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SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS BY FEDERAL RESERVE DISTRICTS AUGUST 1986 TABLE OF CONTENTS SUMMARY. . . . . . . ... . . . . . . . . . . . ... . . . First District - Boston. . . . . . . . . . . . . . . . . . . . . .. .I. Second District - New York . . . . . . . . . . . . . . . . . ... . Third District - Philadephia . . . . . . . i . . . . . . . . . ... IIIII- Fourth District - Cleveland. . . . . . . . . . . . . . . . . ... .IV-1 Fifth District - Richmond. . . . . . . . . . . . . . . . .. ... Sixth District - Atlanta . . . . . . . . . . . . . . . . ... . . .. VI-1 . Seventh District - Chicago . . . . . . . . . . . . . . . ..... VII-1 Eighth District - St. Louis. . . . . . . . . . . . . . . . . ... . Ninth District - Minneapolis . . . . . . . . . . . V-1 VIII-1 . . . . . ... . IX-1 . . . . X-1 Tenth District - Kansas City . . . . . . . . . . . . . . . Eleventh District - Dallas . . . . . . . . . . . . . . .. . . . . Twelfth District - San Francisco . . . . . . . . . . . . . . .. . .XI-1 XII-1 SUMMARY* information suggests that Reserve districts, although Federal both growth conditions Available sectors Retail regions. and slow vary substantially to appear sales in continues be most across modestly growing overall, with substantial regional variation, and domestic automobile sales also show a mixed performance. most prices has hurt manufacturers in sharply contrasting some areas, with the decline The in addition in most strong areas, real estate activity remains demand grown has in Southeast. drought-plagued although some districts to in in oil energy in most the doldrums districts, Homebuilding report weakening Commercial construction and from the frenzied pace of the spring months. loan weak. remains strong Agricultural producers in the Midwest expect high crop yields, producers. continues activity Manufacturing areas. traffic appears Summer tourist Total in many areas. with residential real bank estate portfolios showing particularly strong growth. Trade and Services sales Retail variation across June, but picked Cleveland, and shown have in the Chicago growth Boston reports regions. up modest beginning report of that overall, considerable sales were weak in May and July. relatively with New strong Minneapolis, Kansas City and Dallas report weakness. York, Philadelphia, sales growth, Atlanta, St. while Louis, and San Francisco report that their sales performances varied considerably in different parts of their districts. inventories appear under control. Prices generally are flat, and All districts reporting on tourism cite it as a source of strength. *Prepared at the Federal Reserve Bank of San Francisco ii Chicago and Minneapolis report that sales of domestic automobiles are outpacing last year's, while the Kansas City and Dallas districts have seen reduced report sales during the past year. improved sales in recent Philadelphia, Cleveland, and Atlanta weeks although sales remain below last year's levels. Manufacturing Manufacturing activity remains flat or down slightly in most parts of Aerospace industries are providing a boost to the Boston and the country. San electronics Atlanta but districts, Francisco has not district in both districts yet materialized. report that Prime orders new expected the defense have upturn contractors fallen, although in in the defense In the Philadelphia spending continues to bolster that region's economy. district, manufacturers report marginal improvements in orders and business volume. Cleveland reports that threatened labor disputes. are hurting steel orders. Weakness in energy related the Chicago and Dallas districts. cut costs and retool are industries has Many districts crucial to hurt manufacturers in that efforts to report maintaining profitability in the current competitive climate. Mining Problems producing coal risen related parts of the to low to hot weather, prices continue In Virginia and nation. production reportedly is due oil up because and because demand new to plague most energy West Virginia, however, for electrical emphasis on power has environmental protection has increased the demand for low-sulfur coal. Agriculture Favorable weather conditions in the Midwest should result in excellent crop yields in that region. In contrast, extreme heat, drought, and insect iii problems are causing severe crop damage along the eastern seaboard as far north as Delaware. In the Southeast's inland regions, the damage is less acute, and in some areas late rains could salvage crop production. Recent surveys suggest that deterioration in farmland prices is continuing in the Minneapolis district, slowing in the Chicago district, and accelerating in the Dallas district. Prices of most farm products remain low, and Kansas City reports that a shortage of storage space for corn could reduce corn prices further. Construction and Real Estate Most districts report strong homebuilding activity, with single family construction stronger substantial variation St. Louis, and San than multifamily among building. regions. Francisco report There Although a recent is however Cleveland, Atlanta, slowdown in housing strength remains and is expected to continue. starts, Some areas, however, report weak homebuilding activity, including New Orleans, Montana, parts of West Virginia, and the Dallas district. Nonresidential areas, and construction and leasing activity are concessions to tenants Despite the widespread weakness, report strength, including New are becoming slowing in most increasingly common. particularly in the oil belt, some areas York City, Atlanta, Birmingham, Jackson- ville, and Tennessee. Financial Sector Total loan demand grew in many districts. In the Dallas district, however, loan volume is down due to an absolute decline in non-real estate loan volume. Mortgage loan demand is particularly strong in most regions, although the rate of growth rate of growth in is slowing in some areas. installment loans is positive but In most areas falling, the although iv Kansas City reports Commercial and an absolute decline industrial loan activity districts, showing little or no growth. in demand is for consumer relatively weak credit. in most FIRST DISTRICT - BOSTON The Economic activity in the First District remains unbalanced. manufacturing sector is in the doldrums. Retail sales were disappointing in May and June, but picked up in July. Both manufacturers and retailers report vigorous price competition. mixed. Reports from the real estate sector are The Boston area is experiencing a seasonal slowdown in home sales, while other parts of the region continue to experience very strong sales activity. Retail Department store sales in several New England chains were below plan in May and June and even lower than last year in some cases. The first few weeks of July, however, look much better, lending support to retailers' optimism about the second half of the year. Inventories are somewhat high but still not a source of concern, according to those contacted. Prices are stable but margins appear to be shrinking. After lackluster sales in May and June, department store representatives reported a noticeable pickup in early July, attributed at least in part to July's bad weekend weather. Sales of TVs, VCRs, and microwaves are strong in stores aimed at moderate income customers, while an upscale chain's strongest departments are men's and women's sportswear. Sales of home repair and building supplies remain very strong. There is considerable geographic variation in sales results within the region, but respondents attribute this more to the competitive conditions of specific stores than to differences in the strength of local economies. I-2 Inventories are higher than expected in a number of stores, largely because of failure to attain sales plans. Markdowns, especially for apparel, have been used to keep inventories in check. Aside from promotional reductions, prices are generally steady; several contacts reported, however, that intensified competitive pressures have increased promotional activity and eroded margins for the industry as a whole. Disappointment with sales gains in recent months has not yet caused retailers' plans for the second half of the year to be revised downward. Merchants remain confident that consumers will continue to be a buoyant force in the economy. Manufacturing Manufacturing respondents in the First District report that business is "flat" or "mixed", continuing a pattern that has persisted for several months. Recreational equipment, aerospace and housing-related products are said to be doing well. Some respondents report strong demand from the auto industry, but