The latest survey of Fifth District business conditions shows a continuation of the slowing trend noted over the past few months. The diffusion of manufacturing responses indicates a further weakening in new orders, and over one third of the survey respondents now report declines in backlogs. Some apparently involuntary inventory accumulation is continuing, and more than 40 percent of the manufacturing respondents report that inventories are excessive. Retail sales rebounded after a month of little or no change, but sales of big-ticket items remain slow. Expectations patterns among both manufacturers and retailers appear to have taken on a more pessimistic tone in recent weeks. Business loan demand remains strong, but District banks report an increasing selectivity in securing new loan applications. In the agricultural sector, recent rains have resulted in crop improvements, and current crop conditions generally range from fair to good.

As in several previous months, survey responses of manufacturers are weighted toward a reduced volume of new orders, a decline in backlogs, and further inventory accumulation. Growing dissatisfaction with high inventory levels may portend slowing production, if the orders picture does not improve significantly. For the seventh month this year, the diffusion of responses indicates some reduction in weekly hours of work. The continued slack in activity is beginning to register on current expectations patterns of District manufacturers, as increasing numbers of respondents expect business conditions to worsen over the next six months both nationally and in their respective market areas. While one third of those surveyed continue to expect their own production to increase, over one fourth now expect declines. The latter figure represents a significant increase over recent reporting periods.

The outlook for capital investment is somewhat uncertain. While almost one fourth of the manufacturing concerns surveyed consider current plant and equipment capacity inadequate, only 13 percent feel current expansion plans should be enlarged. Four respondents think such plans should be cutback, the first to express such sentiments this year. Aside from our regular survey, two more major utility firms have recently announced cutbacks or delays in expansion plans. This follows two similar actions reported last month. One utility firm announced reductions in planned investment for the next two years and had delayed for one to two years the opening of three facilities. Another major electric utility has deferred $100 million in construction this year. In other industries, however, there were announcements of plans to build several new plants, which will involve substantial new investments over the next three years.

Of the retailers responding to our survey, two thirds reported that sales were up during the month, but an equal number indicated that sales of big-ticket items relative to total sales continued to decline. A majority of respondents indicate no change in inventories and general satisfaction with current inventory levels as well as with the number and size of outlets. Over 80 percent of the respondents in this category anticipate little or no change in the general level of business activity over the next six months.

The uneasy labor situation is currently having some impact on Fifth District business activity. By early August, strikes had closed several plants and idled thousands of workers across the District. Labor disputes are affecting such industries as primary metals, textiles, paper, chemicals, and sheet metal work. One District firm in the primary metals category, closed since July 15, indicates that inventories are at extremely low levels, but it does not expect a rapid pickup after the strike is settled. The major uncertainty in the labor relations area is the situation in the coal industry. As of the present it appears that a major coal strike can be avoided only at the expense of outsized wage and benefit increases with corresponding increases in coal prices. Some West Virginia observers believe that, given the strong demand for coal and the large potential for profits, operators are likely to acquiesce in union demands and avoid a prolonged strike.

The monthly survey of commercial banks indicates that business loan demand continues quite strong, while demand for consumer loans remains flat. Commercial banks are adopting a position of "conscious restraint" with regard to further loan expansion. The source of demand for business loans is reported to be increasingly regional in nature, with national firms playing a diminished role. Local utilities are contributing to this condition by seeking longer term loans with fixed interest costs. Savings flows at both banks and savings and loan associations remain flat, with concern over the recent Treasury issues as a potential drain on savings deposits centered in those cities having a Federal Reserve Bank or Branch. Responding savings and loan associations in those cities report significant deposit losses.

Rains have fallen over most of the District during the past two weeks, alleviating widespread drought conditions. Crops are improving as a result, with current crop conditions generally ranging from fair to good. With the sharp upward revisions in 1973 farm income figures, January-June cash receipts from farm marketings show only a 10 percent increase over a year earlier. Low prices and poor quality offerings have marked this season s early flue-cured tobacco sales. Prices improved significantly last week, however, as growers brought better quality upstalk tobacco to market.