Economic conditions in the Third District continue to show some signs of strength and optimism. Area manufacturers report further pickup in new orders and shipments during February along with added employees on the work rolls. The increased activity is expected to continue at least through the next six months. Plans for capital expenditures are strengthening as well. Bank loan demand remains sluggish but increased activity is expected in the next two months. Retailers find the consumer is still bargain hunting, but they also expect more activity in the near future. Prices in the manufacturing sector seem to be under less pressure and the near-term outlook is for more of the same.

District manufacturers polled in this Bank's monthly business outlook survey reported a continuation of the increased economic activity experienced in January. Over a third of the respondents reported increases in new orders and shipments for February, while more than 13 percent added employees. Also during February, the average employee workweek was increased by 13 percent of the firms. This pickup is expected to accelerate in March. Over 45 percent expect increases in new orders and shipments, and nearly 18 percent plan to add employees.

Moreover, the area manufacturers remain optimistic about the longer run future of the regional economy. Three out of four foresee an increase in general business activity at least through the next six months, and two thirds of the respondents expect new orders and shipments in their own firms to be rising six months from now. An increasing number of area manufacturers also are planning to boost capital outlays. The proportion of firms intending to increase capital expenditures outstrips those planning cutbacks by a margin of over 10 to 1—the highest in over two years.

Encouraging signs are appearing on the price front as well. Over three fourths of the responding manufacturers reported prices were steady during February, and the same number expects them to be unchanged in March. Furthermore, the proportion of manufacturers anticipating price increases for March was about half the level of those that predicted increases for February.

Area bankers report sluggish loan demand but expect at least a seasonal pickup in the next few months. A representative of one large Philadelphia bank noted a decided change in tone among area businessmen. He believes that businessmen are finally convinced the recovery is for real, and he thus expects loan demand will be rising by the end of April. One banker on the board of directors expressed several concerns of small bankers. He noted they are currently worried about declining deposit activity, especially in the wake of deposit rate cuts. In addition, lack of loan demand has caused many small banks to become rather liquid and thus threaten bank profits. As an example, he cited some banks that have 20 percent to 25 percent of their assets in Federal funds.

On the retail front, area business economists report some strength in autos but little encouragement elsewhere. Department store sales have shown little improvement over the last month. One store representative says the consumer is still bargain hunting but reacting to both price and quality. He cited that budget store sales have been in the doldrums for many months. Customers wait for sale prices on regular items rather than settle for budget items. Retailers are expecting some help, however, from the spring weather.
Also, home furnishings are expected to be strong as a result of housing completions in the area.