December 9, 1992
Reports on economic conditions point to modest improvement in most Federal Reserve districts, but the rate of gain is uneven. Ten of the 12 districts note a slight to moderate pickup in some or all sectors of the economy. By contrast, San Francisco indicates that weakness in California is offsetting moderate growth elsewhere in the district. Retail activity is reportedly increasing across most of the nation, and retailers are optimistic about the current holiday season. Manufacturing is improving in about half of the districts--generally, quite modestly. Ongoing cutbacks in defense remain a notable drag on the recovery in some regions. Residential real estate markets continue to pick up in most of the nation, but commercial real estate, where mentioned, remains weak. Loan demand reportedly increased in several districts, but credit conditions remain unchanged in others. The fall harvest is almost complete-- with record yields and output recorded in most crops.
Retail
Retail sales in October and early November reportedly gained
strength in all districts but San Francisco; results in that
district were mixed, with California performing poorly relative to
the other states. In five districts, sales in recent weeks were
better than expected. Respondents in most districts noted greater
consumer confidence. The Boston and Chicago reports link the change
in consumer attitudes to the end of the Presidential campaign. New
York retailers attribute modest increases to promotional efforts
rather than to improvements in general economic conditions. Consumer
confidence remains poor in southern California.
Recent sales increases seem focused in nondurables. Apparel sales, in particular, were strong in New York, Cleveland, and Kansas City. Most districts reporting on auto sales found modest increases or slight declines, while sales of light trucks were strong in Chicago and Cleveland. In the three districts commenting on tourism, business was mixed.
Despite increased sales, retailers across districts are satisfied with current inventory levels. While costs and prices are generally perceived as flat, reports from Boston, Cleveland, and Atlanta note less consumer insistence on discounts. Only Richmond sees increases in wholesale and retail prices.
Except in California, retailers reportedly expect 1992 holiday sales gains to be better than last year's. However, the degree of optimism ranges from "the best performance in eight years" (in Chicago) to "nothing spectacular" (in New York).
Manufacturing
Recent manufacturing activity has been flat to slightly improved
across much of the nation. Indicators from Dallas are generally
strong, and Boston, Philadelphia, Cleveland, and Chicago report
small gains, on average. Overall activity in the Richmond, Atlanta,
St. Louis, and Minneapolis districts is described as "steady" or
"unchanged," while many manufacturers in the New York district and
California continue to experience weak demand.
Demand for home building and furnishing products has strengthened among manufacturers located in the Boston, Richmond, Atlanta, Chicago, Minneapolis, and Dallas districts. But demand for autos, auto components, and other transportation equipment varies considerably across districts. For example, while Chicago district automakers report recent growth after a third-quarter sag, transportation equipment did not participate in the widespread rise in production reported for the Philadelphia district. Sales have improved for computer software and some hardware (Boston, Dallas, San Francisco), as well as for various nondurables (Atlanta, St. Louis, Dallas).
The defense sector is an area of declining demand in the Boston, New York, Atlanta, St. Louis, and San Francisco districts. Although Kansas City notes positive export results, foreign sales are identified as an item of concern in the Boston, St. Louis, and Dallas districts.
Little to no general inflationary pressure is reported. However, high capacity utilization rates have led or are expected to lead to firming prices for some construction materials and steel.
Many districts continue to report employment reductions in manufacturing, although in some cases the rate of decline has abated and scattered hiring has occurred. Two-thirds of the Federal Reserve Banks note signs of positive or improved expectations about future business. Employment is not expected to increase in proportion to demand, however, as manufacturers across the nation are intent on cutting costs and improving labor productivity.
Construction and Real Estate
Construction and real estate tell a tale of two markets, with
improvements in the residential sector but continued stagnation on
the commercial side. All districts report improved sales for
existing and new single family homes, although Boston, New York and
Richmond note doubts as to whether this improvement will be
sustained. Home sales in the Dallas-Fort Worth area are at the
highest level in five years. San Francisco reports that sales of
existing homes in California rose in October, the first monthly
increase since February. New York, St. Louis, Minneapolis, Kansas
City and Dallas all cite increases in single-family starts or
permits in their districts.
The commercial market, however, remains weak. Boston and Dallas report very sluggish conditions in commercial offices, while Richmond and New York have areas showing limited net absorption. Minneapolis finds a large excess supply of commercial property. In southern California, some rents have fallen 25 to 40 percent. San Francisco also cites forecasts that show California rents falling another 10 to 15 percent in 1993 and increased foreclosures. No district reports any growth in commercial construction, although Boston and Minneapolis report some public sector building.
Financial Services
Financial institutions report a slight increase in overall loan
demand despite a falloff in mortgage refinancings. A rising interest
in business loans was noted by Philadelphia, Kansas City and St.
Louis. Dallas and Atlanta report an increase in consumer loans. New
York indicates that although residential mortgage activity continued
strong, consumer loan demand weakened and demand for nonresidential
mortgages remained soft. Demand for business loans is also weak in
the San Francisco district. Boston reports that contacts among
investment management companies experienced increases in assets
under management.
Agriculture and Resource-Related Industries
The fall harvest is over except for corn, which has been delayed by
rain or snow in the Richmond and Midwest agricultural districts.
Despite the wet weather, growers report record yields for corn as
well as for the soybean, cotton, rice, and sugar beet crops
harvested earlier. Abundant supplies have reduced feed prices and
improved profits for dairy farmers, feedlot operators, and ranchers
in the Minneapolis, Kansas City, and Dallas districts. Thus, farmers
in these areas continue to pay down debt. Nevertheless, according to
contacts in Dallas, net farm income is likely to fall in 1992
because of declines in prices and government subsidies and increases
in production costs.
As for lumber and wood products, strong demand from U.S. and foreign furniture makers has raised prices for hardwood from the Richmond district. Demand for western newsprint also remains strong, but restricted access to public timber supplies is noted as a problem in the Northwest. Several mills have closed recently because of a shortage of logs.
Mining in the Minneapolis district continues slow; workers from the iron mines are on furlough, and oil and gas production and refining are generally unchanged. By contrast, contacts in the Kansas City and Dallas districts note a possibly temporary pickup in drilling, especially for natural gas. While oil and gas prices have drifted down, natural gas inventories are described as tight, and below-average temperatures could spur price increases.