer loan growth rates. Real estate
lending is growing at a strong pace in Philadelphia, with San
Francisco also reporting expanded loan volume. Bank earnings are
growing significantly in San Francisco, while in St. Louis earnings
declined in the second quarter with particular problems in real
estate loans.
Agriculture and Natural Resources
Agricultural conditions have improved over much of the country.
Recent rains have helped crops and pastures in the Chicago, St.
Louis, Kansas City, Minneapolis and Dallas districts. Despite the
improved conditions, weather-related stress has damaged crops in the
Plains States, Iowa, Oregon, Utah and Idaho. Dallas reports that
central and southern Texas remains dry. In the Dallas and Richmond
districts, agricultural prices for most commodities are relatively
strong. The mining industry has showed increased activity in the
Minneapolis, Dallas, Atlanta and Kansas City districts in recent
months. Lumber industry contacts in the Minneapolis and San
Francisco districts report difficulties in securing timber for
mills.