others have seen a slowing in what has been, until now, a very strong market. weak. Demand for industrial components remains The electronics industry, which had seen signs of a pickup a few months ago, has experienced a levelling off. Two major First District computer firms recently announced layoffs. None of the manufacturers contacted has seen an increase in exports attributable to the decline in the value of the dollar, although one representative of the metalworking industry thinks import pressure may be starting to ease. Respondents are continuing with current capital spending plans; plans for 1987 will probably be similar to 1986. None of the firms I-3 contacted has seen any significant increases in prices from suppliers; several noted that they cannot raise their own prices. Manufacturing respondents are very noncommital about future prospects; if pressed, they expect a continuation of current conditions. A couple hope to improve profits through cost saving measures, most notably through consolidations and the sale of excess capacity. Real Estate Reports of sales activity in the New England housing market are mixed. While areas close to Boston are experiencing a seasonal slowdown (brokers are optimistic that the vacation season is responsible for the reduced number of buyers), other parts of the region are enjoying a booming pace similar to that in the spring. Listings are said to be plentiful, and the attractive properties are still turning over at a very rapid rate. Price experience is varied: prices are stabilizing in some areas, but continuing to climb in others. their asking prices. In general sellers are getting close to Condominiums, from the very affordable to the luxurious, are selling well. Vacancy rates for office space are up slightly in some parts of the region as new buildings have recently come on line. Rental incentives are being offered, but agents are confident that there will be little problem filling the new space. II-1 SECOND DISTRICT -- NEW YORK across levels during uniform, the in business at loans consumer July, early and however, on and activity Leasing strong. rates June at reported consumer spending Retailers sectors. in the Second District varied the economic expansion In recent weeks, and demand were remained housing market not was Delinquency also mixed. banks District small new estate real commercial conditions for or above planned national the mirrored trend, leveling off in the first quarter following the earlier increase. Consumer Spending In consumer general, early July was reported influx of at growth in spending the Second between 10 and percent 14 June and Most New York City retailers above planned levels. or during District over last year as the large tourists for the July 4th Liberty Weekend contributed to gains in New York City that were above the District average. Higher-priced retailers in growth registered in the with gains increases year-to-year stores stores between New substantially York below experienced its 6 to from 8 to ranging generally recorded gains Western continued region 10 and report 15 percent, of 4 to 1 expectations. a Plant percent closings greatest Discount percent. medium-priced while However, one 7 percent. only the increase and in recent store sales, layoffs reportedly have reduced consumer demand in that area. Consumer growth demand. in durables, spending. especially furniture, accounted for Sportswear and athletic footwear were much also of the in strong With sales in line with expectations, most merchants were able to keep inventories under control. II-2 Business Activity Business direction in conditions in the recent weeks. Second District's unemployment year-earlier levels. have A higher percentage of both Rochester and Buffalo reported some the District rate is shown clear purchasing managers improvement in May. below no the in In addition, national average In June, New York's unemployment rate fell and sharply to 5.9 percent from 7.4 percent in May, while New Jersey's rate of 5.0 percent was half a corporate G.E. percentage reports announced Schenectady Kodak's have lower raised that (idling layoffs point it continue concern will 1400), in in phase two in than areas small plants Rochester. However, several out Syracuse May. about turbine have Moreover, disappointing the production recently a future. closed, Buffalo auto in and supply firm stated that increased employment there due to the popularity of a new windshield wiper will be shortlived. Production is soon to be shifted to a plant currently under construction in Mexico. Construction and Real Estate As the homebuilding industry moves for new housing remains areas that are plumbers, are times being are the District, upward currently of to strong throughout the District. workers, in short lengthened. some pressure on expected number skilled In such supply as carpenters, and as an attempt to a home prices. through starts in The high recruit year-end some at areas. level Reports of least, Future from many electricians, labor from outside thereby adding building resulting activity and completion consequence, builders are offering premium wages, continue housing into its peak summer period, demand activity in may a to is record also be II-3 brisk. complex Plans in were recently the Brooklyn, announced to a build condominium unit development private housing biggest 2200 in there 25 years. in Conditions been mixed. District commercial the Second very have estate market Leasing activity has been strong in New York City and on Long Island, where construction of new industrial been real In active. contrast, and commercial pace the of leasing in space also has and Fairfield persists Westchester counties has been more moderate, and some sluggishness in northern New Jersey. Few new construction projects are being started in Fairfield County and New Jersey where vacancy rates remain relatively high. Throughout much of the region, to concessions tenants continue to lower occupancy costs. Financial Developments Small banks the in Second District that report delinquency rates consumer installment loans have mirrored the national trend: rising in and early and 1985, Delinquency rates national at banks had attributed the borrowers' income Several banks some recent and added off in the the improvement credit to history they are the quarter national expanded and first banks had first below fallen that through small District However, average. surveyed leveling to raising quarter been running of 1986, 1986. at Most for 1984 above rates average. facilities of on the all banks verifying enhanced collection efforts. credit standards, lowering ceilings on revolving loans, and purchasing better quality loans. III-1 THIRD DISTRICT - PHILADELPHIA Business conditions are steady or improving for major sectors of the Third District economy. level months. Manufacturing activity edged up in July, following three Retail sales in June and July generally met merchants' expectations of 5-10 percent year-over-year growth. also. Automobile sales increased Total loan volume at large Third District banks in June was above the level of June 1985, but growth during the month was slow. Expectations for the Third District economy are generally positive. More than half of the industrial firms contacted for the July Business Outlook Survey anticipate improved conditions over the next six months. Retailers say the summer selling season, which went well, is essentially over; they are preparing for the fall, and are holding to their earlier forecasts for a good year as a whole. Commercial bankers believe the Third District economy is fundamentally healthy, and they expect moderate loan growth during the rest of the year. MANUFACTURING Manufacturing activity in the Third District has picked up marginally, following a three month lull. Among industrial firms polled for the July Business Outlook Survey, 25 percent reported increased business since June while only 16 percent noted a slowdown; 49 percent indicated no change. Nondurable goods producers reported somewhat better conditions than did makers of durable goods. Specific measures of industrial activity for July were mixed, but indicate some improvement, on balance. New orders and shipments were up fractionally, but order backlogs were unchanged. Employment in the manufacturing sector was also steady, and working hours edged up. Prices of industrial goods in the III-2 region are stable. Eighty percent of the July survey respondents say neither input costs nor output prices have changed since June. Third District manufacturers have positive views of the future, on the whole. More than half of the companies participating in the July survey predict better