Beige Book Report: Richmond
January 15, 1975
The latest survey of Fifth District business conditions shows further declines across a broad range of economic activity. Reports from across the District reveal growing unemployment, numerous plant closings, cutbacks in capital investment plans, and widespread weakness in shipments and in the volume of new orders. Survey responses lend little in the way of encouragement, although what optimism there is involves the expectation that inventory runoffs will eventually lead to a resurgence of new orders as inventory levels fall below minimum required levels. While the responses indicate a decline in inventories of materials, finished goods inventory levels remain firm and a majority of the survey respondents view current inventory levels as excessive. In the banking sector, a review of Fifth District banking aggregates for December suggests that the general slowdown in lending activity we observed during the previous two months is continuing.
The survey of District manufacturing firms suggests further declines in most measures of business activity. Over 85 percent of the manufacturers surveyed reported declines in the volume of new orders during December, and a substantial majority indicated lower levels of shipments and of backlogs of orders. In the case of new orders and of backlogs, the declines represent the continuation of trends which originated before midyear. The inventory picture is unclear, although the diffusion of responses suggests some decline in the level of materials inventories but little change in inventories of finished goods. Over 50 percent of respondents consider current inventory levels excessive, while only 3 of 56 respondents described current levels as too low. On a brighter note, for the first time in over a year reports of lower prices received outnumber those of higher prices. On the other hand, over one third of the manufacturers report paying higher prices during December.
The responses concerning employment were indicative of a rapidly growing problem in the District. Almost 58 percent of the manufacturers surveyed reported declines in the number of employees, while 65 percent reported shorter workweeks. The very low level of activity in several of the District's major industries is creating pockets of severe unemployment and pushing state unemployment rates up rapidly. Among the industries experiencing the greatest slowdowns are the textile and furniture groups, each of which represents a significant element of the Fifth District economy. December figures for North Carolina put unemployment in the textile industry, the state's largest, at over 17 percent. Unemployment is rising rapidly across the District, and is reaching into a broader range of industries, impacting heavily on numerous localities. Several cities and counties are experiencing unemployment in excess of 10 percent, and some state rates may now fall in a 6 to 8 percent range.
Almost half of the manufacturers surveyed consider current plant and equipment capacity excessive, but almost 80 percent feel current expansion plans are about right. One major electric utility company in the District announced its second major cutback in construction plans, citing slowing demand for electric power and difficulty in attracting the necessary investment funds.
Our survey of District retailers reveals an increase in the dollar volume of sales over the previous month, but continued weakness in the sale of big-ticket items. Responses indicate little or no change in the retail inventory picture, although 50 percent of the retailers reporting now view current inventory levels as excessive. The responses further indicate that price increases, while less pervasive than in recent months, remain prevalent.
In December the level of seasonally adjusted loans outstanding at District member banks was down significantly from the November level. At the same time, bank investments have been increasing, holdings of United States Government obligations rising by $24.7 million, and holdings of other securities rising by $49.0 million. Thus, seasonally adjusted bank credit at District member banks registered a net decline of $390.3 million during the month. Commercial and industrial loans fell in December, while real estate loans showed signs of recovery, and consumer installment loans continued weak. Member bank borrowings at the Federal Reserve Bank of Richmond have declined for six straight months, and net purchases of Federal funds by District banks declined to the lowest level since June 1973. Sales of large negotiable time certificates of deposit by weekly reporting banks increased sharply in November, while savings flows into savings and loan associations continued.
Farmers' cash income from farm marketings registered during January-October 1974 an 11 percent gain over a year earlier. The upturn was much larger than that recorded nationally and resulted entirely from sharply higher crop receipts. North Carolina's fertilizer industry is among those hit hard by the cutback in the state's supply of natural gas. Because of the gas shortage, one of the largest fertilizer producers in the state has halted production, and several other major industries may be forced to close.