Beige Book
National Summary
September 12, 1979
This month's Redbook reports indicate that there are areas of
weakness in the economy, but also that evidence of a recession is
not widespread. The major area of decline has been automobile
manufacturing. Other manufacturing activity—particularly capital
goods production—appears to be holding its own. Residential
construction remains weak, but its losses have been offset by gains
in non-residential construction. Record crops are reported in most
parts of the country, and no petroleum supply problems have been
noted. Demand remains strong for most types of credit, and with the
exception of thrifts, lending institutions report relatively strong
deposit flows. Widespread price inflation continues, however, apart
from declines in prices of certain farm products. Also, most
businesses surveyed remain pessimistic about the future strength of
the economy.
Virtually all of the districts reported continued weakness in retail
sales, although back-to-school purchases have added temporary
strength to the figures. New York was the major exception to this
picture; one large chain headquartered there reported sales 20
percent ahead of last year. The more typical response was that of
Boston, which reported "disappointing" retail sales volume.
Automobile sales have recovered somewhat in most districts. The
manufacturers' program of rebates on large cars generally has
stimulated sales and pared inventories, although St. Louis and
Minneapolis still report excessive inventories. Small-car sales are
especially brisk in Atlanta and New York. Heavy truck sales appear
to be holding at record levels, but the recreational-vehicle market
Is still very weak.
Automobile manufacturing, however, shows pronounced signs of
weakness. All three plants in St. Louis have reduced their work
force substantially. Chicago reports that about one-third of
Chrysler's hourly workforce is on indefinite layoff. It is feared
that at least one major plant will be closed permanently.
Most other manufacturing activity has been flat or growing, although
Philadelphia observes deterioration in the industrial sector.
Capital-goods manufacturers in the various districts generally
report increases in sales and backlogs. Machine-tool manufacturers
in the Cleveland district, for example, report delivery times
extended well into 1980. Although new orders for steel dropped
sharply in August—in line with the cut in automobile production
schedules—shipments to most other industries remain above last
year's level, and the industry does not expect a worsening picture.
Residential-construction activity continued its slide from last
month in most districts, although there are spots of strength in
areas such as Florida. Nonresidential-construction activity has
compensated for this weakness in many districts, however.
As a result of the relatively stable condition of the non-automotive
sector, employment remains high in most areas. Several districts—notably San Francisco and Kansas City—report shortages of
specialized labor. Demand is particularly strong in commercial
construction, aerospace, aluminum and tool-and-die manufacturing.
The continued rapid growth of the Pacific Northwest economy has
particularly strengthened the demand for labor in that region.
Farm production reports are generally favorable. Kansas City and
Chicago expect record crops in such commodities as wheat and
soybeans, although storms recently damaged grapefruit crops in
Florida and 600,000 acres of cotton in Texas. Pork and poultry
production have increased. As a result of the increased production
in many commodities, farm prices have fallen, so that farm incomes
are likely to fall considerably short of earlier Department of
Agriculture forecasts. The. Rock Island strike and the grain-
handler's strike at Duluth/Superior pose grain transportation
problems.
Most districts report continued strength in demand for all types of
loans. However, Atlanta reports slack loan demand, and Dallas
reports resistance to high residential-mortgage rates. The supply of
funds at commercial banks appears to be holding up, with money-
market certificates compensating for outflows from other savings
categories. Cleveland and Richmond observe, however, that thrifts
are experiencing more difficulty obtaining funds. Atlanta sees a "softening" of deposit flows in general.
Although the economic picture remains relatively good at the present
time, the business community generally appears pessimistic about the
future. Respondents to Philadelphia's Business Outlook Survey appear
to be bracing for a further slowdown. Boston reports that business
firms have learned a lesson from the last recession, and that they
are watching inventories closely; throughout the districts, this is
reflected in moderate levels of inventories in most industries.
Meanwhile, reports of continued inflation in input prices are
widespread.