business conditions over the next six months while 20 percent expect a slowdown. Survey respondents forecast gains in new orders and shipments, but anticipate an essentially stable employment situation, with steady payrolls and a slight upturn in working hours. Local manufacturers plan some increases in capital spending for the next six months. RETAIL Third District retailers generally report good conditions. Department store and general merchandise sales met plans in June, with increases in the range of 5-10 percent above June 1985. Sales have been holding up in July, which retailers say is often a slow month. Merchants say seasonal goods have sold well, and they attribute this to several weeks of hot, dry weather. of clothing and furniture are also strong. Sales Automobile sales have picked up in recent weeks, but do not appear to be exceeding the sales rate in the comparable period of last year. Third District retailers expect the usual lull in August, but are looking for further growth in sales in the fall season. Some major store chains expect to finish the year with record sales and gains over 1985 near 10 percent. However, competition among discount stores is increasing as national chains expand their presence in the District; and some merchants say that profit margins are contracting slightly. FINANCE Reports from major Third District banks indicate that the total volume of loans outstanding in June was approximately 16 percent above the level of June III-3 1985. Since May, however, loans have grown at only a 4 percent annual rate. Growth has been weakest in the commercial and industrial sector, mainly as a result of efforts on the part of the bank's themselves. Some Third District bankers say they have retrenched in this category in order to maintain loan quality as demand for funds from more creditworthy borrowers slackens. In addition, some bankers have reduced the extent of their participations in national credits as net interest margins on these loans have narrowed and reduced their profitability. Consumer lending is moving up at about the same pace as it has since the start of the year, but Third District bankers say this momentum may have been maintained by the marketing of low rate (9-10 percent) loans by some banks. These promotional rates were discontinued in July, and bankers expect slower growth in consumer lending for the balance of the year. Real estate and construction lending slowed somewhat in June, but was still nearly 10 percent above June 1985. Construction lending is still strong although some industry contacts say the pace of building is slowing due to concern over anticipated tax changes. Mortgage lenders say they are still working on backlogs, although the pace of new applications has slowed in recent weeks. Total deposits at large Third District banks in June were up approximately 10 percent from a year ago. The narrowing spread between rates paid on passbook savings and market-related rate accounts is becoming a matter of concern among local bankers. Some say they are beginning to think about possibly reducing passbook rates in order to maintain the customary differential. AGRICULTURE With the exception of farms in Delaware, and especially those in the southern half of the state, the agricultural sector of the Third District III-4 economy is generally healthy at this time. Dairy, livestock, and poultry farmers in Pennsylvania and New Jersey are holding their own, with profit margins widening as a result of stronger prices and lower feed costs. Dry weather still prevails in most parts of the area, but recent rainfall saved some crops from failure. Cattle and hog farmers in the area have seen prices rise in the last few months, probably by enough to offset lower production and give total revenues a boost. The dairy industry is holding steady, with June production by Pennsylvania farmers 2 percent higher than a year ago and at an all-time high; however, milk prices are down about 5 percent over that time. Poultry farmers are also posting gains, benefitting both from lower feed grain costs and higher prices for both eggs and broilers. Most of the District experienced very dry weather in May and June, and, although wheat and barley crops were doing well, corn and soybeans were at a critical stage, and the second cutting of hay was reported to be short. Heavy rain arrived in mid-July, however, and prospects for field crop harvests in Pennsylvania and New Jersey are improved. Fruit and vegetable farmers in South Jersey report higher prices for their products, partly as a result of the crisis in the Southeast. Most fruit and vegetable farms in the area are irrigated and did not suffer from the earlier dry weather, and production, while not reaching last year's levels, should still be high. Crop farmers in Delaware, especially southern Delaware, are reported to be experiencing drought conditions. Losses are expected to exceed 30 percent of projected crop yields, in some cases by a wide margin. distress because they have little or no pasture left. Livestock farmers are in FOURTH DISTRICT - CLEVELAND Summary The Fourth District economy continues its pattern of slow growth with a sluggish housing sector. sector, manufacturing Unemployment Retail rose in depressed sales June growth the and energy continues to strong quite be rate unemployment a good. and production, remains national and year-ago levels. Manufacturing activity remains path is in the two and the energy industry disrupted by strikes against the doldrums. on producers. growing well, and housing construction and sales remain robust. lending bank growth is strong for real estate, its the flat supplies may be Steel steel largest above moderate Crops are Commercial consumer for installment credit, and slow for business. Consumer Spending. Consumer spending in this District appears to have that sales steadily increased throughout the second Major retailers report quarter and into the first half of July. Year-to-date current-dollar sales increases range from 4% to 10% and July may be even better. chain reported inventory higher inventories, were satisfactory. levels recently. improved and all of Delinquent the Only one major retailers charge felt accounts that continued their gradual rise, but none of the major chains indicated any great concern. District auto dealers are showing satisfactory but relatively flat sales of domestic new cars. Domestic slightly higher than desired, but auto dealers asserted that dealers' inventories continued no reason for concern. low-interest-rate financing to be Several domestic incentives are too IV-2 cars continues to outstrip supply. good On the other hand, demand for imported longer very effective. costly and no despite an approximately One dealer reported that sales have been 10% price increase in the 1986 model-year in as employment imports. Labor Market Conditions. The unemployment unemployment rose. points above its Ohio rate for At 8.9% Ohio (sa), year-ago level. slower in than in faster (4.5% vs. 0.2%). the rose the unemployment In the nation June (2.1% rate is last twelve months vs. 2.9%) Within the District, and 0.2 fell and percentage employment grew unemployment the unemployment grew rate is very high in counties that rely on coal mining. Manufacturing. Manufacturing Production several month Prices indicated two. of this District continues purchased are flat. continues about commodities equipment of inventories they expect order declines Employment and services in to be sluggish. increased slightly recently but new orders declined slightly firms or activity are raw materials are flat rising flat but to continue for as order prices continue and supplies, while finished goods On balance, manufacturers the next decline. manufacturers Firms slowly. backlogs expect-very slow growth and pay to for trim inventories in the second half of 1986. Steel customers apparently have been diverting orders from USX U.S. Steel) to other suppliers, against widely USX announced a layoff expected of 1,400 to including LTV, because begin workers at the from end its of (formerly of a possible strike July. Lorain USX recently (Cleveland) works IV-3 because the threat of a strike has caused a sharp drop mill. been Ironically, halted by a insurance that strike benefits producer production threatened for in work the LTV East Chicago, response retirees. recently by at filed stoppages to LTV, a termination the nation's Chapter 11 they if in orders the ask for that Indiana plant of health second bankruptcy, life largest is bankruptcy and steel also court has being for wage concessions beyond those in the labor contract negotiated just last spring. Agriculture. Crops in Ohio, one of doing