December 6, 1989
Overview
District economic activity softened further in November from a
sluggish pace earlier this fall. Retail sales and manufacturing
activity declined, and the housing market weakened. District
financial institutions reported reduced demand for consumer loans
and for commercial and industrial loans. Port activity was again
mixed. On the brighter side, coal and timber production were strong.
Financial conditions improved further in the District agricultural
sector, and farmland values continued to rise.
Consumer Spending
Reports from various sources including our regular survey of
retailers suggested that department stores in the District
experienced declines in retail sales from October to mid-November.
Some lines such as cosmetics were reported strong, but others such
as apparel were weak. Sales of big ticket items such as furniture
were mixed, but weaker on balance. Most department store executives,
however, expect this Christmas season to be as good as or better
than last year, and most do not plan to mark down merchandise as
much as they did a year ago.
Manufacturing and Mining
Responses to our regular mail survey indicated a decrease in
District manufacturing activity from mid-October to mid-November.
Reports of declines outnumbered reports of increases in shipments,
new orders, unfilled orders, employment, inventories, and the
workweek. The largest declines were recorded in new and unfilled
orders. New export orders were largely unchanged. The prices of
finished goods and raw materials rose moderately.
Our November survey showed that most manufacturers remained optimistic about prospects for the U.S. economy and their own businesses, although they were somewhat less optimistic about the near-term outlook than in our previous survey. Most producers expect the nation's economy to grow at a slow to moderate rate during the next 18 months. Almost half of the respondents, however, up from one-third in September, expect a decrease in the nation's rate of economic expansion over the next six months. The percentage of respondents who expect a decrease in their own shipments in the next six months rose to 40 percent in November from 25 percent in September. The percentage planning to maintain or increase capital spending in the next six months declined slightly but remained high.
Reports from sources other than those surveyed by mail provided some specifics on District activity in particular industries in recent weeks. In the Carolinas, the furniture, textile, and apparel industries reduced their workweeks because of slow sales. In West Virginia, however, coal production was at a record pace and coal prices were strong. Timber production also maintained a robust pace in West Virginia and other District states.
Reports from the three major District ports—Hampton Roads (Norfolk), Charleston, and Baltimore—indicated that overall activity was mixed in October. Imports rose from September levels at Hampton Roads and Charleston, but declined at Baltimore. Exports increased at Charleston, decreased at. Baltimore, and remained about the same at Hampton Roads.
Residential Real Estate
A telephone survey of home builders pointed to a weakening in
residential construction activity in the first three weeks of
November. Nearly all home builders reported declines in their
housing starts. Most said that they were not building speculatively
because inventories of unsold homes were high and home purchases
were expected to remain weak.
Comments by realtors and others confirmed the builders' reports of softness in the District housing market in November. Sales of both new and existing homes were reported to be down in all but a few metropolitan areas. Some realtors reported an increase in open house traffic, which they attributed to good weather and lower mortgage rates.
Financial
District bankers reported softness in loan demand in early November.
Almost all indicated declines in the demand for commercial and
industrial loans, and some said that these declines were large. Most
bankers also reported that the demand for consumer loans was down.
They attributed weakness in car loans to depressed automobile sales
and to greater use of dealer financing.
A number of bankers commented on the high level of consumer debt and noted an increase in their consumer loan losses and delinquencies. Others saw problems ahead in particular sectors, such as commercial real estate and automobile dealerships.
Agriculture
A recent survey of agricultural bankers indicated that the health of
District agriculture has improved further. The bankers said that
farm loan repayment rates were better than average at their
institutions, and almost two-thirds were actively seeking new farm
loans. The demand for farm loans was normal across the District, but
bankers expect weaker loan volume during the next several months
because they look for their nonbank competitors to become more
aggressive. Farmland prices continued to rise in recent months, but
only a few of the bankers surveyed expect further increases in the
months ahead. With respect to crop conditions, wet weather has
delayed the sowing of winter wheat in parts of the District, though
the planting of other small grains is on schedule.