March 13, 1991
Economic activity remained soft in much of the nation but there were some indications that the decline may be slowing. The pattern of retail sales varied among districts with the majority reporting either sluggishness or results below planned levels. Retail inventories appear to be at satisfactory levels, except for some excess auto stocks. Manufacturing was sluggish in most of the country though several districts noted either a slight improvement or an easing of the downward trend. While construction activity continued weak, realtors and homebuilders reported an increase in buyer interest and, in some areas, purchases in recent weeks. The pickup was attributed to lower mortgage interest rates and more attractive home prices. Loan demand remained soft although mortgage refinancings have increased. Farm income prospects and mining output were mixed.
Consumer Spending
The pattern of retail sales varied among districts with the majority
reporting either sluggishness or results below planned levels. In
several areas such as Atlanta, Cleveland and San Francisco, sales
fell sharply after the Persian Gulf war began and then recovered to
varying degrees. In some other areas such as Richmond and New York,
sales remained slow. Some districts with generally sluggish sales
noted pockets of strength. Thus, in Dallas and Atlanta discount
stores exhibited strength as did specialty stores in Philadelphia.
Most districts reported that auto sales declined though Dallas and
Atlanta noted some recent improvement. With the exception of some
excess auto stocks, retail inventories generally appear to be at
satisfactory levels.
Retailers in most districts were hopeful that sales would improve with the cessation of hostilities in the Gulf but most did not anticipate strong gains until the economy rebounds and consumer confidence returns.
Manufacturing
Manufacturing activity was sluggish in most of the nation though
several districts noted either a slight improvement or an easing of
the downward trend. Boston, Chicago, Kansas City, Philadelphia and
St. Louis stated that strength in the export sector was offsetting a
part of the weak domestic demand and Atlanta and San Francisco noted
that some manufacturers' orders had increased as a result of the
Gulf war. Of the six districts reporting on manufacturing
inventories, four mentioned excess levels and the need for further
trimming while in the remaining two, stocks were generally
satisfactory. Atlanta, Boston, Chicago, Cleveland and St. Louis
described a slowdown in motor vehicle production, and, related to
this, Chicago and Cleveland noted a decline in steel production as
well. Other industries in which activity slowed were textiles,
furniture and construction-related products. On the other hand,
Cleveland noted that capital goods output was holding up fairly
well, though in Chicago the picture was mixed, and Atlanta and St.
Louis noted strength among food processors. Dallas described the
production of oil field equipment as growing strongly. With regard
to the outlook, contacts in Boston and Philadelphia anticipate an
improvement in three to six months and manufacturers in the Richmond
district are optimistic about the future for the first time in
several months.
Construction and Real Estate
While construction activity continued weak in most of the nation,
eight districts noted that realtors and homebuilders have reported
an increase in buyer interest and, in some areas, purchases in
recent weeks. The pickup is attributed to lower mortgage interest
rates and more attractive home prices. Despite the pickup, however,
most districts report that homebuilding activity remains slow and
participants are only cautiously optimistic that some improvement
over last year's slow pace will occur. Nonresidential construction
also remained weak and with vacancy rates continuing to rise on
office and retail space, contacts in most districts do not
anticipate a turnaround. However, Dallas noted that several large
commercial projects have begun and that petrochemical plant
construction is robust.
Banking and Finance
Loan demand continued soft in the nine districts reporting on
financial developments although mortgage refinancing has increased
with the decline in mortgage interest rates. Both consumer and
business loan demand are weak and lenders do not anticipate a
rebound until overall economic conditions improve. Consumers are
reportedly reluctant to add new debt given the uncertainties about
the employment situation, and firms are maintaining low inventories
and reducing capital spending. However, St. Louis noted that some
companies that normally obtain funding in the commercial paper
market have been inquiring about bank financing. Meanwhile, lenders
in some districts have tightened terms for borrowers particularly in
the construction and real estate sectors.
Agriculture and Natural Resources
Dallas reported that agricultural income prospects improved due to
good cotton, rice and peanut harvests and continuing strong beef
prices. Kansas City noted that weak grain prices limited the income
of crop producers but that the income of livestock producers was
bolstered by low feed prices and continued strength in cattle and
hog prices. The Minnesota index of prices received by farmers fell
for the ninth consecutive month to the lowest level since 1988. San
Francisco noted that the fifth year of drought in California will
result in reduced production of field crops and increased production
costs. Moreover, higher feed prices and a lack of adequate grazing
land will force cattle into feedlots early, thereby lowering
livestock prices.
Lower oil prices and uncertainty about the future have caused drilling activity in Kansas City to subside though the rig count is still about 3 percent above a year ago. Energy sector activity remained strong in Dallas where oil companies expect demand for their services to increase as Kuwait rebuilds its oil fields. Oil production in the Atlanta district was stable. San Francisco and St. Louis report that the wood products industry has weakened in response to slow overall economic activity. Mining industry conditions have been fairly good in Minneapolis with 1990 iron ore production up 5 percent, but coal production in St. Louis has declined.