better than average the largest agricultural-producing states, this year and corn especially is are flourishing in response to ample moisture and warm weather. Housing. Housing activity remains strong in this District. Housing market firms are surprised that the housing market remains strong so late into a business expansion but the consensus is that house building and continue strong throughout 1986. house buying will However, some firms are cautious in their planning for 1987. Housing temporary approvals. starts result have of slowed the unusual but delays builders in view obtaining Few mortgage lenders mortgage expected as a loan the high to persist and thus virtually no lender added permanent staff. estate closing cancellations had begun to rise as mortgage rates few lenders would guarantee the lending rate beyond 60 days. estate that In recent months, processing times had reached 90 to 120 days as the volume of applications surged. volume recently, brokers report that mortgage loan processing Real rose and However, real times are now IV-4 approaching the normal 60 days. spotty are There savings that signs loan and in institutions this District are reducing their interest rates on new adjustable rate mortgages to increase their attractiveness relative to the fixed-rate mortgage loans the buyers seem to strongly prefer. Commercial Banking. loan demand Overall six weeks. The continues to demand for mortgage May. year. grow indicates Contacts in gain robust and was largest continued growth picking-up at somewhat District banks. Loans in all major categories at large banks increased over the past outstanding Commercial is but at industrial a pace loans estate loans. Consumer substantially registered loans, lower the smallest reflecting installment than a the credit year ago. increase, but the in business loan demand since April and moderate business loan growth over the rest of the some improvement expect real FIFTH DISTRICT - RICHMOND Overview District retailers report a slight increase in activity over the last month, and there is little change in remains strong in most urban areas. the District's housing sector continues strong, municipal governments seem as yet funds. Agriculture has the tourist unaffected been which Manufacturing remains generally weak, but some manufacturing data suggest a moderate improvement service market, hit by in some areas. The business is excellent, and expected cuts hard by heat and drought: in federal many counties throughout the District are qualifying farmers for disaster relief. Consumer Spending New cars are selling at stores, total sales about last month's pace. In department are up slightly, but sales of big ticket items are down for the second consecutive month. Sixty-two percent of the retailers in our monthly survey expect sales to improve during the next six months, as compared with 21 percent who expect declines. Tourism continues strong. Attendance is breaking records at state parks and other major tourist areas. Housing Market Sales of single-family homes are steady to up slightly in most large urban areas, according to realtor associations. from very strong continues to range in some large metropolitan areas such as Washington, D.C., where home price increases of uncommon, Demand 15 to 25 percent over last year are not to fairly weak in many small towns and rural areas such as those in V-2 West Virginia. Reports of mixed movements in mortgage interest rates and points suggest little net change in mortgage terms in the last month. Manufacturing and Mining District manufacturing activity has measures and increased marginally by others. declines declined More survey than increases in shipments and new orders. marginally by some respondents report On the other hand, more respondents report increases than decreases in employment and the workweek. A majority of manufacturers still expect business to improve, but not as many are optimistic as last month. This month, 58 percent think the econ- omy will expand during the next six months; last month, 68 percent thought so. Apparel and textile firms report increased activity over last they expect continued month, increases over the remainder of this year. manufacturers report a decline in activity, as do machinery and Furniture manufacturers, where capacity utilization is around 50 percent. Virginia and Virginia coal mines have increased production in West recent weeks, probably because the electric power, and because new hot weather emphasis has increased demands for on environmental protection has increased the demand for low sulphur coal. Services and Government Fifty-two service sector survey respondents report last month, as compared with 24 percent who report in declines. Sixty-six percent of the responding service firms expect in over of increases increase sales percent sales to the second half of the year while only 9 percent expect sales to V-3 decline. Forty-eight percent expect a rise in employment over the next six months, while 7 percent anticipate a decline. State, county, and city government respondents are concerned about budget cuts, but indicate that their expenditures have been holding steady increasing. government With regard to the next six months, 83 percent of the municipal respondents expect a decline in revenue from government, and 75 percent expect increases in tax revenues. expected to anticipate increase no or by change. 75 percent Forty-eight of the percent the Expenditures are respondents; of the federal the respondents remainder foresee increases in employment, as compared with 26 percent who foresee declines. Agriculture Record-setting heat and prolonged drought damaged and District corn--are scientists agriculture experiencing expect insect in recent weeks. extreme damage to stress. have conditions severely Crops--particularly soybeans In addition, be far above normal. agricultural The shortfall in yield due to heat, drought, and insects will result in hundreds of millions of dollars of losses to crop producers. The drought has also hurt livestock producers. Cattle are being marketed long before they reach profitable weights, due to the poor conditions of pastures and shortages of hay. Shipments of hay from the Midwest have provided some relief, but heat stress continues to damage Poultry stress. producers report higher death rates pastures and hay. among their flocks from heat VI-1 SIXTH DISTRICT - ATLANTA The southeastern economy continues to mark time. The unemployment rate is steady with job gains about offsetting labor force growth. Industrial activity is mixed with employment in most manufacturing industries remaining soft, while trade and services employment continues to register strong growth. and residential construction are also boosting the Consumer spending, tourism, economy, while commercial construction weakens and agriculture and mining experience severe problems. The banking industry is performing well even though there are problems in Louisiana. Employment and Industry. Labor markets stabilized somewhat in May, with the region's unemployment rate remaining unchanged from April at 7.8 percent following three months of increases. Louisiana, Mississippi, and Alabama continue to post unemployment rates significantly above the national average, while Florida and Georgia again ranked well below the nation. Industry employment figures continue to show a mixed pattern. While overall employment in the textile and apparel industry continues to decline, carpet manufacturing is strong, and one large producer recently announced expansion plans. Defense spending continues to bolster employment throughout the region, but prime contractors report a fall-off in new contract awards. Lumber exports are increasing with European buyers of hardwoods again appearing in response to the decline in the dollar exchange rate. Less positively, industry sources report a recent slackening in demand for southern pine as a a result of slowing housing starts. Large oil firms continue to announce layoffs in Louisiana as oil drilling activity steadily drops to new lows. Louisiana's rig count is now 60 percent lower than the severely depressed level of this time last year. Coal industry executives foresee more mine closings in Alabama primarily because of a drop in demand as energy users turn to lower-priced oil. VI-2 Consumer Spending. Year-to-date retail sales growth in the Sixth District is running slightly ahead of the national rate with Birmingham, Nashville, and Mobile registering the fastest growth among metropolitan areas. The Atlanta market also remains strong, while, at the other extreme, sales activity levels in energy-depressed New Orleans and Baton Rouge continue to be dismal. Sales of U.S.