May 2, 1990
District reports indicate that overall economic activity continues to expand slowly in April. The agriculture sector reports some weather-related damage to specific crops, but drought fears have been alleviated by recent rains, and the farm outlook is generally optimistic. Natural resource industries are generally reported to be healthy, with exploration and drilling holding up well in the oil and gas industry. Residential real estate markets remain generally weak, but with some specific geographic areas doing well. Nonresidential construction is mixed, with public works projects supplying some strength. Manufacturing is also mixed, with some improvement noted in half of the districts. Plants are still apparently operating below capacity, however, and there has been little upward pressure on industrial prices. Retail spending has been growing slowly in general, and merchants are looking for small real gains throughout the rest of the year. Auto sales, however, remain weak. In the financial sector, demand for loans is varied but generally flat, with loans for commercial real estate down in most districts. There is little evidence that a general "credit crunch" is developing; the majority of businesses say they have not seen any change in credit terms and have had no trouble getting credit. Where credit tightening by banks and thrift institutions has been noted, however, it has mainly affected newer small businesses and the real estate industry.
Agriculture
The cold, wet weather that dominated much of the nation through
spring took its toll on some crops. Richmond, Atlanta, and St. Louis
say apple and peach crops were damaged, in some cases severely, and
inclement weather has delayed field work and planting in the
Atlanta, St. Louis, and Kansas City districts. However, soil
moisture levels have now reached adequate, or even surplus, levels
in most areas, with the exception of some parts of the Minneapolis
district and California. Although winter wheat sustained some
weather-related damage in the Richmond and St. Louis districts,
Minneapolis says losses were small in that district, and farmers in
contact with Kansas City and Dallas are optimistic about the wheat
crop this year.
Atlanta and St. Louis say farmers intend to plant more cotton, rice, and soybeans this year. Atlanta adds that higher cotton and grain prices may bring some previously idled land back into production.
Natural Resources
Although oil and gas prices have fallen from year-ago levels, they
remain at a level high enough to encourage continued drilling and
exploration, according to Kansas City and Dallas. Dallas says the
industry is "healthy"; Kansas City reports that the rig count, while
down from the February level, is higher than a year ago; Atlanta
says domestic drilling is holding steady and that no change is
expected.
Minneapolis says mining, especially for precious metals, remains strong. Atlanta and St. Louis both report increased coal exports. Forest product industries are also healthy, according to San Francisco and Minneapolis, although concern about environmental issues is causing uncertainty about expansion plans.
Real Estate and Construction
Housing remains weak in most parts of the nation, with multifamily
activity relatively weaker than single-family activity. Although a
recent weather-related increase in activity is noted by several
districts, no signs of a sustained turnaround are evident. Housing
prices remain generally sluggish and are reported by Boston and New
York to be falling further; New York, however, indicates that price
declines are confined to the New York metropolitan area. Real estate
activity in Michigan has been weak also as a result of softness in
the auto industry. Pockets of strength in real estate are reported
in Minneapolis-St. Paul, in parts of California, and in upstate and
western New York. Although industry representatives expect some
improvement in 1990, most anticipate a slow year, with sales
dampened in part by tighter credit standards imposed by banks.
Nonresidential activity is mixed. In Atlanta, the office market remains "subdued," New York says the pace of leasing is good (but that renters are getting significant concessions), and Dallas says the nonresidential market is weak. Atlanta and Philadelphia report strength in public construction projects.
Manufacturing
Manufacturing activity is mixed across the nation; a majority of the
districts report some improvement, or expectations of improvement,
in the coming quarters. Cleveland, Richmond, Atlanta, Chicago,
Dallas, and San Francisco all indicate that industrial activity is
increasing. St. Louis says the sector is weak, while Boston and
Philadelphia report mixed conditions. New orders and shipments are
up in most districts, although no general upward pressure on
industrial prices is noted. Those areas that mention inventories
indicate that they are in line with expectations; no district report
indicates that stock levels are excessive.
Chicago says auto production is leading the pickup, despite continued sluggishness in sales, and that all auto facilities are expected to be operating by the end of April. Cleveland agrees that the auto industry is rebounding, but says contacts in that region still expect second-quarter output to be lower than a year ago. Other strong industries include apparel (Atlanta), steel (Chicago), and various capital goods (Chicago). The commercial aerospace industry is also among the stronger industries in the Boston and San Francisco districts. Atlanta, however, says there is concern in the southeast that the industry may soon show weakness in that region as a result of possible Defense Department cutbacks. Several Districts say auto-related products are still in the doldrums.
The outlook for the industrial sector is improving. Manufacturers in the Philadelphia region say they expect a pickup within six months and are planning to boost capital spending. Cleveland's report indicates that the "worst of the production cutbacks are over." Manufacturers in the Richmond area are also more optimistic; a recent survey indicates that developments in Eastern Europe are expected to give sales a push over the next two years, but that most businesses will benefit later rather than sooner.
Consumer Spending
Retail sales vary by district, but reports generally reflect slow,
positive growth. Sales growth was strongest in the Cleveland,
Richmond, Minneapolis, and San Francisco districts and weakest in
St. Louis and Dallas. Kansas City says sales are above year-ago
levels but have been mixed recently. Philadelphia and Chicago note
that sales gains in their areas have been achieved without resorting
to promotions or markdowns. Retailers generally say inventories are
in line with projected sales.
Apparel has been an especially strong seller in most districts. Hard goods, such as furniture, appliances, and other household items, while strong in some areas, are contributing less to overall growth.
The outlook for consumer spending also varies by region, but retailers are generally looking for modest gains in 1990 as a whole, Boston merchants say 1990 will be "difficult," and contacts in Philadelphia say they are looking for niches; they do not anticipate a broad-based surge in sales this year. Only in St. Louis are store managers overtly pessimistic, expecting the softness noted in that region to continue throughout the year. There is some concern in several districts that unseasonably warm weather led to sales that were borrowed, in part, from the second quarter, and that second- quarter sales will now suffer as a result. In addition, the uncertain outlook for the housing sector is blurring the outlook for sales of household goods and making many merchants cautious in developing projections.
Auto sales are reported to be spotty but generally weak across the nation, and little improvement is expected in the near future. The profitability of auto dealers also varies. Atlanta reports that, while many dealers are increasing profits and some popular models are in short supply, some small dealers in rural areas have gone out of business.
Financial
Total loan demand varies by district but is generally flat. In
Philadelphia and St. Louis, loan volume is higher, while San
Francisco and Kansas City say volume is stable. Richmond reports a
slight increase in problem loans. Activity in specific categories
also varies by District. In Philadelphia, business loans, especially
to manufacturers, are leading the growth noted there, while New York
says business loans to retailers have been providing strength. In
St. Louis, business loans in general have been growing, along with
loans in other categories as well. However, most districts report
that commercial real estate loans are down because of a number of
factors: tightened lending requirements, more scrutiny by
regulators, overbuilding in many markets, and locally sluggish
economies.
Credit Conditions
Although virtually every District cites some specific cases of
credit tightening by banks, with the most significant action taken
by New England banks, there is little evidence of a general "credit
crunch." Many banks have reviewed lending policies in recent months,
cutting back on loans to the real estate industry and newer small
businesses, or tightening up lending requirements by increasing
collateral requirements or shortening loan terms. In addition, many
builders are having a more difficult time securing financing because
of the new lending limits in the thrift industry. Still, the
majority of businesses say they have not seen any change in credit
terms, and have not had trouble getting loans.