October 23, 1991
Overview
Signals of the economy's condition remained mixed during September
according to reports from the District. Consumers remained largely
on the sidelines. Retailers are reporting little good news and
generally express pessimism about holiday sales prospects. Factory
activity was described as mixed, with moderate strength in selected
apparel and export industries and continued weakness in durable
goods and construction-related products. Despite declining mortgage
rates, home sales were lackluster as summer drew to a close.
Consequently, new construction activity has not rebounded. Bankers
report some improvement in loan demand, but borrowers continue to
feel constrained by strict credit standards. Weak demand and
employment uncertainty are said to be restraining product prices and
wage pressures.
Consumer Spending
September consumer activity showed little improvement over August
according to our contacts. Retail sales were flat to slightly above
year-ago levels. Most respondents were clearly disappointed with
back-to-school sales. Discount chains continued to post modest gains
as consumers substituted away from higher-priced stores. Retailers
remain pessimistic about holiday sales, expecting only to meet last
year's relatively weak performance. Reflecting their lackluster
expectations, advertising expenditures continue soft.
Durables consumption has shown no improvement in the District. Automobile dealers again reported flat sales relative to year-ago levels. Orders for 1992 models are mixed, dependent upon individual dealer inventories. However, dealers say they are not anticipating an acceleration in consumer demand and so are not expanding inventories Floor traffic has been sparse.
Tourism improved moderately during September compared with year-ago levels. Contacts in Atlanta, New Orleans, and Orlando reported increases in convention bookings and visitors.
Manufacturing
Factory activity was again said to be mixed, with improvement noted
in export goods and some textiles. In general, inventories are lean;
some rebuilding is anticipated in the fourth quarter. Plans for
capital expansion are also mixed.
The demand for fabric textiles has improved over the past two months, particularly for denim products. A sportswear manufacturer expects double-digit increases in shipments compared with year-ago levels. A producer of plastic containers reported that sales and production have been above expectations. Consequently, the firm is accelerating capital expenditures. Paper and pulp exports continue to expand.
Manufacturers dependent upon construction activity report no improvement. Carpet sales and production are at year-ago levels. A furniture manufacturer reported that orders continue to weaken.
A residential heating and cooling systems manufacturer, producing primarily for the replacement market, reports that sales have been declining since January. He foresees no recovery in his business and has pared inventories aggressively. Reflecting spotty improvement in production, regional shipping firms report modest increases in activity during September.
Despite some recent stability in natural gas prices, a supplier of offshore rig equipment reported that activity in the Gulf of Mexico is declining as major oil and gas producers move operations overseas.
Financial Services
Most regional banking contacts saw moderate improvement in loan
demand during September. Bankers report that they have not changed
credit standards in the last few months. Auto dealers, retailers,
construction firms, and small businesses in general describe lending
standards as tight. Larger firms continue to seek funding from other
sources, such as commercial paper or private placements. As a result
of slow loan growth, several banks report ample liquidity.
Construction
Home sales in the Southeast were mixed in September. Some recovery
was observed in the western part of the District, but realtor
contacts in Georgia and Florida reported September sales slowing
more than seasonally from a stronger summer. Several contacts noted
that new home sales were doing relatively better than resales
because of financial incentives offered by builders.
The improvement in home sales is reported for the low end of the price scale, despite more restrictive mortgage standards. The middle-to-upper price ranges remain sluggish. Falling interest rates have not generally initiated a rebound in sales, but have led to some increase in customer traffic and a considerable increase in refinancing.
Home inventories, while declining, are still said to be excessive for current sales levels. Consequently, new construction activity has been mixed. A Florida utility company reported that actual construction activity has remained flat despite a recent acceleration in building permits. Building materials suppliers continue to struggle, keeping inventories at minimal levels.
Commercial construction continues to be depressed and most contacts expect that it will remain so for some time. Financing is still said to be difficult to obtain, even for projects that are significantly pre-leased.
Wages and Prices
Most contacts reported no change in direct wage pressures, although
increases in health insurance and worker's compensation costs
continue to push total compensation higher. Wage pressures are said
to be especially weak in the services sector. Reports on wholesale
product prices describe them as relatively stable because of
aggressive competition and soft input prices.