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Beige Book: National Summary

December 4, 1991

Reports compiled by the Federal Reserve Banks generally suggested flagging momentum in the economic recovery in October and early November with most Districts in the middle of the country indicating continued but slower growth and most other Districts reporting stable to slightly weaker conditions. Retail sales generally remained sluggish, with several Districts noting that gains were concentrated in nondurable goods. After improving in September, manufacturing activity leveled out in most Districts in October and early November. Housing activity expanded, albeit slowly, in most regions, while commercial construction remained weak. Demand for commercial and industrial loans remained soft, according to most bankers, while credit standards were generally unchanged. Most agricultural sources reported higher crop yields and lower prices for both crops and livestock. Reports on price trends suggested steady to diminished inflation, and discounting was widely reported in the retail sector. Several Districts stated that contacts remain optimistic about business conditions in 1992.

Consumer Spending
Retail sales generally remained sluggish in October and early November. Sources in Atlanta and Cleveland noted that sales gains were concentrated in nondurable goods, while Dallas, Boston and Kansas City each reported weakness in sales of big-ticket items. Minneapolis indicated that retail sales have generally been stagnant except for areas close to the Canadian border, which have benefited from a surge in cross-border shopping. Minneapolis also reported a strong tourism season. Richmond noted continued softening in sales. Inventories were said to be above plan by sources in Chicago. Cleveland, and San Francisco, while contacts in New York, Atlanta, and Kansas City expressed satisfaction with recent levels. Active discounting was widely noted, and several reports indicated that discounting was necessary to achieve sales gains. Reports on new car sales were uniformly weak, with several sources indicating slower showroom traffic and lower buying interest expressed by customers who do enter the showroom.

Manufacturing
Manufacturing activity was mixed, with some loss of momentum noted in regions that reported strengthening in the summer and early fall. After rising modestly in the past several months, manufacturing activity in Philadelphia edged down slightly in recent weeks. About half of the manufacturing contacts in Boston reported that orders have softened recently, after some improvement in the summer or early fall. Conditions in the auto industry contributed to some slowing in the growth expected in the Cleveland and Chicago Districts. Reports received in Atlanta, Kansas City, and San Francisco generally indicated continued sluggishness. Manufacturing activity continued to slip in Richmond, according to the bank's survey of local firms, and excess capacity was most frequently cited as the most important current problem. Reports on conditions in capital goods industries were mixed in Cleveland and Chicago. Recent layoffs and plant closings in the defense, computer and consumer electronics industries were noted in St. Louis, although solid demand was reported for motor vehicles produced in that region (which include minivans). New orders received by a commercial aircraft producer have softened, according to San Francisco. Continued sluggishness was noted in industries linked to construction activity by Boston, Philadelphia, Atlanta, Chicago, and St. Louis, while firms producing goods for housing construction in Dallas reported some improvement. Purchasing managers' surveys in Buffalo and Rochester revealed mixed but generally stable conditions in October.

Real Estate/Construction
Housing activity continued to expand at a slow pace. Demand for existing homes picked up in the New York metropolitan area, particularly among first time home buyers attracted by lower mortgage interest rates and lower home prices. Reports received by Kansas City indicate that home sales remain well above year-earlier levels. Several banks noted that improved sales activity is concentrated in the lower end of the market. Modest improvement in residential construction was noted in St Louis and Kansas City, although St. Louis also noted that weak demand from the housing sector has depressed prices received by a metals producer. Housing starts remained weak in several markets covered by San Francisco and New York, while Atlanta noted small increases in activity among homebuilders. Sales of existing homes softened in parts of the Chicago District and home remodeling in the Chicago metropolitan area reported sluggish demand. Sources generally noted little change in commercial construction among Districts.

Banking
Reports from bankers generally indicated that lending standards for approving commercial and industrial loan applications remained unchanged in recent months. Demand for commercial and industrial loans was generally reported to be stable but weak in Richmond, Philadelphia, Cleveland, Chicago, St. Louis, and Dallas. Bankers contacted by Kansas City stated that lending demand was steady to slightly higher, improved demand was concentrated in construction, agriculture, and home mortgage loans, while demand for commercial and industrial loans decreased. A small pickup in demand for commercial and industrial loans was reported in Atlanta, although demand still remained well below year-earlier levels. Bankers in Atlanta, New York, and Dallas stated that high quality loan applications remain difficult to obtain. Chicago noted that when good loan prospects do appear, competition between lenders has been intense, with the borrower benefiting from lower rates. Some reports cited instances of borrower difficulty in obtaining credit. Kansas City stated that some car buyers are finding it difficult to qualify for loans. Several of San Francisco's respondents cited tight credit as one reason for slow construction activity. Atlanta noted that auto dealers and construction contractors report continued difficulty obtaining credit. St. Louis noted that first-time home buyers in one market have found it difficult to qualify for mortgage loans, in part because of a lack of savings for a downpayment.

Agriculture
Most reports indicated larger-than-expected harvests and high levels of livestock production, coincident with weaker commodity prices. Chicago reported upward revisions in estimates for corn and soybean production, and noted that the improved harvest and weakness in exports have weighed on crop prices. Both Chicago and Kansas City noted weaker livestock prices and farm bankers in the Kansas City District expect an increase in the number of problem loans over the coming year. Weaker livestock and cotton prices led sources in Dallas to revise farm income projections downward. San Francisco reported that agricultural conditions were generally satisfactory, although an infestation by the poinsettia whitefly has harmed the winter vegetable crop. Heavy snowstorms hurt the corn harvest in Minnesota. Above-average yields were reported by St. Louis and Richmond, although Richmond stated that dry weather has affected recent plantings.

Outlook
Several District reports on business expectations revealed continued optimism for economic conditions in 1992. Most manufacturing sources in Philadelphia continue to anticipate growth over the urn ax moats, despite some recent softening. Philadelphia also reported that bankers' forecasts of commercial and industrial lending growth have increased since earlier in the fall. Richmond noted that retailers anticipate sales and their own capital expenditures to rise over the next six months, although some softening was indicated in expectations for holiday season sales. Most manufacturers contacted by Dallas expect stronger growth in orders next year. However, weaker sales expectations were indicated by auto industry suppliers in both Cleveland and Chicago, and a survey conducted by San Francisco showed a moderate increase in the percentage of business leaders expecting a renewed recession. Sources in Boston expect some pickup in economic activity around mid-year, but still anticipate a "long, slow haul." A large group of economists who attended a recent roundtable in Cleveland uniformly expected the recovery to continue through 1992.