-made autos improved sharply in June as the weaker dollar, lower interest rates, and cheaper gas prices stimulated sales. Even so, sales for the first half of 1986 were below year-earlier levels, with Louisiana registering the largest percentage decline among District states. Construction. After three consecutive permits fell in May in all District states. monthly increases, single-family The performance of different metropolitan area housing markets in the District varies widely, however. For example, Miami and Atlanta builders and realtors continue to report very active markets, with strong demand bidding up home prices. Meanwhile, home prices are falling in the New Orleans market, with out-migration of the jobless exacerbating market weakness. Commercial construction activity around the Sixth District remains disparate, and differences in construction vigor are widening. With a five-year supply of unleased office space, New Orleans remains the region's weakest office market, and developers there see little hope for improvement in the near future. In other places, such as Atlanta, Birmingham and Jacksonville, office markets are continuing to expand at a fast pace. Nashville is spearheading the region's growth of industrial construction, with warehouse construction booming as the Tennessee capital develops into a major distribution center. Retail construction is volatile in all District states. Financial Services. The pace of year-over-year total loan growth at large commercial banks increased in June compared to growth rates a year earlier, due primarily to an increase in real estate lending. Respondents report substantial VI-3 refinancing of single-family mortgages. In Jacksonville, however, commercial real estate lending is rising sharply. Tourism. Declines in both the foreign exchange value of the dollar and gasoline prices continue to boost travel to the Southeast. Increased air fare competition also is making domestic travel more affordable. Tourism in Florida, Georgia, and Tennessee is up strongly, with central Florida faring especially well. Vacation travelers are reportedly taking advantage of package tour promotions and making multiple short distance and time trips instead of longer ones. Agriculture and Non-Energy Mining. Severe heat and drought are wreaking havoc in southeastern agriculture with withered crops and pastures, substantial losses of poultry, and sharp increases in marketing of cattle. Costs of dairy production are rising as feed becomes scarce. Georgia, Alabama, and eastern Tennessee have suffered the most damage, while Louisiana, Florida, most of Mississippi, and western Tennessee have had more adequate soil moisture. The situation in Georgia is becoming critical with an estimated $200 million in damage as of mid-July. The Southeast's non-energy mineral industries are also experiencing trying times. Phosphate production is about 75 to 80 percent of capacity due to reduced international demand for fertilizer and substantial reductions in planted U.S. acreage. Granite quarries in Georgia are facing cut-backs in production due to shortages in water supplies. VII-1 SEVENTH DISTRICT--CHICAGO Summary. The pace of activity in the District, overall, continues short of the nation. Employment in the five states has been about flat since early 1986, compared with growth for the country as a whole. Illinois and Iowa are about even with a year ago, in contrast with 2-3 percent growth in Indiana, Michigan, and Wisconsin. Hardly anyone is expecting a recession and 1987 is expected to see improvement. Manufacturing jobs have fallen more sharply since January in the District than the nation. Purchasing managers in Chicago report continued though slower growth in production through June, but Milwaukee buyers say output, orders, and backlogs have slipped substantially. Bright spots in the region's economy remain residential building and sales, and related spending on appliances and furniture. Tourism is up strongly according to reports from Michigan and Wisconsin. Auto sales are at a high level, supported by manufacturers' incentive programs, and company projections indicate 1986 will be very close to last year's record for car/truck sales combined. Heavy trucks are down sharply. Capital goods remain weak. Nonresidential building remains robust but is beginning to show signs of slipping, particularly renovation work. A diversified producer of consumer and industrial goods indicates that the improvement in demand expected in most lines has not developed. The District has seen excellent crop growing conditions, in contrast with the devastating drought in the Southeast. Crop prices have declined sharply in recent weeks, in anticipation of a large harvest. Livestock prices have risen, and livestock farmers are also benefitting from lower feed costs. District farmland values continued to fall in the second quarter, but not as fast as in earlier quarters. Residential Construction. The residential building boom continues in many parts of the District, sparked by lower mortgage rates, though some areas remain depressed. Contracts, in square feet, in the five states were up 31 percent in the first half from a year ago, but to about two-thirds of the 1978 level. In the Chicago area, both single-family and apartment construction are sharply higher this year. Apartment vacancies are described as low here, in contrast with some other parts of the country. Heavy resales and refinancings continue to tax facilities. A large backlog of mortgage loan applications slows processing and closings. There are few takers VII-2 for adjustable rate loans, quoted at rates as low as 7.75 percent in the Chicago area versus around 10.5 percent commonly quoted on 30-year fixed-rate loans. Nonresidential Construction. There are signs of emerging weakness in commercial construction. Work on new office buildings continues at a very vigorous pace, but starts on several large commercial buildings in the Chicago area have been delayed recently. Some have been rebid, with new bids often lower. Renovation of existing commercial structures has slowed. Some observers are increasingly concerned about rising vacancies at the many suburban "strip" shopping centers currently under construction or built in recent years. Others are optimistic that the vigorous rise in residential construction is creating a need for this additional retail space. Demand has picked up for Chicago-area industrial space, primarily for warehouse and distribution use rather than manufacturing. Speculative building has increased, from very low levels a few years ago. District-wide nonresidential construction contracts in this year's first half were 17 percent above a year earlier, in square feet, with only Iowa lower. Consumer Spending. A major general merchandise retailer reports that sales have continued at good levels, with appliances and home furnishings strong, and apparel relatively weak. The share of goods bought on credit has fallen slightly, and credit delinquency rates are down moderately. Wisconsin tourism officials say activity and inquiries are up 7 to 30 percent, and expect a "banner year". Airline travel (revenue passenger miles) is up helped by lower fares. Motor Vehicles. Sales of autos and light trucks remain near record levels, supported by low interest rates offered by captive finance companies of major auto makers. These cut-rate financing programs are placing strains on various groups. An auto leasing company complains that it can no longer sell its used cars profitably because demand has been diverted to new cars. A trade group of consumer lenders is seeking to have the programs declared illegal on anti-competitive grounds. Sales of medium trucks are ahead of a year ago, but heavies are down to a rate of around 120,000 units, versus 140,000 last year. Deregulation has greatly improved efficiency in trucking. As current heavy truck production is far short of industry capacity, shutdowns of 2 plants in other parts of the country may do little to ease pressures on District producers. VII-3 Steel. Order trends suggest a "normal" seasonal decline in mill shipments from the second quarter to the third. For the year, an industry analyst expects shipments nationally to decline to about 72 million tons this year from 73 million in 1985. Raw steel production is expected to fall more because of increased use of continuous casting, which yields a higher ratio of finished product. The share of raw steel produced in the Seventh District this year (approximated by AISI's Chicago and Detroit districts, through mid-July) has slipped to 36.1 percent of the nation from 36.7 percent in 1985. Steel for autos and construction