October 31, 1990
Overview
District economic activity generally weakened further in early
October, and the attitudes of businesses about the near-term outlook
became more pessimistic. Retail and manufacturing activity slowed.
Starts of new commercial buildings were virtually at a standstill.
Loan demand was weaker at District financial institutions, but
interest rates were little changed. On the brighter side, export
volume rose at District ports and the District's farming sector was
generally healthy.
Retail Trade
Responses to our regular mail survey of retailers suggested that
retail sales—including sales of big ticket items—declined in early
October. Most stores also reported declines in shopper traffic and
many retailers indicated that they had trimmed employment.
Department store executives reported that they had reduced their sales projections and expected to hold down their employment and advertising this Christmas season. These retailers and others surveyed were pessimistic about the outlook for their businesses and local economies, and the national economy.
Manufacturing
Our regular mail survey of manufacturers showed decreases in their
shipments, orders, and employment in early October. Nearly half of
the respondents identified poor sales as their most important
business problem. Rising crude oil prices apparently contributed to
sales declines; about three-fifths of the respondents said that
their sales were adversely affected by the boost in oil prices.
Most surveyed manufacturers reported higher raw materials costs, but few had raised the prices of their finished products. Their inventories of materials and finished goods had changed little from the levels reported in our previous survey in August.
Manufacturers' assessments of current business conditions and their outlook for the near term were more pessimistic in October than in August. Most respondents believed that economic conditions in their local areas and in the nation had weakened in early October; only a few expected business conditions to improve in the next six months.
Coal
District coal production and prices have remained relatively stable,
unlike in earlier periods when they rose sharply along with the
price of oil. The reason for this stability, according to our
contacts in southwest Virginia and West Virginia, was that most oil-
burning electric utility companies converted to coal in the 1970s so
that little additional conversion was now possible. Also, utility
companies reportedly were heavily stockpiled with coal because the
summer was not as hot as usual. Coal industry executives expect some
upward pressure on coal prices, however, from increased export
demand. At the port of Hampton Roads (Norfolk), coal exports were
said to be near a record pace in September.
Ports
Reports received from District ports—Baltimore, Charleston, and
Hampton Roads—showed that export volume rose from the prior month
at all three ports, while import volume was generally unchanged.
Also, port representatives continued to expect exports to grow
faster than imports over the next six months.
Nonresidential Construction
Contacts in the commercial real estate and banking sectors indicated
that high vacancy rates and tighter loan standards have virtually
halted new construction starts in the District. According to
managers of office buildings and industrial parks, projects now
underway were generally funded by loan commitments made more than
six months ago.
Financial
A telephone survey of District financial institutions indicated
lower demand for consumer and commercial loans in early October than
in September. Lenders attributed the weaker demand to uncertainty
resulting from Mideast tensions, the lack of a Federal budget
accord, and slower growth in the domestic economy. Nearly all
lenders reported no change in their loan rates.
Agriculture
Preliminary results from a survey of District agricultural bankers
suggested that the area farm economy was generally healthy going
into the peak harvest season. Most bankers contacted reported that
farmland values had risen this year in their areas, but only one in
six expects further increases in the next three months. Funds
available for agricultural loans were at normal or above-normal
levels at 90 percent of the reporting institutions, and a similar
proportion reported that agricultural loan repayment rates were
normal or above-normal. Collateral requirements for farm loans,
however, were higher than usual at about one-fourth of the banks.
Heavy rainfall throughout the southern and western portions of the District delayed harvest activity somewhat—especially of soybeans—during the second week of October. Preliminary estimates indicate that soybean yields in the District may be somewhat lower than average due to a dry September.