January 22, 1992
Overview
Contacts in the District reported that economic activity in December
was generally sluggish. Retailers saw disappointing Christmas sales
that were even with to modestly above year-ago levels. Discounters
benefited from increasing demand from price conscious consumers,
taking market share from department stores and upscale shops. Auto
sales showed no signs of improvement. Manufacturing activity
remained slow, although firms in the printing and packaging
industries reported modest increases in orders and production.
Banking contacts report that loan demand was again flat. Home sales
in the lower price ranges continued to show improvement, and
realtors are optimistic for spring sales. Commercial construction,
however, remained dormant. No exceptional wage or price pressures
were reported.
Consumer Spending
With the exception of discounters, retailers contacted throughout
the District reported that, in real terms, Christmas sales were even
with year-ago levels. Discounters consistently outperformed
department stores and reported sales gains over last year. The
largest gains were noted in sales of "basics," not luxury goods, and
were led by apparel items. Customers paid with cash more often than
in previous years. Inventories remained lean but reportedly did not
constrain holiday sales. Retailers do not anticipate significantly
increasing new orders in the near future and are not optimistic
about first quarter sales. Durable goods sales have not improved;
automobiles and household appliances are particularly soft. While
Florida contacts report increasing numbers of foreign tourists, this
growth has not been sufficient to offset declines in domestic
traffic. Per capita visitor spending is also down from a year ago.
Manufacturing
Few manufacturers in the region report increasing activity. Stagnant
commercial construction continues to impact carpet producers
adversely. Weakness in the furniture and auto markets is holding
back textile production. While apparel producers note that demand
for some lines, particularly athletic wear and denim products, is
expected to continue to post good growth, new orders for other lines
have been weak. Military contractors continue to report declining
orders and employment because of defense spending cuts. Low steel
prices and slack consumer spending on big ticket items are hurting a
regional producer of steel for appliances.
More positively, contacts said that employment remained stable and that orders have increased for producers of printed materials for business and for packaging of consumer products. Sales picked up in the fourth quarter for a large paper producer and recent product price increases appear to be sticking according to a company spokesman. Lumber and wood industry contacts expect demand to pickup sharply over the next few months as housing starts begin to improve.
Financial Services
The majority of bank contacts in the region reported that loan
demand was flat in December and remained below year-ago levels.
Several bankers expressed disappointment with the limited amount of
new loan activity that has emerged since the recent reduction in
interest rates. However, one contact did note that the drop in rates
had sparked some optimism in the local business community. Lower
rates have also resulted in a wave of mortgage refinancings.
Most bank contacts report that the quality of their loan portfolios either stabilized or improved slightly in the fourth quarter. They added that their credit standards were essentially unchanged in the last six weeks. Auto dealers and construction contractors continue to report that credit is tight.
Construction
After adjusting for seasonal variations, most realtors reported
improved December home sales compared to activity in recent months.
The strongest sales are again in the lower to mid-price ranges as
first-time buyers continue to be drawn into the market by lower
mortgage interest rates. The luxury market is "quiet" and sizable
price concessions are being made, according to most brokers. Several
noted that people who are currently renting are now finding it
possible to buy a home with comparable after tax payments. Most
realtors expect continued sales gains and are optimistic for the
spring. Single-family homebuilding has shown scattered signs of
improvement. One broker reported a recent increase in sales of lots
for lower-priced homes to developers. Contacts, however, said that
multifamily construction remains at minimal levels with little
improvement expected in the near future.
Commercial construction remains depressed with high office and retail vacancy rates in many District cities. Contacts do not expect much new construction activity for the next several years. Several blamed lack of financing for curtailed commercial construction.
Wages and Prices
Contacts report ample supply of qualified workers with wage and
input prices remaining relatively stable. Transportation firms are
posting flat to slightly higher shipping rates. Citrus prices are
holding up in a strong market.