continues at good levels, capital goods remain weak, and the oil/gas market is in a state of collapse. Customers have been shifting orders away from steel companies that have not settled their labor contracts--currently, USS. Industry observers view the bankruptcy filing by LTV Corp as ominous for a relatively inefficient large Chicago mill. Capital Goods. Sales of capital goods remain weak. Machine tool orders, which had recovered partially from recession lows, have again dropped below shipments, eroding backlogs. Recent weakness is attributed partly to uncertainties over tax law changes. A major District machine tool maker has announced further substantial staffing cuts. Sizable layoffs also have recently been announced or are expected at a producer of paving equipment and a maker of lift trucks in the District. Markets for industrial diesels remain very depressed. Agriculture. District farmland values declined again in the second quarter, but the rate of decline continued to slow. Preliminary results from our latest survey of agricultural bankers indicate that District farmland values declined nearly 2 percent in the three months ending June 30. The latest drop compares to declines of 3 percent in both the first quarter and the fourth quarter of 1985, and 4.5 to 6 percent in the first three quarters of 1985. Credit conditions at District agricultural banks reflect weak farm loan demand, ample liquidity for lending, a high proportion of problem farm loans, and declining interest rates. As of midyear, interest rates charged by agricultural banks on farm operating loans averaged just over 11.75 percent, down 85 basis points from 6 months earlier and 110 basis points below a year ago. VIII-1 EIGHTH DISTRICT - ST. LOUIS Summary The expansion of the Eighth District's economy is slowing slightly with growth of employment, retail sales and construction trailing that of the nation. District banking activity is characterized by strong commercial lending and slower growth of consumer and real estate loans. Crop conditions remain good to excellent in most District states. Employment Nonagricultural employment grew at a 2.0 percent annual rate in the three months ending May, slightly below the 2.1 percent national rate. Manufacturing employment declined at a 2.2 percent rate during the same period. Although District nonmanufacturing employment has increased steadily throughout the current recovery, employment in the manufacturing sector has not changed substantially since mid-1984. The District unemployment rate declined to 7.5 percent in May from 7.6 percent in April while the national jobless rate increased slightly during the period. Consumer Spending Despite strong April growth, District retail sales decreased at a 6.3 percent rate in the February-April period compared with a 2.3 percent national growth rate. A survey of major retailers in the VIII-2 District's largest metropolitan areas suggests that second quarter sales were strong in St. Louis and Louisville compared with year-ago levels, moderate in Memphis (approximately 5.0 percent higher) and weak in Little Rock. Respondents anticipated continued third quarter strength in St. Louis and Louisville while the outlook for the other areas was uncertain. Several retailers reported that the declining value of the dollar has resulted in only slight increases in the prices of goods imported from Japan and Western Europe; exporters apparently have limited price increases and narrowed their profit margins in order to maintain their share of the U.S. market. Construction The value of District residential construction contracts awarded in the second quarter declined by 8.4 percent compared with a 14.0 percent increase nationally. Despite the recent decline, this indicator is 6.0 percent above its year-ago level. Building permit data from the District's major metropolitan areas indicate that, while single-family housing exhibited strong growth in recent months over year-ago levels, multifamily building has declined. Nonresidential construction activity in the District increased by 0.2 percent in the second quarter compared with 11.9 percent national growth. In contrast to the District's stagnation, nonresidential construction increased by 29.3 percent in Tennessee during the period. VIII-3 Banking Total loans outstanding at large District banks grew at a 7.9 percent annual rate for the second quarter compared with a 6.7 percent rate for the same period last year. Second quarter loan activity saw an acceleration in commercial lending being offset by a slowing in the growth of consumer and real estate lending. Commercial loan volume grew at a 12 percent annual rate over first quarter levels versus a 2.5 percent rate for the same period in 1985. The Memphis and Louisville markets, in particular, have experienced strong growth in commercial loans as a result of some large banks becoming very active in loan participations originated by New York City banks. In contrast, consumer loans grew at only a 12.4 percent rate during the second quarter relative to a 28.5 percent rate over the same period last year. Agriculture Crop conditions are rated good-to-excellent in most District states as a result of favorable weather throughout the planting and growing season. The corn and soybean crops have enjoyed nearly ideal growing conditions in Illinois, Indiana and Kentucky and are two to three weeks ahead of normal development. Crops in western Tennessee have progressed at a near-average pace but are more vulnerable to moisture shortages than are the northern agricultural regions of the District. Northern Mississippi and Arkansas report crop conditions as below-average to average due to late planting and moisture shortages. Both areas note that timely rains could still result in very satisfactory crops. IX-1 NINTH DISTRICT - MINNEAPOLIS Ninth months. Some District conditions have not changed much in the last employment indicators have continued to move favorably. sumer spending may have softened a bit, but still is not weak. continuing with problems Con- The tourist Resource-related industry industry still seems to be having a good summer. performance remains mixed, few in sec- the extractive Little has changed in agriculture except meat animal prices, which have tors. increased. Employment Unemployment overall district rates in the Ninth District (seasonally adjusted) percent in April to 5.8 percent in May. dropped to district's 5.4 percent, improvement its is are unemployment still rate falling. dropped from increase significantly lowest level encouraging, it in 6.2 During that period, Minnesota's rate since September 1981. does not While indicate growing demand; the rate drop was primarily due to a decline in the labor force. did The the Minneapolis-St. Paul metropolitan the labor Jobs area, though, which helped ease the stress of workers who have migrated there from more troubled parts of the district. District Bank directors report that other metro areas showing some employment strength were the Sioux Falls area of South Dakota and the La Crosse-Eau Claire area of west central Wisconsin. Consumer Spending Overall, retail sales of general merchandise have been a bit on the soft side lately, but they are probably still ahead of last year's pace. One retail chain reports that its recent sales have stayed in line with expectations. A Bank director notes that sales have been good in the Fargo and Grand IX-2 Forks areas of North Dakota, but that this success was probably at the expense of smaller surrounding cities. Another director reports that the outlook at a large mall in Duluth, the largest city in hard-pressed northeastern Minnesota, is bullish. Sales of motor vehicles domestic manufacturer reports generally held firm in June. One large that its car sales were 3 percent higher this June than last, and while its truck sales were down 10 percent, it only has about two months of truck inventories on hand. The most recent reports indi- cate that district vehicle sales early in July were 20 percent ahead of sales a year earlier. Scattered reports indicate that housing activity has remained strong in the Minneapolis-St. Paul area, but may have weakened in some other parts of the district. In the Twin Cities, residential building contracts were 55 percent higher this May than last and home sales were 17 percent higher this June than last. Also, members of this Bank's Advisory Council on Small Busi- ness, Agriculture, and Labor report housing growth in Baldwin, Wisconsin, and Fargo, North Dakota. But directors of this Bank's Montana branch note slack housing markets in the Bozeman and Billings areas. Tourism The tourist industry, an increasingly important sector