Economic Signals Remain Weak
Fed Finds Credit Demand Is Soft
WASHINGTON -- The U.S. economy was "weak or growing slowly" in September and early October, as loan demand stayed sluggish or even softened in some regions, the Federal Reserve System said Wednesday.
The central bank's latest report on regional economic conditions - known as the Beige Book - supported the widespread view that the recovery is failing.
"The tone of it is that the recovery is fizzling out," said David M. Jones, chief economist of Aubrey G. Lanston & Co.
The report, based on data from the 12 regional Fed banks, found virtually no improvement - and some deterioration - in demand for consumer, commercial, and industrial loans. The reason: Some banks are continuing to tighten credit standards, and borrowers remain wary about incurring debt.
President Bush may want "sound banks to make sound loans," said Mr. Jones, "but it's hard to find a sound borrower in a weak economy."
While manufacturing output advanced slightly in most regions, the pace of growth slowed. And retail sales, already lackluster, slipped in some regions.
Housing and construction - sectors that usually lead the way out of a recession - turned in mixed results. Commercial real estate conditions worsened in the New York and Los Angeles markets, both already suffering huge overhangs of office space.
Residential construction was almost universally weak, but some districts cited improvements in home sales and low interest rates spurred a revival in mortgage-loan refinancings in several districts.
According to the district-by-district report:
* Boston: Manufacturers saw "no clear uptrend" in business conditions; most expected little improvement before early to mid-1992, and many worried the economy would backslide before the end of 1991. Retail merchants saw no sign of change in weak sales.
* New York: Demand for consumer loans was down, but for real estate loans improving. One-quarter of surveyed banks tightened credit standards somewhat, chiefly by insisting on lower loan-to-value ratios, more collateral, and more thorough analysis of applicants' creditworthiness.
* Philadelphia: Loans outstanding continued to decline, chiefly in business and consumer credit; real estate loans were stable. Consumers are trying to pay down debt, particularly credit cards.
Few Loan Inquiries
* Cleveland: Loan activity, except for mortgage refinancing, remains soft. "Some banks report that they are still not soliciting new commercial construction loans, although inquiries have also |dried up' this summer," the Fed reported.
* Richmond: Home sales are sluggish because potential buyers are insecure about jobs and incomes. But lower interest rates are spurring sales in some areas. Consumer loan demand remains weak, and commercial demand softened further.
* Atlanta: "Bankers report some improvement in loan demand, but borrowers continue to feel constrained by strict credit standards," the report said. Commercial construction is expected to remain depressed for some time. "Financing is still said to be difficult to obtain, even for projects that are significantly preleased."
* Chicago: Loan demand was soft, given little need for inventory financing. Manufacturing spurred growth, but the auto sector may weaken. Residential loan demand remained a bright spot as mortgage rates fell.
* St. Louis: All loan categories but real estate improved. Consumer spending was depressed, but manufacturing employment rose. Lower interest rates are stimulating home sales but no rebound in construction is seen until next year.
* Minneapolis: In a sharp reversal for the district, labor conditions deteriorated. Unemployment was up, and job growth meager. An overhang of commercial office space is a drag on the Twin Cities market. The baseball playoffs and World Series have stimulated tourism, adding $6 million to the economy each game day, the Fed said.
* Kansas City: Retail and new-home sales were up somewhat, but auto sales and housing starts were off. Demand for commercial, industrial, and real estate loans fell, but agricultural loan demand rose. Falling cattle prices will hurt farm incomes.
* Dallas: Growth is very slow, and the rate of expansion uneven. Businesses say credit is hard to come by; banks say it is available, but standards are tougher.
* San Francisco: Economic weakness continues in the West, though the Mountain States are strong. In Los Angeles, office rents have plummeted, and the downtown vacancy rate may reach 30% in 1992. Home sales rebounded in the first half of 1991 but are now sluggish throughout California and the Pacific Northwest. Nonperforming loans are rising in California.