Beige Book
National Summary

April 11, 1979

Based on the latest reports from the twelve district banks, business activity continues at a generally healthy pace. Outside of the automotive industry, where the Teamsters strike has hampered production, manufacturing activity is at high levels in most districts. With some industries operating at or close to full capacity and new orders strong, delivery lead times appear to have lengthened in a number of districts. Business inventories are generally reported manageable, although some stockpiling in anticipation of higher prices was noted. The retail sales picture across the nation is somewhat mixed. While merchandising activity continued to grow nationally, some districts reported a less-than- satisfactory Easter buying season and a cautious outlook among retailers. Nonresidential construction continues strong in several areas, but home building activity has declined. On the financial scene, businesses, consumers, and farmers appear to have been substantial borrowers at commercial banks recently.

Manufacturing activity is strong and continuing to expand in many districts. While inventory accumulation presents no problem in most areas, many districts reported a lengthening of delivery lead times. Actual shortages of raw and intermediate materials were noted in only a few cases. Boston finds the strength in its industrial sector to be widespread, citing automotive products, aircraft engines and parts, machine tools, instruments and housing products. While thousands of automotive workers have been laid off in the Cleveland, Chicago and St. Louis areas as a result of the Teamsters' strike, manufacturing activity in other sectors is at a high level. In Cleveland, for example, the steel and aluminum industries are reported operating at effective capacity while the primary metals, machine tools, rubber and plastics, and paper and paperboard industries are at high or near peak operating rates. Chicago area machine tool builders see no letup in demand, which is the strongest since World War II. Most other districts report strong industrial activity, although less robust activity was recorded by Philadelphia and Atlanta.

Consumer spending continues to grow, but the pace of growth is mixed across the nation. Reports from Minnesota and San Francisco suggested that retailers were enthusiastic about the pace of retail sales. Dallas, Atlanta, St. Louis and Kansas City also reported some further expansion and Richmond found signs that the normal Easter buying spree was underway. Sales remain strong in northern New England, but some slight weakening may be occurring in other parts of the Boston district. Auto sales were strong in many areas of the country, led by strong demand for small, fuel-economizing cars. Philadelphia reports very soft retail sales in early April, while sales in New York were mixed in recent weeks. Cold weather dampened spending in Chicago. By and large, retail inventories were reported in good balance with sales, although New York and Atlanta noted evidence of excesses accumulating at particular retailers.

Commercial and industrial building continues strong in several districts but residential construction is declining in most areas. An exception was noted by Atlanta, where construction of apartment houses increased modestly and most new office space is rented before construction is completed. The effects of the recent change in Regulation Q relating to money market certificates are mixed. Some areas report thrift institutions are only slightly affected, while in others there is fear of reduced mortgage flows.

The outlook for agricultural income generally appears good. Farmers are getting higher prices for many items and are optimistic about the year's prospects. Beef prices reached record levels, and corn and soy bean prices remained strong. Minnesota reports that its dairy farms are also doing well and optimistic crop producers in Atlanta have increased their plantings. San Francisco notes higher yields and prices for its dairy and crop production.

On the financial scene, loan demand was strong in reporting districts, with the exception of Atlanta and Dallas. Even in Dallas, however, commitments to lend in the future show a sharp rise, indicating strength ahead. Demand was apparently widespread among businesses, consumers and farmers. Increased consumer loans to finance auto purchases were noted in several areas. Deposit flows were reported adequate in most districts. Some deposit gains were attributed to the recent change in Regulation Q which, for yields over 9 percent, prohibits thrift institutions from paying 1/4 percentage point more on money market certificates than commercial banks. Boston and Dallas, however, reported little or no deposit growth in some areas. Boston noted that some banks in northern New England had responded to the lack of deposit growth by becoming restrictive in their lending. In New York, there are reports of liquidity pressures on small- and medium-sized firms, but large corporations do not appear to be affected.