of the dis- trict economy, is having a good summer. Tourism-related employment in South Dakota, for example, grew more than 47 percent in the last 10 years--much more than twice the growth rate of nonfarm employment Montana is currently 20 percent ahead of last year. appears to be up throughout the district. there. Group travel in Attendance at campgrounds Bank directors report that tourist travel to the Upper Peninsula of Michigan and northern Minnesota is good; many IX-3 Canadians have been passing through Minnesota on their way to the Expo in Vancouver. Resource-Related Industries The performance mixed. of major resource-dependent sectors continues to be A Bank director reports strong demand for wood products--including pulp, paper, lumber, and waferboard--although prices haven't increased. Indi- cative of this strength, a Canadian company plans to build a $10 million wood fiber sheeting plant in International Falls, Minnesota. This would partially replace the jobs lost when a U.S. corporation closed a siding plant there in December 1984. However, the district is doing very little drilling and almost no exploration for oil and gas, in either Montana or North Dakota. even some producing wells are being capped. oil prices, coal prices have dropped In fact, And in conjunction with falling 10 percent in Montana. bankruptcy of a large national conglomerate has Further, the resulted in the closing of another, jointly owned, iron ore processing plant in northeastern Minnesota. The surviving owner has lessened the impact, though, by announcing plans to triple raw ore production-at a mine in that region. Agriculture Agricultural conditions remain nearly the same as a few months ago. Crop conditions still look good, and crop prices are still low. This Bank's latest survey of district rural lenders indicates that farm earnings and land values continued to decline in the second quarter, although the respondents' loan portfolios didn't deteriorate much further. prices are being eased somewhat by government fuel and fertilizer costs. Problems caused by low crop deficiency payments and lower And a Bank director reports significant recent strengthening in cattle and hog prices, the former occurring despite increased cow sales resulting from the dairy buy-out program. TENTH DISTRICT - KANSAS CITY Overview. Economic activity in the Tenth District appears to be generally sluggish. Significant weakness continues in the energy and agricultural sectors, but housing activity is strong. reported to be below year-earlier levels. Retail sales are Both retail inventories and manufacturers' inventories of materials inputs are being trimmed, an action expected to continue through the year. Loan demand at commercial banks is mixed as consumer and agricultural loan demand is down while residential real estate loan demand is up. Wheat yields were somewhat above average, and a large corn crop is expected that will put further downward pressure on corn prices. Retail trade. Retailers report year-to-date sales slightly below levels established last year. Sales are expected to increase seasonally through the rest of the year due to upcoming back-to-school and Christmas buying activity. Prices, which have been stable the past three months, are expected to increase slightly. Retailers generally are trimming inventories slightly and expect to do so through the rest of the year. Automobile sales. Auto sales are down slightly from last year, but dealers expect this small sales slump to bottom out in the near future. credit conditions exist, but they are helping sales only slightly. Good Most dealers are trying to trim inventory levels, now viewed as a little high. Purchasing agents. In general, purchasing agents report slightly lower input prices, high inventory levels, and adequate availability of materials. Most purchasing agents surveyed report input prices somewhat lower than a year ago. However, they also report that prices have stabilized or risen slightly in the last three months. the rest of the year. Expectations are mixed regarding price changes for Most firms have been trimming inventories and expect to continue to trim throughout 1986. Housing activity and finance. Area homebuilders report that starts of single family dwellings have increased sharply over the year ago period, while multifamily starts have increased to a lesser extent. Most homebuilders expect housing starts to remain strong during the remainder of the year. Sales of new homes are near year ago levels, and new home prices have remained steady. Builders also report good availability and steady prices of materials. Savings and loan institutions have generally experienced slightly lower savings inflows this year compared with a year ago. Most expect savings inflows through 1986 to remain flat or fall slightly. Mortgage activity continues to be strong, but is not dominated by demand for refinancing to the extent that it was earlier this year. Mortgage interest rates have been steady and are expected to remain stable at current levels for the rest of the year. Energy. The substantial drop in oil prices in early 1986 and recent price volatility continue to plague the district's energy industry. Exploration and development activity remain depressed. The average weekly number of operating drilling rigs in the Tenth District was 200 in June, compared with 550 in January and 221 in May. Further declines in drilling and production are likely in the near term if oil prices remain soft, as expected. Agriculture. The wheat harvest is completed in the Tenth District except in Wyoming and Nebraska. in most of the district. Yields reported were average to above average Growers are expected to place much of this year's wheat crop in storage under Commodity Credit Corporation (CCC) loans. Storage space for the crop is reported to be generally adequate. Ample rainfall points to excellent crops of corn, milo, and cotton. corn crop is approximately two weeks ahead of schedule in the district. A The X-3 burdensome inventory of corn from previous crops and expectations of an exceptionally large crop in the making have forced the price of corn to lifeof-contract lows on the Chicago Board of Trade. Of increasing concern to corn growers and their lenders is a critical shortage of storage space for the current crop. In some cases, grower efforts to place corn in storage under CCC loan may be thwarted by a lack of available storage space, forcing the sale of the grain at low harvest-time prices. Rural communities remain under strain in the district. Bankers report that the pace of farm acquisition through foreclosure was the same or higher In addition, business conditions for local merchants are than a year ago. generally described as depressed. Banking. Loan demand at Tenth District banks was mixed during the past month, with nearly equal numbers of surveyed banks reporting increased loan demand, lower loan demand, and unchanged loan demand. Among loan categories, demand for consumer loans and demand for agricultural loans were down, while demand for residential real estate loans was up. Demand for commercial and industrial loans and demand for commercial real estate loans were higher at some respondent banks, and lower at others. Most banks lowered their prime rate one-half percentage point; the rest expect to do so shortly. also lowered their consumer lending rates. or unchanged deposit activity. savings accounts increased. almost uniformly. Most banks Most banks report either increased Demand deposits, NOW's, MMDA's, and passbook Large CD's and small time deposits were down XI-1 ELEVENTH DISTRICT--DALLAS The Eleventh District economy is still in a slump, but the rate of decline is decelerating. Drilling activity, which has been falling rapidly since early 1985, has stopped declining. construction values has moderated. Auto and retail sales are weak. The protracted slide in contract Manufacturing output is still falling. Assets of large banks are below a year earlier and loan demand is ebbing. Agricultural prices remain below a year ago. District manufacturers are generally reporting poor business conditions as a result of weakened demand from the energy and construction sectors. Primary metal and nonelectrical machinery producers are particularly affected by declines in orders from firms in the energy sector. Although falling oil prices have reduced input costs to District chemical manufacturers, some note that sales are off because of reductions in demand from energy firms. Among producers of stone, clay, and glass, lumber and wood, and fabricated metals, brisker construction activity outside the District has partially offset reduced orders from builders within