January 23, 1991
Overview
District economic activity weakened further in late December and
early January. Sales activity was slow for District retailers,
manufacturers, realtors and auto dealers. Manufacturers apparently
decreased production and home builders started relatively few
houses. Financial institutions reported weak loan demand, and hotels
and resorts experienced a downturn in occupancy. On a positive note,
export volume increased again at District ports, and the region's
farm sector was healthy.
Consumer Spending
Responses to our post-Christmas mail survey of retailers indicated
that Christmas and post-Christmas sales were disappointing. A
majority of the respondents reported that Christmas sales were below
year-ago levels, and many stores also reported declines in shopper
traffic and sales of big ticket items. More than nine out of ten
retailers indicated that they had employed fewer workers than last
Christmas, and about two-thirds indicated that they had reduced
their prices as December progressed. Retail inventories apparently
changed little over the survey period.
Manufacturing
District manufacturing activity fell in December according to our
regular mail survey. Weakened demand was apparent as orders and
shipments declined from November levels, and manufacturers cited
poor sales as their biggest problem. Responding firms cut back
production, employment, and their workweeks. The prices they paid
for raw materials rose.
Most manufacturers believed that the business climate declined nationally and locally in late December and early January. They expected little improvement over the next six months, and only a third foresaw increased profits for their businesses in 1991.
Ports
District ports -- Baltimore, Charleston, and Hampton Roads (Norfolk)
-- indicated that exports rose while changes in import volume were
mixed in December compared with November and a year earlier. All
ports expected export growth to outpace import growth over the next
six months. Hampton Roads reported that its coal exports were at a
record pace in late 1990.
Residential Real Estate
Housing sales were generally weak in December, according to our
telephone survey of District realtors. Sales of new homes were poor,
but sales of existing homes remained stable. Also, sales of
expensive homes slowed more than sales of modestly priced homes.
Realtors indicated that housing prices had changed little over the
past month, although they noted some decrease in higher-priced
homes. Looking ahead, realtors expected home sales to increase,
especially in the more expensive segment of the market. Realtors
predicted that lower interest rates and a quick resolution of the
Mideast crisis would boost buyer interest and sales in 1991.
Our telephone survey of home builders indicated that housing starts slowed more than usual in December. A majority blamed lower home sales for the slowdown. Builders indicated that many homeowners were remodeling and adding to their existing homes rather than building new ones. Few builders expected conditions to improve over the next three months.
Tourism
Hotels, motels and resorts throughout the District indicated that
tourist activity had declined considerably compared with previous
winters. Most respondents experienced declines in bookings, which
they attributed to the downturn in the economy, bad weather for
skiing, increases in fuel prices and the Mideast crisis. A majority
expected tourist activity to worsen in coming months.
Finance
Financial institutions contacted by telephone indicated that real
estate and commercial loan activity weakened in December and early
January. A majority of institutions suggested that the slowness
resulted from sluggish loan demand and not from more stringent
credit criteria.
Lenders indicated that the prime rate and other interest rates would have to drop at least one percentage point further to boost loan demand. They noted that much of December's borrower traffic consisted of loan inquiries and business loan refinancings rather than new loan applications.
Other District contacts suggested that consumers may be suffering from financial stress. These contacts cited increases in auto repossessions and home foreclosures. Also, according to surveys conducted by several District newspapers, many pawnshops indicated that their loan activity was increasing.
State Budgets
Our discussions with state government budget forecasters indicated
that all five District states and the District of Columbia were
either experiencing or expecting revenue shortfalls. They blamed the
shortfalls on their deteriorating economies, which they attributed
to several factors including the Gulf crisis.
Serious revenue shortfalls were reported in Virginia, Maryland, North Carolina, and the District of Columbia. In these jurisdictions, most major categories of tax receipts either were declining or growing only sluggish South Carolina noted a modest shortfall while West Virginia's revenues were still considered adequate. Both of these states, however, expected lower revenues in the months ahead. Respondents said lower-than-expected revenues were only part of the problem. They also cited overly ambitious spending plans, federal and judicial spending mandates and rising health insurance costs.
State budget analysts were not encouraged by the outlook. A Maryland official expected improvement soon; most others were hesitant to forecast a turnaround in the near-term future.
Agriculture
According to farm analysts, conditions in agriculture were generally
good as of mid-January. The condition of small grain crops planted
last autumn was reported to be above average due to warmer-than-
normal temperatures and abundant soil moisture. Feed and forage
stocks appeared adequate and were expected to be more than
sufficient to last the winter.
Our contacts suggested that the financial condition of District farmers remained strong, but some expressed concern that higher production costs may squeeze profit margins in the year ahead.