the District. Electrical machinery firms report low sales growth and slumping prices resulting from weakness in manufacturing demand. Stiff foreign competition is holding down prices in the apparel industry. Orders for paper and allied products are falling. The drilling rig count in the District states stabilized in July, but it is almost 70-percent below a year earlier. Reductions in both drilling permits and the seismic crew count continued, suggesting that future declines in the rig count are likely. XI-2 The value of construction contracts has begun to stabilize, after a fairly steady decline that commenced in the third quarter of last year. Nevertheless, residential, nonresidential, and nonbuilding construction contract values remain well below a year earlier, with particularly large year-to-year declines in office building construction. Office vacancy rates in all major District cities have risen significantly in the last few months, owing to a combination of slow absorption rates and a large increase in the supply of office space. Respondents report concern over the financial health of office projects not only because of high vacancy rates, but because of an increasing rate of bankruptcies among District tenants. Despite stable residential contract values, the number of residential building permits has fallen. Single-family home permits have continued to edge down, while multifamily building permit activity is plummeting. Dealers say that auto sales are declining, in part, because of overall economic sluggishness in the District. They also note that high sales volumes in recent years have drastically lessened the average age of the existing automobile fleet, so that the need to replace older vehicles is reduced. Retail sales are below last year's level. broad-based across product lines. Declines are Particularly significant weakness was reported by respondents in the energy-dependent portions of the District. The depreciation of the dollar against some currencies has resulted in increases in the prices of consumer electronics products. At the District's large banks, loan volume is below a year earlier. While business and other loans have declined absolutely, real XI-3 estate loan volume continues to expand, although at a markedly decreased rate. According to respondents, the growth in real estate loans is chiefly from take-downs on outstanding commitments on projects already under construction and out-of-state projects developed by locally-based borrowers. Bankers say they have tightened restrictions on loans for land purchases and construction. since a year ago. Total deposits have declined significantly The sharpest drop has been in large time deposits, but demand deposits also have contracted. Total liabilities declined in June from a year earlier, despite a large increase in borrowings. Texas savings and loans continue to increase their deposits, but year-to-year growth has slowed considerably, particularly in large time deposits. District crop and livestock prices are down significantly from a year earlier and the perception is widespread that income prospects for farmers and ranchers are unlikely to improve this year. Increased payments from government programs this year are not expected to offset the impact of lower crop prices. quarter. Agricultural land values plunged during the second Declining oil and gas prices have affected the debt service capability of over 20 percent of borrowers in the agricultural loan portfolio of bankers responding to a recent survey in the District. XII-1 TWELFTH DISTRICT - SAN FRANCISCO Summary The Twelfth residential weakness economy other and sectors. now is Retail either flat Manufacturing activity remains appear emerging to be expected. its Oil family Many lenders, refinancing growing from sales or slow. their industry problems downward slide. single is construction, trade, and service in somewhat, District modestly, sectors growth growing The home building overwhelmed received and continue to mount. accelerates of to to more areas. industries slowly has been mixed. modest annual have than Agriculture continues altered strong, building loan applications spring, outweigh most activity remains the the slowed high-tech but in have in while multifamily by the volume during appears slumps, Residential construction growth continues modestly lumber respective as for their as slows. mortgage application procedures for these loans. Consumer Spending Retail California However, sales and total activity Washington report sales are flat or Respondents growth only slightly higher of in 3 to than coastal 5 percent. last year's in Utah, Oregon, Arizona, central California, and Alaska. Available information continues related industries in tourist traffic Reports from Alaska state there. this was the West will 12 percent to suggest as expected, tourist post strong gains this higher in suggest that a record summer, providing that, May than it summer. was in May number of visitors will a welcome boost to the Oregon oil-dependent 1985. see that economy XII-2 Manufacturing and Mining The aerospace industry remains strong, bouyed sales and as yet unreduced defense contracts, but most manufacturing demand have sectors not yet for lumber and wood products has by commercial aircraft expected improvements materialized. Although in greater increased western lumber production by 8 to 10 percent during the past year, prices have dipped during the past Consequently, few months. no longer cut costs by reducing wages The condition of western high technology companies and modernizing plants. is continue to firms deteriorating, but the long-awaited upturn has not yet arrived. Low oil the prices Twelfth California, oil major District. only 30 company take their continue to One laid respondent of percent off oil 100 reports are rigs additional revenues have already led state oil toll on oil producing areas that in operating. employees last Kern In County, Alaska, one Reduced month. percent wage cut to a 15 in for Alaska's state workers, and layoffs or further wage cuts may follow. Agriculture In most parts of the Twelfth District, continue to hamper farm profitability. prices have been particularly agricultural low prices In Idaho, where low milk and potato problematic, one sign of is weakness that seasonal growth in agriculture loans is only one sixth of last year's pace. In Oregon, yields expected grapes, to be apples, promising. of major high, but crops prices and berries, including wheat, remain prices low. For are adequate rye, a few and seed are and grass the crops, including outlook is more XII-3 Construction and Real Estate In most strong, parts of the District, although most areas that residential experienced construction a strong activity burst of activity this spring have reported some slackening during the past two months. report respondents building by localities. a that wide single family There is is building margin. In Arizona and Utah, however outpacing wide is Most multifamily variation among single family permits are running 20 to 30 percent ahead of last year's level, while multifamily permits are down 20 to 50 percent fallen percent. higher by a In than Oregon, they were similar amount. single last The family year, San permits but are multifamily Francisco and Los some 5 to permits Angeles 10 have areas however report single family building up 10 to 15 percent, but multifamily construction up by 40 to 60 percent. In these areas, strength in multifamily permits is attributed to the effects of mortgage revenue bonds and tax reform, and most respondents expect building activity to slow soon. Financial Sector In demand the wake remains staff time has and bottlenecks last strong, past few months. approval of and has home buying even increased spree, in Los loan residential Angeles during the Banks have been deluged by refinancing applications and risen streamlined arise spring's dramatically. application in appraisals banks' direct control. Most banks procedures, and credit reports have hired but the additional most severe which are outside the Banks are faced with falling rates and increasing time between application and approval. In addition, some consumers "shop XII-4 around" their applications, multiplying bank workloads. banks have shortened commitment periods As a result, most and few still offer rate lock-ins upon application. - In addition, many now require a nonrefundable "sincerity deposit," paid upon application, that is applied to processing fees if the loan is closed. Although no banks reported increasing mortgage contract rates to reduce loan demand, a few have increased origination fees.
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